How Reverse Mortgages Fit Into Modern-day Retirement Planning

Retirement security in the 21st century means working longer, saving more and considering alternative financial products like reverse mortgages — even if it means potentially passing on fewer assets to heirs. 

Such are the recommendations of longtime retirement researcher, top economist and former official in the Clinton administration Alicia Munnell, whose 23rd book “Falling Short: The Coming Retirement Crisis and What to Do About It” will be released Dec. 12. 

Munnell, director of Boston College’s Center for Retirement Research, concludes in the book — co-authored by Charles Ellis, an investment specialist, and Andrew Eschtruth, associate director of the research center — that the golden age of retirement is over and Americans must adjust their practices and expectations, writes the Boston Globe in a recent article

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The book serves as a clarion call for new thinking and policies on retirement, including making it easier for workers to save, shoring up Social Security and considering unconventional financial products such as reverse mortgages.

Munnell, who has advocated for reverse mortgages for several years and is an investor in reverse mortgage lender Longbridge Financial, says using the product would allow seniors to take equity from their homes to pay for retirement. 

And for retirees who have enough savings to cover homeowners’ insurance premiums and property taxes, reverse mortgages may be a good option, she said.

But Jack VanDerhei, research director at the Employee Benefit Research Institute, a think tank in Washington, said Munnell’s book doesn’t thoroughly consider the most appropriate steps for people based on their income and how long they might live.

For example, the costs of retirement are so high that reverse mortgages don’t always make a significant difference, he said. The number of middle income retirees who will avoid running short of money increases by just 6% to 8% by tapping home equity, according to the institute.

To read the full article, click here

Written by Emily Study

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  • We need to hear what Jack VanDerhei is saying. If his numbers are right, then we need to know how to identify that small but very significant percentage because those who COULD end up in that classification is in all likelihood much bigger. These are not the needs based seniors we traditionally view as originating HECMs but rather those WE have traditionally written off because they looked like they were (and believed themselves to be) fully prepared for their latter years.

    What Jack advocates is an important area which should not be so void of up-to-date analysis. Remember that although what Jack is presenting is a rather insignificant segment of seniors, it is those seniors who will entirely avoid running out of money in their latter years unless they get a reverse mortgage. We may grouse that the percentage of seniors Jack points to seems far too small yet if 5% to 6% of all seniors (not just those who are eligible for reverse mortgages) had reverse mortgages that would mean we would have had a much, much higher penetration of the senior market in the last 26 fiscal years. And yet is that the entire percentage of seniors who should have reverse mortgages in their early senior years?

    If Jack’s percentages are correct, imagine how many seniors within a limited range would obtain reverse mortgages to insure they do not end up discovering their need for a reverse mortgage at some point when acquisition is significantly less than optimal. It could easily be several times the number Jack indicates.

    Yet we find the industry trapped in the past with significant numbers of originators and, unacceptably, lenders still focused on lost units due to the draconian regulations taking effect in September 2013 which drastically shrank the revenue per HECM and contributed to continued downturn in HECM endorsements.

    While I do not believe that the book by Alicia damages the reverse mortgage industry, neither does it enhance it. I was reading a NRMLA newsletter the other day from 2002. You would not believe what Peter Bell looked like but it was Sarah Hulbert said which was very insightful. In stating how seniors use HECM proceeds she states as the last item, “financial planning.” So what Alicia writes is at least a decade old and most likely well over two decades old.

    Let us hope that the industry underwrites what Jack advocates.

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