The Retirement Panic Attack

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“Needs-based” borrowers aren’t the only ones worried about retirement

More Americans are having a retirement panic attack.

Some never saw it coming. Of course, throughout the decades of our working life we know eventually we need to have the means to retire without income from our job, yet still, for many, the stark reality of retirement comes as a shock.

“At a party, my friend was asked how his recent retirement is going. He lamented, “I’ve had some rough nights and more than one panic attack.” I found his reply surprising since we had talked earlier about his financial situation, and he had more than adequate retirement savings. The problem? He was caught off guard by the emotion that goes with suddenly not making money.” So begins Forbes contributor Steve Parrish’s recent column published last Thursday.

His friend, fortunately, had saved enough for his non-working years. Imagine the stark terror for those who find themselves with little or no money to retire? “The trick is to arrange the conversion of your capital into a monthly income before leaving the workplace”, says Parrish. Even savers who dutifully tucked away money may find themselves looking over the precipice of retirement wondering how they’ll survive the journey. The reality is that needs-based borrowers, as HECM professionals call them, are not the only ones feeling squeamish about retirement.

That said, each will have to look to potential sources of income in retirement. Social Security, pension benefits, 401(k)s, and other investments to name a few. One source Parrish notes is a reverse mortgage. “If you have significant equity in your home, you can select a tenure option in a reverse mortgage. This would provide an ongoing monthly income through accumulating loans against your home equity. And that income can continue until you sell, leave the house or die”, he writes.

Read the Forbes column here

3 comments

Ron March 4, 2020 at 3:59 am

Can I buy a home or condo with a reverse mortgage
what percentage do I have to put down

Reply
Dan Hultquist March 12, 2020 at 12:58 pm

Hi Ron,

Condos must be either FHA-approved or qualify for what is known as a single-unit approval (SUA). Otherwise, you can generally purchase a home with various reverse mortgage products so long as you occupy the home within 60 days AND the home will be your primary residence, which HUD defines as your permanent place of abode and where you typically spend the majority of the year.

Regarding your contribution into the transaction, HUD will allow lenders to contribute principal toward the sales price and closing costs. That principal amount will depend on various factors including prevailing interest rates and the age of the youngest borrower or non-borrowing spouse. You will need to come to closing with the remainder.

Dan
dan.hultquist@fareverse.com

Reply
James E. Veale, CPA, MBT March 6, 2020 at 1:13 am

Steve makes clear what he means by retirement panic but his idea about avoiding it is questionable at best. Here is what he says the solution is: “‘The trick is to arrange the conversion of your capital into a monthly income before leaving the workplace’, says Parrish.” Steve is an attorney and holds several credentials offered at the American College of Financial Services where he is a Co-Director of the New York Life Center for Retirement Income. As a RICP there is an unfortunate overemphasis on income planning.

If one did as Steve advises in the quotation, few retirees would have investment portfolios. Most would needlessly incur income taxes on tax laden assets and would have few assets held aside to care for unexpected financial needs.

A far better principle is for the individual within five years of retirement plan to engage a CFP to plan the appropriate mixture of income producing assets and growth stocks at retirement at maximum income tax efficiency. Part of that planning must include cash flow planning. It is a huge mistake to emphasize income planning over cash flow planning. For example, reverse mortgage proceeds are not income but are cash inflow. When stock is sold at a loss, no income is involved since it is a shortfall in returning the amount that was invested into the asset being sold;; however, the assets received (generally cash) results in most cases in cash inflow. During the life expectancy of an annuitant, a portion of every distribution is income and some is a return of capital. While the entire distribution from an annuity is cash inflow only a portion is income before the end of normal life expectancy.

As a part of retirement planning, decumulation rates on various assets should be determined and revisited from time to time throughout retirement.

Reply

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