Can Reverse Mortgages Replace Pensions?

Retirement income has long been characterized as having three legs: Social Security, personal savings and a pension. But now that pensions have become phased out by many employers over the years, it is possible that reverse mortgages may assume this vanishing leg of the retirement stool, suggests a recent article.

Since employers have moved away from offering defined benefit pension plans, instead now offering defined contribution plans, where employees contribute from their own salaries, the traditional three-legged retirement stool is in danger of losing a much-needed support.

“Maybe not when seniors decide to tap the equity in their home with a reverse mortgage,” writes contributor Dr. Don Taylor. “They aren’t for everyone, but it’s my expectation that they will become increasingly important as a source of retirement income to seniors over time. Reverse mortgages may become the 3rd leg of the stool.”


Because reverse mortgages may not be a good fit for everyone’s individual retirement plan, retirees must also consider a variety of important factors, including how long they can postpone Social Security draws, and how their personal savings can bolster, if not complement, the other leg’s of the retirement stool.

Read the full article.

Written by Jason Oliva

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  • Personal savings are not income nor are they retirement income; they are assets available for current and future decumulation. The stool being discussed is not retirement income but rather retirement cash inflow. Personal savings grow through interest.

    A pension is not just a defined benefit plan but it includes several types of defined contribution plans even though the distributions are limited to the funds allocated to the participants’ accounts and their related earnings. Not all defined benefit plans are gone but there are very few in the private sector. The number of public sector defined benefit plans have been reduced but many are still in place.

    Many seniors who are middle income individuals receive over $80,000 in annual cash inflow from the three sources mentioned above. We also have seniors receiving about 90% of their retirement cash inflow from Social Security alone. HECMs would definitely help the latter group but the question is will they pass financial assessment? In most cases the first group will in all likelihood pass financial assessment unless a significant portion of the $80,000 comes from loans, gifts, or other sources FHA will not treat as cash flow from an acceptable source for financial assessment purposes.

    While the nation needs to evaluate reverse mortgages, it is not the time to abandon pensions. This is a national issue and decades ago, socially responsible business leaders looked into how they should care for their employees and pensions along with an array of additional benefits including eye care, dental, medical, and life insurance were adopted. Unfortunately, in the last three decades many employees falsely assumed that if they had defined contribution plans they personally could capture the gains on the assets being accumulated in defined benefit plans into their defined contribution accounts. The myopic insight used in reaching this conclusion has now been seen to be one of the worst changes in employee compensation, ever pursued by so many US employees.

    Reverse mortgages cannot replace pensions nor should they. We need a return to responsible social enlightenment from people like Mr. Bill Gates, Mr. Warren Buffett, the Koch brothers, Mr. Larry Ellison, Mr. Jeff Bezos, Mr. Jim Walton, Mr. Mark Zuckerberg, and so many others. It is this lack of care for employees that is a driver behind the division between “the haves and have nots.”

    Replacing pensions with reverse mortgages is reckless. While reverse mortgages may help alleviate the loss in cash flow from pensions to retired beneficiaries, American workers need pensions.

  • There is no way that reverse mortgages can or should replace pensions. Pensions have everything to do with working for an employer and reverse mortgages have to do with home ownership and low lien amounts.

    In an age where there is a strong recognition that the rich are getting richer and the poor poorer, employers need to drive retirement income to their employees through a low risk vehicle such as a defined benefit plan. Employers need to adjust their greed and that of their equity ownership to help them see that employees need to be able to have a good retirement.

    I am neither Bernie Sanders nor Donald J. Trump. This is nothing more than a fair and reasonable comp plan to provide what employees need and when they need it.

    • I don’t see the Author’s attempt to make that assertion. He did say that the DB pension is generally disappeared (for the Private sector with few exceptions); and for good reason-A DB plan is neither easy or low cost; there are several moving parts based upon assumed rates of (conservative or aggressive) interest and inflation. Only Public employee’s are awarded the DB plans because of public largess and cooperation with labor unions.
      Private DB plans are historically underfunded with PBGT stamped all over them (at our expense).
      I’ve been in the asset management and estate planning element of this for over 33 years, and I can attest to the existence of many, many more Defined Contribution (DC) workers who have under $100k than those who are over $100k.
      To this regard, and (I believe the Author’s intent) adding an additional tax free non-recourse sum of equity/income that may range from $400-$1,200 is a substantial benefit. ESPECIALLY when one considers the fact that this sum does not “reduce by 50%” at the death of the Employee, and is NOT subject to the Medicaid spend down provision.

      • Dan,

        Please read the title to the article. “Can reverse mortgages replace pensions?” Even your last paragraph addresses the topic. So it is odd that you state “I don’t see the Author’s attempt to make that assertion.”

        In your last paragraph, what is the sum that is subject to a 50% reduction? You call that a fact. So please explain which cash flow source is cut 50% and what causes that 50% reduction?

        Also the author never clarified that the DB plans he referenced as disappearing were those in the private sector. James did that in his comment above.

        As to more defined contribution plan beneficiaries having less than $100K in vested benefits, most of us are already more than aware of that premise.

        So was the point of your comment that HECMs can provide $400 to $1,200 per month which will not be reduced even in the case of the death of a spouse? It is funny that more HECM debaters use tenure or term payout examples than tenure or term payouts have ever been elected by HECM borrowers.

        But if your assertion about no reduction is about spouses you are terribly wrong!! It all depends if both spouses are borrowers and if not, which spouse passed away. No non-borrowing spouse, qualified or not, is eligible for any proceeds from a HECM after the borrowing spouse passes away.

        So I have no idea what the point of your comment was.

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