A nationally syndicated PBS personal finance program dedicated a solid chunk of a recent episode to the new academic thinking around reverse mortgages and retirement.
Jamie Hopkins, an associate professor of taxation at the American College of Financial Services in Bryn Mawr, Pa. and a noted proponent of Home Equity Conversion Mortgages, sat down with host Consuelo Mack for a wide-ranging interview on an episode of “WealthTrack.”
Hopkins and fellow guest Steven Earhart of Devon Financial Partners in Wayne, Pa. discussed a variety of retirement options, with a focus on viewing assets as a way to convert income, not a finite amount of money or property to accrue over the course of a lifetime and then spend gradually over retirement.
“We’ve been programmed to think accumulation, accumulation, accumulation,” Earhart said of asset-building. “Now we have to think about it as an income stream. An income stream is going to replace your salary when you step off in retirement. And it’s going to replace it, hopefully, for the rest of your life.”
Earhart and Hopkins notably differed when Mack brought up the potential use of reverse mortgages in retirement planning, with the host offering skepticism of her own.
“Twenty years ago, reverse mortgages — that was the last thing you wanted to do,” Mack said.
Earhart generally agreed, calling them a “last resort” before softening his position.
“Tapping into a reverse mortgage when maybe you don’t have to? I just think that starts a chain of events,” he said, before adding: “If someone’s never going to move, and they absolutely need income, then I think it makes total sense.”
In his counterpoint, Hopkins presents a hypothetical scenario based on the financial crisis of 2008 and 2009: If a recent retiree faced a situation in which an investment portfolio lost 30 to 40 percent of its value, would he or she be better off drawing money from the portfolio, or borrowing against his or her house at a rate of 4% to 5%?
“Actually, that’s a very easy decision,” Hopkins said, advocating for the reverse mortgage line of credit, a point to which Earhart agreed.
He went on to expound on the benefits of setting up a reverse mortgage line of credit early in retirement and tapping into it only when the market goes down, particularly if this occurs during the first three years of retirement — a period that Hopkins identified as particularly dangerous for retirees. He also noted that some seniors use bonds or cash reserves to tide themselves over during dark days early in retirement.
“But this can be another option for that cash-buffer strategy for the first couple years of retirement,” Hopkins said.
Hopkins and Earhart cover other ground during the nearly half-hour episode, including Social Security, annuities, and long-term care insurance. Mack concludes the show with a quick summary that comes out in favor of potentially taking out a HECM line of credit to supplement a diversified retirement porfolio.
“As our guests pointed out, you may want to use other sources of income to avoid drawing down your investments during bear markets,” Mack said.
Written by Alex Spanko