Boost Retirement Income with Home Equity

Using home equity to enhance retirement income planning is an emerging topic in financial planning.

When I address consumer groups and conferences for financial professionals all around the country, I note that the traditional three-legged stool of retirement security–which traditionally has relied on pensions, personal savings and Social Security–is broken. Many Americans have not accumulated enough savings to support a retirement that could last 30 years or more.

I offer an alternative analogy of a retirement income pyramid that relies on Social Security and retirement savings as a solid base, augmented by additional layers that tap home equity, assume part-time employment and incorporate other sources of income, if necessary, such as inheritances, brokerage accounts and income-producing assets.

New research by Peter Neuwirth, Barry Sacks and Stephen Sacks published in the October issue of the Journal of Financial Planning documents how including home equity in the form of a reverse mortgage, with retirement savings, can maximize retirement income while minimizing the probability of exhausting all assets before the end of retirement.

ALTERNATIVE STRATEGY

In the article, "Integrating Home Equity and Retirement Savings through the Rule of 30", the authors suggest that this new approach could serve as an alternative to the 4% rule of thumb that financial advisers have used for decades. The 4% rule, first developed by financial planner William Bengen in 1994, is based on the theory that if a retiree restricts his or her initial withdrawals to 4% of their portfolio in the first year of retirement, and increases annual withdrawals to account for inflation, their savings should last for 30 years or more.

But steep market declines during the financial crisis of 2007- 2009, which coincided with the first few years of retirement for millions of Baby Boomers, threw that theory into question as steep losses early in retirement decimated their portfolios, leaving many retirees with insufficient assets to benefit from subsequent market recoveries.

The new research demonstrates that the appropriate dollar amount of the initial withdrawal for any given total amount of retirement savings plus home value at the outset of retirement turned out to be 1/30 of that combined amount for a broad range of retirees. The research assumes the portfolio is invested 60% in equities and 40% in bonds.

The analysis is based on retirees using a coordinated strategy of establishing a reverse mortgage credit line at the outset of retirement and drawing income from the portfolio in the first year of retirement equal to 1/30 of total retirement income resources (portfolio and home equity). If the portfolio performance is positive, the next year's income would be withdrawn from the portfolio. If the performance is negative, the ensuing year's income would be withdrawn from the reverse mortgage credit line.

"The dollar amount of the initial withdrawal that resulted in an approximately 90% probability of cash flow survival was the same across a broad range of ratios of home value to initial value of retirement saving portfolio," the article found.

The research tested the hypothesis against four profiles of retirees, including mass-affluent retirees with a home value of about $400,000 and a portfolio of retirement savings of $800,000; house rich, mass-affluent retirees with a home value of $800,000 and a retirement savings of $400,000; the almost-affluent retiree with a home value of $150,000 and total retirement savings of $300,000; and the house-rich, almost affluent retirees with a home value of $300,000 and a retirement portfolio of $150,000.

"FORGOTTEN ASSET"

"Home equity has been the forgotten asset of retirement planning for years," said Jamie Hopkins, co-director of the Center for Retirement Income at The American College of Financial Services.

"Most financial advisers don't take a comprehensive look at home equity solutions in a retirement income plan," Mr. Hopkins said. "This can leave the client's largest asset sitting idle until being used as a last resort or as a legacy asset to heirs upon death," he added. "But for many people, using home equity more strategically and throughout retirement can be a more effective solution."

Mr. Hopkins noted that the new research highlights another important concept: "Reverse mortgages are not just for the cash-poor and house-rich client, but that reverse mortgages can help millions of middle wealth Americans in retirement."

The authors noted that despite recent changes to initial and annual mortgage insurance premium rates and lending limits that affect reverse mortgages issued after Oct. 2, none of the changes "would have a material impact on the key findings presented here."

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Start Planning Now to Care for Elderly Parents

NEW YORK (Reuters) - If you have an aging parent and want a glimpse of what the future holds, look no further than Leslie Glutzer.

The 66-year-old from Chicago has a mom who is 92, dealing with dementia, now living in a local nursing home. Those costs are not covered by Medicaid, so Glutzer and her husband are spending more than $5,000 a month from their savings.

"It really starts to add up," Glutzer says.

This financial struggle is one that is shared by many. 

For nursing homes, in particular, the costs can be astronomical. A new study from insurance giant Genworth Financial found that a private room in a nursing home averages out to $267 per day or $8,121 a month, up 5.5 percent from the year before. Semi-private rooms are not far behind, at $7,148 a month on average.

Overall, long-term care costs rose by 4.5 percent from 2016 to 2017, according to Genworth's "Cost of Care" survey. That is the second-highest annual increase since the yearly survey began back in 2004.

Experts agree that it is important to start thinking about caregiving costs now. Waiting too long means you cannot stockpile resources, take out affordable insurance policies or plan ahead for a thoughtful drawdown of assets.

"At that point, your choices become very limited," says David O'Leary, president and CEO of Genworth's U.S. Life Insurance division.

So exactly how can you provide compassionate care for your parents without bankrupting yourself and sabotaging your own retirement? The following are five tips:

TAKE FINANCIAL INVENTORY

Have a family meeting and take stock of the financial resources available. Folks in their 70s or 80s may have a pension, as well as Social Security and personal investments, which could help soften the financial blow for adult children.

