Leveraging the Unexpected with Reverse Mortgage
Lennon once shared via song an invaluable truth to his young son: “Life is what happens to you while you’re busy making other plans.” J.L. learned early-on the meat and potatoes of life—they’re hidden within the sacred in-betweens. Despite our most fervent plan-building efforts, we simply cannot predict nor ultimately control the undetermined.
Within our deepest recesses is an association of security with money—and with money, our anticipated stability. Greater than a financial sustenance concept is the reality of our need for it. From the genesis, a pining toward peace of mind via constancy is what’s validated our human struggle.
As we bet on any given outcome, we might find it overruled by tomorrow’s unknowns. What we cannot predict presents for us the realization of our futility. If history’s shown us nothing else, it’ll surely confirm one thing:
Hopes and assurances are plentiful, but real-life guarantees are either rare or non-existent.
While ‘rainy day’ bottom lines range from little to none for some seniors, there’s a remaining percentage boasting a vastly different story. Having dodged the “Great Recession” crumble of 2008, among us are the intentional savers who envisioned and rolled-out a favorable home equity AND liquid asset rich carpet for themselves.
But even with arranged financial cushions and alternative health plan safeguards, your client(s) may not be immune to the unexpected. Just two years ago, U.S. News on Money reported a “Booming Market helps today’s retirees.” In fact, they added, “…many retirees exiting the workforce this year have gained back all their losses and then some.”
Sounds rather encouraging. And while it’s refreshing to imagine Americans happy dancing their celebratory rebounds, the ‘ghost of stock market past’ nudges at us a subtle reminder—all runs smoothly and according to plan…until it doesn’t.
To Plan or Not to Plan?
Before the 2008 Great Recession crisis, innumerous folks planned well for a comfortable retirement, yet hadn’t seen coming the impending storm. Americans, financially big and small sustained major losses. Even those close to retirement, while supposedly shielded from market fluctuations, felt the investment crushing sledgehammer.
Forbes reports described overwhelming losses that totaled “2.4 trillion in the final two quarters of 2008,” while “401 k and IRA losses [alone added] up to or in excess of 20%.” And worse? Losses were painfully unspeakable for those who’d planned out delayed retirements.
If any good came from the infamous yet massive correction, it was the useful lessons learned with respect to managed portfolios. With nearly 50,000 plus Americans now over the age of 65, wealth plan advisors have applied by witness a never again mentality. And although the resulting precautions have shown promising, the investment management entourage wouldn’t even claim it bullet-proof.
Does this mean we should toss out plans for a financial future? Absolutely not.
We all know it’s not only wise to plan, it’s a given necessity. Any good financial plan allows for a margin of error—a backup plan, if you will. We cannot rely on best case scenarios—we need to anticipate worst case possibilities.
Most recently, the Coronavirus scare set into motion an economical flutter. And for the first time since 2008, investment accounts sustained swift impact—and in just a single week’s time. In line with the unpredictable event tendency, a barely imagined, perchance threat can evolve into that materialized overnight.
The plan a ‘makers of the world’ by default find themselves ahead of the pack. And although it’s a nice starting point, it would be most optimal to have lined-up a plan b reinforcement. A vast number of senior-aged club members would attest to the here and now as equally important to what might become later. But even with a well written plan, there isn’t any promise life will play-out according to script.
Consider Mr. and Mrs. ‘Planned it Right’
Still relatively young and living cozily (most of the year) in their free-and-clear, $3 million valued North Carolina home—Mr. and Mrs. not only ‘Planned it Right,’ they also planned it smart. Gathered faithfully aside were multiple assets to which they could rely-on for years to come.
But even still…let’s take a look:
Mr. and Mrs. ‘PIR’ received involuntary 401K/Non-Roth IRA monthly draw payments totaling approximately $16,667—but also incurred taxes on all moneys drawn.
