Social Insecurity: Funding the future


Social Security And Retirement Funding

Pressing The Reset Button: The Gap Years / Part 4: Funding the Future
As human lifespan climbs steadily towards the century mark, Social Security is only one — and woefully inadequate — means of funding a lengthening retirement period. In fact, we’re in the midst of creating second-stage work lives, or “encore careers,” that are evolving at the intersection of money, meaning, and social impact, says social entrepreneur Marc Freedman, author of The Big Shift: Navigating the New Stage Beyond Midlife

Adults 60 and over are returning to school in droves to train in entirely new areas, often centered around social issues such as the environment, health, education, and social services (see Pressing the Reset Button/Part 2). Educational innovation, from lifelong learning to distance classes via the Internet, is proliferating to keep pace with this changing demographic. But where are the resources to pay for this transition training?

Reverse Mortgage Retirement Funding

Retirement And Individual Purpose Account

Enter the Individual Purpose Account (IPA). Freedman suggests that rather than raid your IRA or your children’s college fund, why not create a tax-advantaged Individual Purpose Account targeting the transition years? Such accounts “could be both a policy opportunity and a potential bonanza for the private sector, which is offering retirement products but little in the way of savings vehicles for alternative approaches to the last two, three, or four decades of life.”

Reverse Mortgage Retirement Funding

Until such time as the government implements this visionary idea, a reverse mortgage might be an optimal resource to fund an IPA — especially because reverse mortgage holders can tap their loans only when needed, prudently saving the rest.

In fact, reverse mortgages can be reimagined as “seed capital” to help people invest wisely in the next stage of their lives, whether that involves expanding their education to enter an encore career, using a lifetime of accumulated knowledge and wisdom to consult or mentor, traveling, writing a book, or any combination of the above, and more. “Reverse mortgage” accurately describes this dynamic demographic, who are reversing expectations of retirement and reimagining what the next stage of life looks like!



The_Critic February 15, 2012 at 10:23 am

IPAs sound like a great idea BUT should we be throwing more debt on our grandchildren so that we, seniors, can indulge in our own devices or should we be putting that money to more needed things? Mr. Freedman needs to get his head out of the clouds and look at the needs around him.

Amara Rose February 15, 2012 at 10:59 am

Hi The_Critic,

I think you may have misinterpreted what the author is describing. Since these new “Third Age” adults are going to be reinventing themselves anyway, Freedman proposes looking ahead and planning for such a time by creating an IPA now. As you know, reverse mortgage loans can be used for whatever purpose the loan holder chooses — and investing in one’s own growth for the benefit of both themselves and others seems smart to me. Who knows, someone might end up creating a venture than generates more money than they receive from the reverse mortgage!

It’s really a question of thinking far outside the box in these evolving times.

The_Critic February 16, 2012 at 10:27 am


I think IPAs are a ridiculous idea unless our Treasury is overflowing with riches and the rest of the world is content. Why should our government fund the whims of any segment of society? “Policy opportunity” is nothing more than political speak for pork belly spending with election day benefits.

Your proposal is very different. How people spend their money is their business.

I am fundamentally against government discretionary spending in economic times like this. Creating “tax advantaged” anything is at its roots government spending.

James E. Veale, CPA, MBT February 16, 2012 at 12:22 pm

Ms. Rose,

Is Mr. Freedman advocating the use of leveraging to fund his IPA idea? It would seem unlikely. Yet you are.

The concept Mr. Freedman is advocating is taking non-critical cash and placing it into a proposed tax-advantaged vehicle he calls an IPA. The goal is for those entering into the gap years to fund their goals and objective with. Forgetting the politics of the issue for a moment and why this is a wise use of limited resources, that is much different than borrowing to achieve the same objective.

Using borrowed funds to do the same thing has a much different cost and risk structure. Even if the senior gets more cash back from an economic venture than they took out of a HECM, for example, that is only an initial test. The next test is to measure the after-tax result. The final and most critical test is if the overall economic increase to personal wealth exceeds the economic liability (the total balance due on the portion of the HECM used for this purpose) all on an after-tax basis.

I believe in big ideas but only if the participants end up in a better situation than they started in at reasonable risk. Many times big ideas end up in big losses. Just look at Solyndra debacle.

When seniors have cash they can risk invest, Mr. Freedman has an interesting point but not one I support. On the other hand borrowing to do the same thing increases the risk, sometimes exponentially; that I oppose.

Amara Rose February 22, 2012 at 12:06 pm

Hello James and The Critic,

Thank you both for your comments. Unless I misunderstand the purpose and use of a reverse mortgage, the loan money may be spent however the senior sees fit. If someone can use the funds for a European vacation, for example, why should going back to school be considered a negative?

I can’t think of a better investment than one’s education, at either end of the life spectrum. Whether a senior is interested in training for a new career, ensuring they remain current in their present work, or seeking to start a community project that could serve hundreds or even thousands of people, I would think using one’s reverse for this purpose is a lot better than raiding the kids’ education fund — or attempting to get a college loan in your 60s or 70s.


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