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Nobel Laureate Calls for Global Improvement of Reverse Mortgages

The need for alternative funding sources isn’t only an American retirement imperative, but a global necessity for aging adults who can benefit from using housing wealth to support their longevity, according to one Nobel laureate in Economics.

In a keynote address this month, Dr. Robert C. Merton, distinguished professor of finance at the MIT Sloan School of Management and 1997 Nobel Laureate in Economics, spoke at the the 2016 Retirement Investing Conference in Oxford, England, sponsored by the Journal of Investment Management (JOIM), Oxford University and the EDHEC Risk Institute.

During his speech, Merton encouraged conference participants hailing from the United Kingdom, Asia, South Africa, Australia, Europe and the United States, to engage in product innovation for both annuities and housing wealth as part of a global effort to improve retirement income security throughout the world.

As life expectancies across the globe increase, the conventional retirement planning methods, such as saving more and taking more investment risk, will no longer be scalable solutions to fund longevity.

But while it is difficult to influence savings behavior, Merton asserted that housing wealth could be easily used as an “accumulated asset” for most retirees. In conjunction with a well-designed annuity, he suggested that housing could function in tandem to create a stream of income for life.

Acknowledging that reverse mortgages have an unfortunate reputation in the U.S., Merton mentioned that alternative product names like “equity release” and “home pension” might help improve uptake among consumers.

Shelley Giordano, chair of the Funding Longevity Task Force, was among the attendees at the JOIM event this month. While in the U.K., she met with Nigel Waterson, M.P., of the Equity Release Council, a London-based organization that represents providers, qualified financial advisers, lawyers, intermediaries and surveyors who work in the equity release sector.

“It is exciting to see housing wealth top of mind with leaders throughout the world,” Giordano said. “I was surprised to learn that equity release in the U.K. is originated by financial advisors, given the lack of cooperation with the financial planning community we see in the U.S.”

The JOIM event wasn’t the first time Merton espouses the potential benefits of using housing wealth, particularly reverse mortgages, as part of a much-needed solution for funding retirement.

Last October, the Nobel laureate highlighted the promising future of reverse mortgages during a keynote address delivered at a national conference hosted by BAM Advisor Services in St. Louis.

Written by Jason Oliva