CBS News: DIY Retirement Planning Makes Room for Reverse Mortgages

As many people grapple with how they’ll prepare for their non-working years, some may be forced to take on a “do-it-yourself” approach to diversify their assets, and that could mean incorporating a reverse mortgage into their retirement plans, suggests a recent article from CBS News Money Watch.

In the second of a two-part article series, CBS News highlights a recent study conducted in collaboration between the Stanford Center on Longevity (SCL) and the Society of Actuaries (SOA). The study consists of four papers that identify retirement income solutions to be used by retirement advisers and consultants.

Drawing from the study, the CBS News article highlights various retirement income generators (RIGs) that can help people meet common retirement income planning goals. These include Social Security, investing in a systematic withdrawal plan (SWP), investing for income, annuities, working longer, utilizing rental property and reverse mortgages. 

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A table in the article scores each of these RIGs with a simple Yes or No according to several criteria, including the potential to outlive certain assets, maximize income, access to savings, growth potential, downside protection, potential for legacy and ease of use.

While no single RIG scored Yes to every category, reverse mortgages received Yesses for growth potential, downside protection, potential for legacy, as well as a Yes in the “can’t outlive” category.

“It’s important to point out that no single RIG that has ‘yes’ answers to every possible goal,” writes Steve Vernon, research scholar for the Stanford Center on Longevity, who also co-authored the report and wrote the CBS Money Watch article. “Also, the ‘yes’ and ‘no’ answers for some RIGs tend to complement each other, which is one reason to diversify your retirement income to satisfy your unique goals and circumstances.”

Commenting on reverse mortgages specifically, Vernon notes “people with low savings in 401(k) and IRAs but substantial home equity might explore a reverse mortgage to boost their retirement income.”

The SCL/SOA study shows how retirees can quantify the trade-off between various retirement goals and RIGs, though it does not analyze working, rental income or reverse mortgages.

Read the CBS News Money Watch article.

Written by Jason Oliva

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  • To say the following shows a greatly misunderstood aspect of reverse mortgages: “Reverse mortgages have a potential for a legacy only to the extent that the value of the house exceeds the loan value when the home is eventually sold.”

    A reverse mortgage is a loan. The home is an asset. The only way the two are linked is through the home as collateral. The loan can be paid off by any asset which can be converted into cash. A reverse mortgage is not a retirement income generating legacy asset. As a mortgage, it can be a source of cash inflow over the life of the loan but only to a borrower.

    What the article shows is that although the financial advising community is warming up to the idea of using reverse mortgages, too many are trying to make a loan fit into the category of an asset which a reverse mortgage is not.

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