Updated: Apr 16, 2020
If you're over 62 and taking money out of your retirement accounts in this market, you may be in danger of running out of money - read on to learn how a reverse HCEM could be your saving grace.
As Estate Attorneys and Elder Law Attorneys, we are trusted advisors in times of calm, and in times of need. This is markedly a time of need. Uncertainty is rampant - but we're here to help - and we've teamed up with our trusted reverse mortgage planner, George Bain, to offer some advice. You have likely taken the necessary steps to protect your health - now it's time to protect your wealth.
Corona Virus and a Bear Market
The Corona Virus pandemic is still developing, but one thing is clear - it is creating a world-wide financial crisis. We are enduring a Bear Market (when the market is down over 20%) and it is imperative that our 60+ clients be educated and act accordingly. You may already be seeing drastic reductions in your retirement portfolios. According to George, "retired seniors that are forced to withdraw funds to supplement other income such as Social Security and Pensions may be putting themselves in a position of outliving their money. If you had a $1,000,000 portfolio at the beginning of March, that portfolio is now worth about 30% to 40% less." This will be particularly distressing to seniors whose majority of assets are tied up in their home, their retirement accounts, and the market. You can't pay for necessities without cash, and you can't draw from your retirement portfolio without taking a huge hit - whether it's fees and taxes on your accounts, or lost value in your market shares.
George and his team at Fairway Independent Mortgage, offer a solution. He understands that "you have bills to pay and if you have to withdraw funds from [your retirement] portfolio you eliminate the possibility of those funds recovering the 30% to 40% that was lost in the market." His recommendation may be one you haven't considered.
Reverse HECM - Home Equity Conversion Mortgage
George gave us an example: "Now let’s suppose you have a reverse Home Equity Conversion Mortgage line of credit with $100,000 of unused funds. You can now withdraw funds from your HECM and leave the money in your retirement account alone. You would have to withdraw less funds because there are no federal taxes due, and you don’t have to make payments on the HECM until you leave the home. This is a perfect example of having your cake and eating it too. When the market comes back, and it will, you can pay back the HECM if you choose to do so and you can write off the interest against your income for tax purposes."
A Home Equity Conversion Mortgage is the only reverse mortgage insured by the U.S. Federal Government, and they are only available through an FHA-approved lender. HECMs allow homeowners over the age of 62 to convert part of the equity in their homes into cash. The loan is called a reverse mortgage because instead of making monthly payments to a lender, as with a traditional mortgage, the lender makes payments to the borrower.
Housing prices in Colorado are still high, and interest rates on loans are low. An HECM offers the opportunity to protect your retirement funds during the COVID-19 financial crisis. If you are experiencing spending surges - due to unexpected medical costs, home relocations or renovations, or simply the uncertainty of the Corona Virus - don't feel as though you need to sell out of the market while the market is down. There are smarter options to safeguard your retirement. See if an HECM is right for you.
Contact George Bain with Fairway Independent Mortgage today to apply for your HECM.
Call 303-818-9977 or email firstname.lastname@example.org
Interested in more Long Term Planning or Elder Law advice?
Call Solem Williams & McKinley, P.C. at 303-761-4900 or email email@example.com
Disclaimer: Although George’s company is a trusted advisor, we have no financial ties or obligations to his company and this information is provided solely as a courtesy to our clients and prospective clients during this trying time. We are happy to review your financial needs and estate planning goals to see if this particular strategy makes sense and achieves your lifetime goals. We think reverse mortgages have a role to play but they are certainly not for everyone. However, if you are worried about long term care or eventually qualifying for Medicaid, they are something you should definitely consider. Medicaid rules are favorable to reverse mortgages and could save money if used properly. Our firm is dedicated to comprehensive reviews of your estate plan and how these products and others could be beneficial to you now or in the future.