Monthly Income: $27,779
Monthly Expenses: $16,222 ($7k in Food Expense/Entertainment)
Monthly Income Remaining: $11,557 (Reserved in Checking/Savings Accounts)
Combined Total Assets: $15 Million
Checking/Savings: $4 million (Supposed Safety Net) Life Insurance Cash Value: $2 Million
401K: $3 Million (Monthly Draws) Previous Max Assets: $4 Million (Disposed)
Stocks/Bonds: $6 Million (Volatile—and not guaranteed)
Mr. and Mrs. PIR celebrating their health, enjoying a very comfortable living and planning on future travel adventures depend on an established 401K/Non-Roth IRA to provide for their expected and accustomed lifestyle. They hadn’t considered the span likely 10-15 years ahead.
In the Reverse Mortgage discovery was revealed a possible weakness in their plan’s structure. Should the monthly scheduled 401K draw and subsequent taxes continue-on at the same rate, the account would be drained within 6 years’ time.
Checking and savings surely offered a fair cushion—even with an inflation rise. But should the occurrence of a dipping stock market, personal illness, required treatment, special equipment, in-home care or even death come to pass, the checking and savings may not sufficiently absorb the shock.
On the surface, Mr. and Mrs. appeared financially sound, but it would only hold according to its working plan. In veering deeper, further preparations could bridge an unforeseeable need.
Tips for Dealing with a High Asset Borrower
Never patronize – your borrower will appreciate your genuine approach. Listen actively to current and future financial goals.
Educate – financially savvy borrowers are smarter than the average bears and value the opportunity to learn something new!
Be Conversational – your chances are higher for borrower connection and engagement.
Ask Open-Ended Questions – this will allow you to identify and address areas of borrower hesitation or concern.
Avoid Suggesting Borrower Goals – work the process. Fact-find to identify the borrower’s not-so-apparent financial weaknesses and/or needs.
Reverse Mortgage to the Retirement Plan Rescue
Capital suddenly turned to dust made necessary for impending retirees a thereafter inquiry. With decades of hard work and well-built investment portfolios under their belts, a great percentage of American Seniors deserve to extend and see realized their payout.
In bridging from notion to motion, home equity through a Reverse Mortgage presents a practical means to leveraging an income preserving end. Whether the loan’s used for latter resorts or a just in case fallback, Reverse Mortgage is a uniquely adaptable chameleon. Out from under its misidentified rubble has emerged the real to the Reverse Mortgage deal: it’s not just intended for the financially strained or depleted, but equally created for the financially abled.
Reverse Mortgage offers growing HECM or JUMBO LOC alternatives to the traditional HELOC. Borrowers could potentially choose a Reverse Mortgage LOC to extend/leverage retirement accounts free of tax consequences and mortgage payments. Preserved LOC portions continually grow in increase according to the adjustable/annual growth rate (Index + Margin) and the MIP (Mortgage Insurance Premium). Securing a RM LOC allows the home equity to work for your client—as opposed to the other way around.
A Plan at Work
Synonymous with a successful career wrap-up is a ‘feet up and worry-free’ retirement experience. It boasts to the world the practicality of working smart as opposed to simply working hard. Reverse Mortgage can serve your client’s real or hypothetical need—whether that’s today or 10 years from now.
Mr. and Mrs. ‘Planned it Right’ elected to obtain a Reverse Mortgage to leverage their retirement. Their tightened loose end further ensured an added growing resource. With back alley access to easy street, suddenly afforded to them is ‘what-if’ wiggle room mobility.
Mr. and Mrs. PIR’s North Carolina home showcases the handprint memory bricks laid down first by their kids—and now, their grandkids. On the home’s backyard waterfront are His-and-Hers Anorak Chairs. Watching the sunset, he looks over to the wife of his youth taking her hand into his. While the laughter of kids and grandkids fill the air, Neil young’s “Harvest Moon” plays in a distance. Only today, that song carries a whole new meaning—because back when the tune first graced the air waves, he and she only dreamed of days like these.
To learn more about the Reverse Mortgage Program and its products, feel free to inquire at HECM@PRMG.NET.