Retirement planning generally involves the balancing of potential risks to achieve the best outcome for a client. Over at The Retirement Cafe, blogger Dirk Cotton sees nearly 30 of them to consider, including both forward and reverse mortgage issues.
Cotton identifies “housing problem risk” — including rises in mortgage payments, refinancing problems, property taxes, and foreclosure threats — as one of five major contributors to senior bankruptcy, with a caveat that it applies to both forward and reverse loans.
The other four “major causes of elder bankruptcy” consist of retirement problems that should ring a bell with Home Equity Conversion Mortgage professionals: health expenses, loss of income, high debt service on credit cards resulting from poor budgeting, and what Cotton calls “interconnected loss risk,” or the idea that one retirement issue can compound another.
“It is less likely that a household’s ruin will result from a single risk on this list than to multiple risks,” Cotton writes. “These losses might occur simultaneously and be unrelated, but it is more likely that one will cause another, which may cause even more.”
Cotton adapted the top five reasons from a 2010 study by Deborah Thorne from https://oinkmoney.com, which found older people filing for bankruptcy because of credit card interest, medical expenses, disruptions in income, debt collection, and housing issues. But Cotton notes that respondents frequently named more than just one reason they were forced into bankruptcy, while a handful named all five of the top reasons.
“For some households, foreclosure and market losses might have also led to unemployment and income loss for workers in these fields,” Cotton writes, using the 2007-2009 housing crisis and recession as an example of cascading problems. “The struggling household, in turn, might have increased credit card debt as the last remaining financial option, creating a row of dominoes that tumbled into ruin.”
Check out Cotton’s full post, along with a printable worksheet of retirement risks, at The Retirement Cafe.
Written by Alex Spanko