Crossroads of Reverse Mortgages and Retirement Create New Complexities

As retirees age, there comes a point when financial advising, tax planning and saving for retirement all come to a head, requiring in some situations a team approach when something as complex as reverse mortgages get thrown into the mix, according to a recent article from Investment News.

Reverse mortgages, while they have been gaining more attention from financial planners lately for their ability to help increase the spending horizon of a person’s retirement portfolio, may also be able to help high-income retirees reduce their exposure to new Medicare surcharges, according to a recent IN article written by Katy Votava, Ph.D., RN and president of, a consulting service that works with financial advisers and consumers on health care coverage.

While reverse mortgages are just one of several methods that can provide tax-free liquidity and cash flow to retirees, not everyone has warmed up to the idea of tapping into their home equity, especially among advisers.


“One of the most persistent misunderstandings surrounding reverse mortgages is fear,” writes Votava in an IN article this week. “As one adviser put it, how do we ‘deal with the feat that the reverse mortgage companies are going to take advantage of the homeowner?'”

Since 2013, reverse mortgages have undergone several key product changes that have increased borrower protections while also strengthening the sustainability of the Federal Housing Administration’s Home Equity Conversion Mortgage (HECM) program.

“While this is all well and good, it still begs the question of what is the advisers’ role when considering including a reverse mortgage, or any other strategy to reduce high-income retirees’ exposure to Medicare surcharges,” Votava writes.

Because certain high-income clients might have widely complex circumstances, perhaps even beyond the assistance of a HECM counselor, Votava suggests that a team-based approach with multiple disciplines may be able to help retirees find the right decumulation strategy.

“It is clear that there is a critical nexus between financial advising, tax planning and health care planning that is more and more important in today’s world,” Votava writes. “This is similarly true with other methods of diminishing income-related Medicare surcharges, such as ROTH conversions as well as certain kinds of life insurance and annuities. Each person’s financial, tax and health care forecast can vary widely well into retirement. There is no simple rule of thumb to rely on.”

Read the Investment News article.

Written by Jason Oliva

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  • “As one adviser put it, how do we ‘deal with the fear that the reverse mortgage companies are going to take advantage of the homeowner?’”
    Funny thing is when advising people to speak with a financial planner they’re usual response is “how do I know they’re not going to take advantage of me and give me a high commission product that’s not in my best interest”

    • Mr. Green,

      You make an excellent point. This is a real problem for consumers, advisers who buy on the behalf of their clients based on the acquirers recommendation.

      CFPs are currently trying to find a way to segregate those who charge fees for advising from those who retain commissions on their own recommendations.

  • Overall the post is a good summary of the article, although there were some interesting statements that were not picked up.

    For example, Dr. Pfau states: “’The reverse-mortgage option should be viewed as a method for responsible retirees to create liquidity from an otherwise illiquid asset, which in turn can create new options that potentially support a more efficient retirement income strategy….’”

    Many readers are expecting some kind of rebuke to the last clause. To state that a HECM can potentially be used to “support a more efficient retirement income strategy” is in every way correct. Buried in the quotation is the idea that HECM proceeds are not some ridiculous form of income but rather that these proceeds can potentially be used to “support” an income strategy. That statement is very true.

    What we need to realize and train financial advisers to see is that HECMs produce cash flow and that cash flow can be utilized in any way which enhances the overall financial situation of the borrower including but not limited to, supporting a more efficient income strategy.

    If one carefully considers the difference between income and cash flow, the prudent use of HECM proceeds becomes much clearer and easier to understand. It is due to this lack of such careful consideration that we saw some of the worst abuses of HECMs by originators particularly when it came to fixed rate Standards. It is sad that the industry refused fiduciary responsibility over higher commission income but that was a huge problem three years ago. Yes, seniors wanted the most proceeds and like fixed rate over adjustable rate but many originators refused to present an adjustable rate alternative or demonstrate the negative aspects of the full draw of a fixed rate product to their customers. Even some of those same originators attacked those of us who were calling for more prudent approaches as steering seniors when in fact we gained no monetary or other financial benefit from encouraging seniors to look at HECM alternative choices; instead these abusive originators caused FHA to eliminate (not suspend) fixed rate Standards.

  • The article Jason wrote is very good. In the same breath, I revert back to Jim Veale’s comment as well as Bob green’s, both were very good. Jim went into great detail with great examples.


    ” “As one adviser put it, how do we ‘deal with the fear that the reverse mortgage companies are going to take advantage of the homeowner?’”

    First off, in most cases it is not the company that takes advantage of the senior homeowner, it is the loan officer. Many times it is not an intended act to take advantage of the home owner bur rather giving wrong advise because of his or her lack of knowledge. In other cases, it is pure greed on the part of the loan officer!

    The financial planning and advisor industry is coming around and realizing the reverse mortgage can be a great retirement tool for their senior home owner clients.

    Right off the bat, in order for the financial advisor to want to team up with you and their client, they have to be able to trust you! It is great if the financial advisor knows you personally, the trust factor should not be an issue. However, if you are calling and talking to a financial advisor for the first time, you have the job of getting the financial planner to trust you and your product, how do I do that, right?

    It is not Rocket Science, you have to know your product inside and out, you need to be current with every regulation governing our industry, you must be knowledgeable before anything else!

    Once you have that behind you, now you are and have what we call, confidence. Then you need to realize, just like with your senior clients, patients is a must. Go in with good literature on how the reverse mortgage is a great retiring planning tool, especially for those that are in the tax brackets where they need tax free returns and solutions.

    Don’t expect to close an on going relationship with that financial advisor on your first call. He or she needs to build a trusting feeling in you, he or she will want to make sure you have the knowledge before they expose you to their senior client.

    You can also expect that financial planner or advisor to check you out, your company and if what facts you are presenting are factual so be prepared and you will be able to build a good bank of financial planners and advisors to work with. What is great about dealing with these professionals is that their clients usually have high priced homes and facing FA eligibility is usually never a problem!!

    John A. Smaldone

    • Hey John,

      Respectfully I disagree about the lender not being a significant source of greed. In the fixed rate Standard era which ended almost three years ago, there was wide spread reporting of TPOs in particular who only offered fixed rate Standards. Many of these TPOs complained that the compensation on adjustable rate HECMs (particularly Savers) was too meager for their business model; so somehow putting the interests of their customers above their own was not evident even in their originators advising on choosing between adjustable, fixed, and Standard or Saver. Yet somehow in someway their supervising FHA approved lenders made little and generally no attempt to curtail such practices. Of course, you are right about the problem with some originators.

      John, your comment about financial advisers left out two key issues. First is whether the adviser is permitted to address the topic of reverse mortgages with their clients due to the position of their compliance department. The other is getting past their gatekeepers.

      There is no simple resolution to the compliance department issue. Even the major lenders currently are at a loss on how to overcome those objections.

      As to doorkeepers, most of us realize there are excellent ones and there are less effective ones. There may be ways of getting around them but most of the time that requires going to the association meetings to which they belong. So the more you do online research and telephone inquiry on the adviser the more you will find ways to meet that individual outside of their work environment.

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