Last year’s program overhaul and newer research are helping reverse mortgages overcome stigmas of the past and become widely viewed as effective financial tools when planning for longevity, Bloomberg reports.
This combination of factors have transformed the perception of reverse mortgages from a “pariah in financial planning circles” and tools of last resort, to viable strategies for retirement planning, the article writes.
Recent studies on reverse mortgages have boosted their reputation in long-term financial planning, such as those conducted by John Salter, a Texas Tech University professor, CFP and occasional reverse mortgage researcher.
Using what they dubbed as a “standby reverse mortgage” strategy, Salter and his colleagues revealed that the use of a reverse mortgage can improve the chances of financial sustainability of up to 30 years when based on simulated retirement portfolios.
In a “falling market,” the standby reverse mortgage was tapped rather than the individual’s portfolio, with the retiree repaying the money when the market recovers.
Under this strategy, which is based on a home valued at $250,000 and supports a 5% withdrawal rate, there is a 90% profitability of the money lasting 30 years, according to Salter.
The article also touched on recent research from Ibis Software CEO Jerry Wagner, which introduced the “6% rule” when outlining the spending success of reverse mortgages.
Read more at Bloomberg.
Written by Jason Oliva