Helping the Overlooked Majority

helping the overlooked majority of retirees

“The median net worth of retirees aged 65-74 was only $266,000 in 2019, of which $240,000 was in their homes. All indications are that in the last few years, the problem has gotten worse.”, writes Jack Guttentag, AKA the Mortgage Professor, in a recent Forbes column last week.

The problem has indeed worsened thanks to record-high inflation which has hit older Americans living on a fixed income especially hard. Guttentag’s solution is the integration of financial advisors, HECM originators, and insurance professionals- each participating in a coordinated plan to help the client have adequate cash flow throughout retirement.

That appears to be a worthy plan for…

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those who are several years away from retirement, but what about those who’ve already retired or will retire in the next few years? Will they consider tapping into their home’s accumulated value? It can be argued retirees with the majority of their wealth tied up in bricks and mortar of their homes are generally overlooked by financial advisors, traditional mortgage originators, and the media.

As a reverse mortgage professional in the U.S., you may not be surprised to learn that resistance to utilizing home equity is not limited to the United States. Your Mortgage-com reported on a study by National Seniors Australia and Challenge which found only 2% of retirees in Australia have accessed their home equity through a traditional equity loan or reverse mortgage. Does a two percent market penetration sound familiar? Also, two in three respondents said passing on their home to their heirs was important. Nevertheless, nearly one-in-five respondents said they might consider a reverse mortgage, or as the Aussies call it, a Home Equity Access Scheme.

The overlooked majority have no problem spending down their retirement savings in 401(k)s, IRAs, and other savings instruments. It’s the ordinary course of action expected of retirees during what is called the distribution phase. Consequently, you will seldom hear a family member complain that their parents spent down their retirement accounts.

But when it comes to the home the shift in perception is significant. It can be argued that the home is one form of savings- a forced savings account of sorts, that is paid over several decades. The greatest difference it’s a savings vehicle in which the homeowner lives. That personal attachment leads to resistance, misunderstanding, and fears of losing their housing security.

This is where knowing the financial position of your potential borrower is vital.

Do you know the homeowner’s sources of income? Do you know how long these income streams will last or if they are at risk of being reduced? What is their monthly cash flow? Only when these key facts are known can you make a meaningful comparison of life with or without a reverse mortgage. More than ever before the overlooked majority are more vulnerable to outliving their money or reducing their standard of living. That’s why the specific and practical introduction of integrating a reverse mortgage must go beyond mere features and benefits and focus on problem-solving.

Additional reading:

[Your Mortgage] Study: retirees not a fan of accessing home equity

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How to be a retirement lifeguard

How to be a retirement lifeguard (and recruit others)

There are millions of older Americans swimming in the pool of retirement. The question is who’s looking after those retirees showing signs of distress or in danger of drowning financially? The best lifeguards are proactive looking for the slightest hint of any problem that could become a life-threatening situation. It takes a sharp-eyed financial advisor to catch a problem before it becomes a crisis, especially when you have hundreds of clients swimming. Some are in the deep end taking the biggest risks, some are in the shallows and prefer to play it safe, while others are quite comfortable regardless lounging along the sides.

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Let’s be honest. None of us have the wherewithal to protect every retiree in our city, much less those who live on our block. First, you don’t have the time, and second, you don’t have direct access to that pool of retirees because you’re not privy to their financial status. You’re a reverse mortgage professional; not a financial advisor or accountant.

What we’re talking about is not some new scheme that will somehow boost our personal or collective loan volume to new heights. We’re talking about becoming a relevant part of the retirement conversation and helping real people with real needs that may determine the quality of their life, health, and relationships.

One of those needs is being prompted by the big squeeze, otherwise known as inflation. A mere 10% increase in the cost of living can reduce a portfolio’s longevity for retirees drawing fixed-income investments or savings. That’s a 50% reduction or half as many years that their money will last. Any competent financial advisor knows this and will make excess withdrawals due to inflation a key part of their annual review with clients. 

As a financial lifeguard, it’s never fun to tell someone that they’re drowning but they just don’t know it. Yet that’s exactly what many advisors will face in that difficult conversation. Will they tell them they need to reduce their expenses or standard of living? Perhaps, but who really wants that? Will their advisor suggest that they increase their investment returns by taking more risks? Not likely if they have a conscience and any common sense. Will they tell them to go back to work part-time or find ways to generate more monthly income? Perhaps, when it makes sense and their client’s health allows for a return to work. 

The more likely strategy financial professional may suggest are to increase allocations of energy, materials, and financial stocks while reducing exposure to retail and consumer service sectors. But even if that works will that strategy generate enough earnings to offset inflation. Likely not. That generally leaves one choice, assets. The question is whether to sell an asset outright or slowly dissipate the accumulated equity. To suggest a retiree sell their home, downsize or rent and invest the proceeds is a bitter pill to swallow. After all, who wants to get rid of the home they worked so hard and diligently to pay down or pay off completely? The home where they feel safe and surrounded by memories. 

The more palatable solution advisors can present is an asset dissipation plan. One that avoids selling stocks when their share prices are down as a realized loss. A solution that takes some of the winnings off the table while finding more financial assets to extend or preserve sustainable withdrawals. A typical asset dissipation strategy, often called asset depletion, takes a fixed withdrawal from an account to boost income. But what happens when that asset’s value has been drained? It’s gone. However, a reverse mortgage provides the ability to tap into the value of an asset that typically appreciates and outperforms the market without relinquishing ownership or encumbering other assets as security. Now that’s one strategy that could substantially boost any financial professional’s skillset as a retirement lifeguard. Not only could they prevent their client from drowning, but they could actually give them the means to swim with confidence, or even relax along the sides knowing the lead weight of inflation won’t sink them after all.

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Seniors head back to retirement communities

seniors, christmas, reverse mortgage news


Unable to use the embedded player? Listen here.

EPISODE #729
Seniors head back to retirement communities after the Covid pandemic

As reverse mortgage professionals, we often talk about the vast majority of seniors who want to age in place in their existing homes. This week we bring you the other side of this issue from MarketWatch…

Other Stories:

  • Morningstar: Ilyce Glink: Speaks on the State of the U.S. Residential Real Estate Market

  • CBC: Canadian regulators cap reverse mortgage loan percentage

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