‘Great’ Financial Planners Must Consider Reverse Mortgage Strategies

A competent financial adviser should be able to assist clients with an array of essential investment services that fit their particular needs. And this includes evaluating the potential use of reverse mortgages to produce retirement income, says one financial planning professional.

People enlist the services of a financial planner to effectively prepare themselves for the future, especially in retirement. Planners, however, have different strategies for helping clients maximize their savings. Depending on their focus, planners could be “short changing” clients if they don’t consider a variety of strategies that could potentially meet their clients’ needs, according to a MarketWatch article written by Kenn Tacchino, professor of taxation and financial planning at Widener University in Chester, Pa., and editor of the Journal of Financial Service Professionals.

“The common perception is that financial planning for retirement is about creating investment strategies and maximizing returns,” writes Tacchino, who is also editor of the Journal of Financial Service Professionals. “To be sure this is a big part of it, but if your planner only focuses on your portfolio they are short changing you regarding a variety of essential services you are likely to need.”


Calculating how much savings a client needs, assessing the best age to claim Social Security and diagnosing a client’s optimal retirement age are just a few run-of-the-mill services an advisor should be able to provide, according to the article.

Planners should also be able to determine the best strategy for turning retirement assets into retirement income, and this includes evaluating how to use the house as a financial asset.

“For many middle-class Americans, the home represents their single greatest financial asset,” Tacchino writes. “A good planner should be able to decide if a reverse mortgage is a good fit for your situation. A great planner should know about how the standby reverse mortgage strategy can be used to extend the time you will have usable financial assets in retirement or whether a sale-leaseback is a strategy you should consider.”

Read the MarketWatch article.

Written by Jason Oliva

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  • Too many financial academicians who are not in practice seem to lose touch with the difference between income planning and cash flow planning. While they have many similarities, they also have many significant differences. When an asset like a growth stock is liquidated, it is not changed into income but into cash. In most conversions into cash like a sale, part of that cash is return of the capital (used to acquire the asset) and any amount beyond that is gain. If the cash is less than a total return of capital, then the difference is loss (not negative income).

    Financial terminology is not all that difficult and those who teach about it should be accountable for using it correctly.

    So while the good professor correctly makes the case about the need for evaluating the use of the home in a retirement plan it is not for the purpose of turning it into retirement income but retirement cash inflow.

  • Cynic,
    You make a valid point but the question is…why???Funds from a reverse mortgage are not “retirement income” they are “retirement cash flow.”
    Just who do you serve by making this distinction?
    The truth of the matter is, by literal definition, income is defined as “proceeds coming into a household on a regular basis.”

    So whether you and Jim Veale believe it or not, funds derived from a reverse mortgage on a monthly basis truly are TAX FREE RETIRMEMENT INCOME!
    This was a great article Jason!

    • Mr. Banner,

      By bringing up my name you seem to be fighting the wind. You bring up a definition for income that not even Google recognizes.

      As CPAs among the three distinct financial statements we report on is an income statement and another, a statement of cash flows. Most business executives realize the difference between cash and income. Apparently you refuse that distinction.

      If you are lost on this matter, you might seek the help of the CPA firm you use to work on your business’s financial statements.

      As to the proceeds of a non-recourse mortgage being tax free or not, such determination can only be made when the mortgage terminates. Again your business tax professional can help you reach a level of understanding on the topic or try reading 2015 IRS Publication 4681 which is available online.

      • Sooo…. you’re saying that loan proceeds are taxable? That’s rich… Pun intended! LOL The fact remains that reverse mortgage loan proceeds are tax free during the time period of the utilization of the borrowed funds. The only way I could imagine that the proceeds from a reverse mortgage MIGHT become taxable is if the property value appreciated enough at the time that the loan terminates to outpace the amount of funds borrowed combined with the amount of interest charged during the course of the loan. A HIGHLY unlikely scenario even in the fast paced world of a CPA. IF that were to ever happen I would expect that the borrower or the borrower’s heirs would be ecstatic to have whatever tax burden might have accrued. Just sayin…

      • Prospec,

        There is no tax event when a non-recourse mortgage terminates UNLESS some portion of the balance due is not paid by the borrower. If the title to the collateral is not transferred in a taxable transaction as part of the termination of the mortgage, there may be a way to defer the recognition of the amount of the debt foregone by the lender. If title to the collateral is in fact transferred in an otherwise taxable transaction, any debt foregone is treated as additional proceeds received as part of the taxable transaction.

        On a HECM in particular, some or all of the gain on a taxable transfer of the collateral may be eligible for exclusion of recognition under the exclusion of gain on the sale of a principal residence. Otherwise the increased gain or reduced loss must be recognized under the IRC section that applies to the type of taxable transaction.

    • Michael,

      First off Jason did do a nice job with the article. He got his facts right.

      Second so that I don’t waste my time, what are you allegedly quoting? Please cite your source.

      Finally, your comment is so out there, it is not worth addressing. I hate seeing you going off the deep end like this. If your comment reflects what you think financial education should be, we live in a free country but let us just say we disagree.

    • Hey Mike,

      You might try getting your quotes correct. The_Cynic never said “retirement cash flow” but rather more specifically “retirement cash inflow.” You seem lost in terminology.

      We need to create a core of originators who actually are well versed in basic financial terms who can competently go out and make the case for the use of HECMs throughout retirement through maximizing the use of the adjustable rate HECM line of credit.

      Training by those who are less than articulate and somewhat exacting when it comes to even basic financial terminology leads to a core of originators who stumble over such terms and look less than competent when making presentations highly dependent on using correct financial terminology.

      Sometimes I am not sure what The_Cynic is driving at. When it comes to planning, it is quite understandable why she wants to distinguish between income and cash flow. When it comes to things like annuities, stock sale proceeds, gifts, inheritance, bond payoffs, and cash proceeds which are not income or only part income, cash flow and income planning look very different.

      So while at times like you I question the motives of The_Cynic, generally his (her?) corrections are right. I have read the “debates” between you and Jim Veale but I was surprised when you brought him up by name into a “critique” on The_Cynic.

    • Michael,

      First off Jason did do a nice job with the article.

      Second, what is the source of your definition of income are you quoting? Please cite your source.

      Your definition of income requires that the proceeds are “‘coming into a household on a REGULAR basis.'”(Emphasis added.) This certainly is not a modern definition of income.

      Yet HECM proceeds do not come into the household on a regular basis unless the borrower elects tenure or term payouts but since only a small percentage of borrowers ever elect these methods of payouts they are the exception rather than the rule. So by your own definition, how are HECM proceeds income?

      I serve consumers by limiting confusing concepts describing HECM proceeds. And whom are your serving by calling HECM proceeds income?

  • I have to side with the Cynic on this one. If you look up a definition of “income”, you find something akin to the following:

    “1.The flow of cash or cash-equivalents received from work (wage or salary), capital (interest or profit), or land (rent).”

    The definition does NOT encompass loan proceeds, i.e. borrowed funds, which is what HECM loan proceeds are. The distinction is an important one to make because loan proceeds and the interest they accrue deplete one’s assets (home equity), and the use of the term “income” may mask this fact to less sophisticated borrowers.

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