Where traditional retirement planning falls short
It’s easy to cast stones but to be fair retirement planning while common is perhaps one of the most challenging services provided by financial professionals. Here’s what two experts have to say…
While cash flow based planning and analysis is not the easiest of the three software types to do retirement planning, it is the most comprehensive and holistic. For example, the best real estate partnership I have been involved in is one where the partnership experienced tax and accounting losses due to depreciation and amortization but had substantial annual cash distributions due to strategic cash out borrowing at relatively low interest rates. While the tax loss provided additional cash flow, it was the annual cash distributions that made this partnership interest so valuable.
Since reverse mortgages were designed to increase liquidity in retirement, it would seem that of the three planning softwares, the cash flow software would be most ideal to incorporate both housing wealth and reverse mortgages into.
It is interesting to see Michael Kitces once again speaking out on reverse mortgages.
According to this cnbc survey 99% of people do their own financial planning. In fact it has been estimated that less than 15% of wage earners could even use a planner. So why this push for financial planners? Some Studies show that Mr. Anybody manages their money as well as a financial planner. Many times an individual does better. I am told that 80% of so called financial planners take their fees if their client makes or loses money.. HECM originators as a rule don’t get paid if their loan can not be written. Unlike most in the financial planning world, HECM originators have to produce both good times and bad providing tangible cash benefits to their client’s and the elder society as a whole. If the future of HECM lending is tied to that of Financial Planners what future do we have really?
I see the option to “move down” as part of retirement planning all the time. For most people in my part of the country, moving down may mean moving to a smaller home without saving significant money. A Realtor told me more than 20 years ago that to save money, the person must move to a house that’s at least 1/3 less expensive. with no increase in HOA fees. If the move is house to condo, the drop must be more. In my area, the only way for most people to do this is to move to a different geographic area and give up all friends, family, and health contacts. The net effect is that a Reverse Mortgage is a better option than “moving down” for most people, but financial planners often fail to actually compare the numbers.
Another thing that is typically overlooked in retirement planning is changes in health. The good news is we are living longer. The bad news is we are living longer. Planning is simple if we know the cost of health care. From what I see, this is a big unknown that is not acknowledged by many people. The numbers from Anschutz Medical Center say that half the population is dealing with some form of dementia by age 85. From what I see, no one is asking “Who will handle your affairs when you can’t”. Health changes can easily derail the best laid plans, and a Reverse Mortgage can be a way to rescue the situation. I have plenty of stories how a Reverse Mortgage has helped with the unexpected.
A Reverse Mortgage won’t solve every financial problem, but I think it should be understood as a possible option.