Thanks to various program changes in recent years, reverse mortgages have been winning over everyone from financial advisors to community banks and the mainstream press, and even one nationally recognized personal finance commentator who has recently changed her view on the product.
Few personal finance writers as widely read as Jane Bryant Quinn. For 30 years, she published a biweekly column for Newsweek magazine, and for 27 years she published a twice-weekly column that was syndicated by The Washington Post Writers Group to more than 250 newspapers. Quinn has also written columns for Bloomberg.com and has appeared on nationally-aired TV shows such as “CBS Morning News,” “The Evening News with Dan Rather,” “Good Morning America,” among many other programs. In her current gigs, Quinn contributes a regular column to the AARP monthly Bulletin and blogs on her own website JaneBryantQuinn.com.
Over the course of her illustrious career, Quinn has established herself as one of the nation’s most reliable voices for people trying to manage their money well. But it wasn’t until recently that she shifted her perception of reverse mortgages and the role they can play in retirement planning today.
Now onto her sixth book on personal finance titled “How to Make Your Money Last” (Simon & Schuster), Quinn chatted with RMD to discuss her new book, the biggest challenges retirees face today and the factors contributing to her change of heart on reverse mortgages.
RMD: What spurred you to write “How to Make Your Money Last”?
JBQ: Making your money last is the biggest worry people have. When they are in their pre-retirement years or early retirement years, they say, “How can I be sure not to run out of money?” That’s the thing that has scared them the most.
We are all living to much later ages than we expected and we might not have saved as much as we intended, which is the problem the Baby Boomer generation is facing—partly because of the stock market in 2007-2008, or problems with the economy where they weren’t able to retire as soon as expected.
They [Boomers] are saying, “I have X amount of savings, so how do I invest and parcel out those savings so I can be reasonably sure they can last 30 years?”
What do you hope this new book will accomplish?
JBQ: First, I hope it will help alleviate worries, because if you really don’t know how to parcel out your money in a reasonable way, you’re always going to be afraid you will run out.
My hope with this book is you can figure out what a reasonable lifestyle is—I call that “right-sizing” your life, which is matching your expected income to your expected expenses and seeing how much of your savings you can withdraw every month or every year.
There are two things with this book. The first is the financial part, which is the bedrock on which a comfortable retirement is built. The other is the emotional part.
Let’s say you’re a teacher, lawyer or reporter and then suddenly you don’t have a paycheck anymore. So you not only have to figure out the financial part, but you also have to figure out the emotional part—going from a working person to an engaged private citizen retired. That is something I look ahead for myself. How do you make that transition?
You need a financial base to work from , but you also need to think about what you’re going to do for the rest of your life. “How to Make Your Money Last” also talks about the various ways of addressing that question, because that is a huge question.
Apart from those aspects, what are some other key areas of discussion included in the book? What can readers expect to learn?
JBQ: I cover the kinds of things that people need to know. There is something about the joy and challenge of life after work, and also how do you work out right-sizing your life. Doing these projections is more complicated when you’re retiring than when you are doing a normal working budget, because you have to look at the income you get from investments and savings.
I also cover when to claim Social Security, life insurance, health insurance and annuities. Then there’s retirement savings plans and what you should be doing especially if you’re part-time employed, a freelancer, or a member of the “gig economy.” There’s another section on retirement spending, retirement investing, and what are reasonable withdrawal rates from savings to have your money last 30 years.
I also talk about your home and reverse mortgages.
On the topic of reverse mortgages, how in-depth does “How to Make Your Money Last” cover these products?
JBQ: I am very positive about reverse mortgages, but I wasn’t always. I have taken a new view on them, partly as a result of the new regulations passed last year.
There was an issue with people who took lump sum reverse mortgages later in life; they went through the money, found they couldn’t pay taxes and insurance and faced the risk of losing their homes. By and large, there was an issue for people later in life when they didn’t really understand what they were getting [with a reverse mortgage].
These new regulations, however, which look at people’s income compared with what they will get with a reverse mortgage, are very valuable and they have erased my concerns that there are dangers here for people in their 70s and 80s.
Reverse mortgages have been a controversial topic in the past, with the product suffering from a negative perception. What made you change your mind, so much as to include reverse mortgages into your new book?
JBQ: The fact that older people are now being protected from themselves, or aggressive sales people who might inappropriately tell them to take out a lump sum when they’re 80, only to find out they ran through the money and are now stuck—that should not happen any more with these rules.
There has also been a sort of discovery among financial advisers using the [reverse mortgage] line of credit. It’s a wonderful hedge against inflation to give yourself future borrowing power.
If you take a reverse mortgage credit line at age 62, you could probably increase the withdrawal rate from your savings [above the classic 4% rule] because now you have one more pool of money from which you can draw from. If the market is bad, you can draw money from the credit line. This can help you increase your income in retirement from your savings and investments.
But I caution, [reverse mortgages] are only for people who intend to stay in their homes for 15-20 years, because you have to amortize those upfront costs. If you are settled in your house, want to stay there and increase your annual income, you can do that with a reverse mortgage credit line.
In your opinion, what do you view are some of the biggest hurdles or challenges facing retirees today?
JBQ: Saving money. This is particularly true with people who don’t work for companies that have 401(k) or 403(b) plans. People who tend to retire with sufficient savings are those who have company plans where money automatically comes out of their paychecks. Those are the people most likely to acquire decent retirement savings.
The other half—and it is roughly half—are people who work for employers who don’t have retirement plans, or are freelancers working in the “gig economy.” They have much more trouble saving because it’s not automatic. There’s no easy way to have money slipped out of their paycheck and set aside for them every time it comes. They are living paycheck to paycheck, but they’re spending everything.
For the average person who’s working freelance, or working where there isn’t a 401(k) plan, they can start an IRA. However, to make it saving automatic, they need to have money taken out of their bank account every month. People who are living paycheck to paycheck might be afraid to do that.
It’s one of the great virtues of our Social Security system; that if you pay taxes, you’re automatically getting a retirement plan. The same is true for people signed up for 401(k)s. But people who don’t have those employers are stuck and it’s a disgrace that how much you can save depends on where you work and not who you are.
So how does home equity fit into the equation? Home equity has long-held this reputation of being a “sacred cow,” but will it become a vital component of retirement planning for more retirees today and in the future?
JBQ: Now that there’s been a big loss of home equity and it’s on the rise again, people might be taking a different view of it because they don’t expect home equity to rise rapidly. On the whole, I think people have just gotten over the idea that their home equity will go up by large amounts, so they’ll be more inclined to treat it more sacredly than they did in the past.
I’m in favor of paying off the house before you retire. I think it’s a very valuable thing. If you don’t have mortgage expenses when you retire, that is a huge plus going ahead.
Written by Jason Oliva