As finances are uncertain for many approaching retirement, reverse mortgages are an ideal shock absorber for the many potential shocks once a senior stops working, financial experts conveyed to an audience of financial planners Wednesday.
Hosted by the American College of Financial Services, “Utilizing Housing Wealth in Retirement” featured Shelley Giordano founder and chair of the Funding Longevity of Task Force, Jamie Hopkins, professor of retirement planning at The American College; and Barbara Stucki, the principal at BRStucki Consulting. Girordano spent a portion of time explaining the benefits of a reverse mortgage in a retirement plan.
From the beginning, Giordano debunked any mindsets that reverse mortgages should only be used when all other strategies were exhausted.
“If there’s one take away from today’s presentation, it is reverse mortgages are not a strategy of last resort,” she said. “If you’re fond of saying this — and believe me I run into people on a weekly basis who say, ‘Oh, those reverse mortgages are a strategy of last resort,’ — just wash your mouth out with soap. It’s not true.”
In her presentation, Giordano outlined several strategic uses for a HECM, including refinance, HECM for purchase, coordinated withdrawals, the power of the line of credit, and divorce, giving two scenarios when a HECM is an “elegant solution” for parting spouses.
In the first case, the divorcing couple takes a HECM out on the house, and the parting spouse takes 50% of the value to use an H4P and buy a home of similar value.
“Another solution would be for them just to go ahead and sell the house, and then they use the cash as a down payment but leverage that down payment with an H4P,” she said, explaining that each spouse could potentially move into a home of equal value.
Divorce was also one of the common shocks of retirement, along with liquidity shock, inflation shock, housing value shock, health shock, car repair, portfolio shock, hearing aids, and even dental problems, Giordano said.
“This is a big deal with people later in life,” she said. “It’s not covered by Medicare, and it’s integral to people’s sense of wellbeing and their health,” she said.
Rather than waiting to open a reverse mortgage, it needs to be to talked about early in retirement as more seniors are expressing their desires to age in place, she said.
“If your opening recommendation to your client is, ‘You can just downsize,’ that might not be what they want to hear,” Giordano said.
Aside from using a reverse mortgage to absorb shocks, she illustrated other ways to incorporate a HECM into retirement.
“Paying off an existing mortgage, having the cash to have those home renovations to age in place, H4P for a new home to be near the grandchildren,” she said.
Other examples she gave include using a HECM for a social security delay bridge, to leverage investable asset growth potential, as well as the power of the growing line of credit when opened early.