With bond yields remaining low, an increasing number of retirees and the financial planners who advise them are accelerating their search for stable cash flow sources that may be more reliable than yields from investments, which can be prone to the stock market’s volatility. This is according to a story published this week by ThinkAdvisor.
Specifically mentioned as a potential source for this more stable source of cash is home equity through the use of a reverse mortgage, alongside other financial instruments including annuities, pensions and the most traditional source of retirement income, Social Security benefits.
“A recent survey found that 78% of advisors reported that predictable income is more important to clients than asset growth,” the story reads. “Although the study is from DPL [Financial Partners], an annuity platform, the company isn’t alone in seeing a rise in the pursuit for guaranteed income as bond yields have dropped.”
DPL CEO David Lau previously told the outlet that financial planners are increasingly excluding bonds from total assets as a portion of the 1% fee customarily charged for assets under management since returns on bonds generally remain low.
“Further, BlackRock, the largest asset manager in the world, recently announced it was adding annuity options with its new target date retirement product for 401K plans that will provide workers a stream of payments through their lives,” the story reads.
The story specifically calls out five potential methods other than bond yields as potential sources of retirement cash flow: Social Security; pensions (called “a dying breed”); annuities; life insurance; and lumped together in the last spot are “home equity/reverse mortgages.”
“[A reverse mortgage is] not guaranteed income for life, but as an individual remains in the home and continues with upkeep, they can live there for life,” the story says.
In his book “Retirement Game-Changers,” Stanford Center on Longevity researcher Steve Vernon named four key “paychecks” that retirees can set up for lifetime funding: Social Security benefits; an employer pension plan; a low-cost payout annuity; and a monthly tenure payment from a reverse mortgage.
In a 2019 interview, Steve Vernon told RMD that while he has issues with the general cost of a reverse mortgage in comparison with other options available to retirees, dismissing the product category out of hand may be unwise particularly if that high upfront cost may be worth paying for someone determined to stay in their home.
“I do want to educate people to dispel the myths that are out there, and then just consider the real factors [about] whether [a reverse mortgage] will work for you or not,” he told RMD at the time. “There are people who dismiss them out of hand, and then there are people who think they’re the greatest thing since sliced bread. For me, it’s in-between those two.”
Read the story at ThinkAdvisor.