Covid 19 has triggered a retirement rethink

covid-19 retirement planning

Forbes: Covid-19 has shifted retirement preparedness

Nothing has so rapidly and dramatically transformed our social interactions, government, and business practices than the Covid-19 pandemic.

However, one impact that receives less attention in the media is the transformative effect on retirement. For that, we turn to a recent column in Forbes which reveals the ways Covid-19 has triggered a retirement rethink. Something reverse mortgage professionals like yourself will benefit in knowing.

First, a paradox.

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1 comment

The Skeptic April 26, 2021 at 11:58 am

In a fictional story of paradise on earth, buried high in a Tibetan valley in the Himalayas is Shambala, also referred to as Shangri-La. We read it even though we do not believe it due to its ability to entertain and take us away from our daily life. Our fixation on such a place is fragile at best.

When first reading an article claiming to reverse conventional wisdom back in 2012, it reminded me of Shambala. That was further strengthened when examining the example that was released in 2016 providing a tale of two HECMs and what a fiction that article was. According to the tale of two HECMs, HECMs were available in 1973 and the APR back then including upfront costs and ongoing MIP was just 5%. With the Vietnam War going on and no substantial discussion of the idea of a HECM occurring until the mid 1980s, the tale was Shambala at its best.

Just like Tibet and the Himalayas are real so is the risk related to potential loss from the sequence of portfolio returns in the distribution phase of portfolio holdings; however, it is as also real in the contribution phase which far too many either ignore or irrationally refute by justification of words but without mathematical demonstration. These arguers do not seem bothered that there is no mathematical foundation for their conclusions.

Recently, Harold Evensky, CFP and the Morningstar’s “Dean of Financial Planning” stated that the returns for most investors on their portfolios is a lowly 0.5% – 2%. The tale of two HECMs pretends that the returns for its two investors is over 8%, net of advisor fees. Picking one’s numbers out of any historical period creates interesting fiction when compared to a much harder, current reality.

Our foundation for persuading financial advisors and savvy investing seniors is based on quicksand, not the granite so many sell. If the strategy is so real, let us see how it works in todays situation using annual portfolios of 3%. I doubt if the industry would be so willing to promote portfolio returns (net of advisor fees) exciting even 5%. HECM borrowers do not come from the ultra wealthy in our country. That is a valley too far and without solid foundation in evidence.


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