Figure out if all siblings are going to share eldercare costs equally, or if some who may not have the means can contribute in other ways, like arranging hospital appointments.

Be sure to find out what your parents envision for their future.

"As the child, we want to make the decision we think is right," O'Leary says. "But we really have to look at everything through the eyes of our parents."

HOME EQUITY

If your parents own a home, consider tapping it to pay for caregiving expenses.

"Think of it as an investment that can be used to pay for care," says Joy Loverde, an eldercare expert and author of the new book "Who Will Take Care of Me When I'm Old?"

That might mean selling it, downsizing elderly parents into a smaller space, and using those funds for long-term care. It might also mean that adult children buy the place, lease it back to the parents and potentially tap the home equity.

Or it might mean a reverse mortgage, which allows homeowners to borrow money against the value of their homes, receiving proceeds as a line of credit, fixed monthly payment or lump sum.

MEDICAID QUALIFICATION

Medicaid can cover long-term care costs like nursing-home admission, but only for those under a certain level of personal wealth. That might require shifting assets in a thoughtful (and legal) way.

"One of the most effective planning strategies has been to encourage our clients and their elderly parents to consider gifting their assets into irrevocable trusts, including their primary residence," says Ian Weinberg, a financial planner in Woodbury, New York.

GET COVERED

Long-term care policies can definitely help with eldercare costs, but only 8 percent of the population is currently covered by them, according to Genworth. The trick is to secure them while you are healthy and early enough - say, in your 50s - so that they are still relatively affordable.

"I have at least one client dealing with these costs for his parents, and thank God we had the good sense to buy LTC insurance," says Kashif Ahmed, a financial planner in Woburn, Massachusetts. "Otherwise, their assets would be depleted in no time."

CONSIDER LESS EXPENSIVE OPTIONS

Nursing homes are not the only option. These days it is more like a "continuum" of care. For instance, parents might move in with their adult children. Or they might prefer to stay right where they are, perhaps with a home health aide coming in occasionally.

The next level up might be an assisted-living facility, which should offer an array of services for independent living, and even different levels of care within the same facility. Those will not cost as much as nursing homes, at $123 per day or $3,750 a month on average, according to Genworth.

Visit us today to learn more about Reverse Mortgage Options

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IN THE SPOTLIGHT NuEar Heaing Center

We are please to announce our newest advertiser in the 

SPOTLIGHT Senior Services & Living Options Resource Guide

NuEar Hearing Center was founded on two simple truths- that hearing is a vital sense which plays a significant role in your quality of life and that hearing loss affects everyone uniquely. That’s why we work to solve hearing problems one individual at a time.

From the moment you walk in our front doors in Tucson, to the moment you walk out- We guarantee precise care and satisfaction. We understand that the journey to better hearing begins with a partnership with a hearing health specialist that understands the difficulties hearing loss places on one’s life. We have the knowledge and technology to guide you towards a hearing aid that will fit your unique lifestyle. We do all of this with the utmost care and respect because we know that Tucson is a place worth hearing.

Conveniently located off of East Grant Road, we are proud to serve our Tucson community in their journey to better hearing.

Russell Broadhead, BS, HIS

Hearing Instrument Specialist
License #HADR9827

Hello Tucson!! My name is Russell Broadhead and I am the Hearing Instrument Specialist of Nuear Hearing Center of Tucson. I am honored to take part in the journey to better hearing of the people of this beautiful city!

For the past four years I have merged my love of art and technology by providing hearing health care for the people of Chicago and am thrilled to now do the same for the people of Tucson. As a hearing practitioner, my goal is to, quite frankly, change people’s lives. Better hearing can take people from isolation and return them to life, fully engaged with family and friends.

One of the best experience of my career was seeing the change in my Father in Law when he was fitted with hearing aids. They truly changed his life.

At her weekly bridge game, a past patient was quiet and aloof because she just couldn’t hear her friends. Now she is engaged and thriving. The smile on her face when she recounted her experience was heartwarming.
Another client had struggled at work because he couldn’t hear his supervisors and coworkers. This caused him great anxiety and affected his work performance. Now he is back ‘in the game’ and experiencing great personal and professional successes thanks to his customized hearing plan.

My core values are Honesty, Integrity, and Family. I graduated from Utah State University with a Bachelor of Science degree. I am an Eagle Scout and served as a missionary for the Church of Jesus Christ of Latter-day Saints in Zimbabwe, Africa. My beautiful wife Jenny and I are the parents of five fantastic daughters and an amazing son.

Visit us online today @ www.tucsonNuEar.com

How To Care For Health Care Costs in Retirement

How much do you figure you'll pay for health care expenses after you retire? You're probably underestimating.

A married couple, both age 65, will fork over an estimated $275,000 over their lifetime on medical costs, according to Fidelity Investment's "2017 Retiree Health Care Cost Estimate." That includes Medicare premiums, co-payments, deductibles and out-of-pocket expenses for prescription drugs. 

However, it's likely that this same couple will pay a lot more than $275,000 because Fidelity's estimate doesn't include items such eye exams and glasses, hearing aids, dental care and long-term care. And if you retire before age 65, the number will be significantly higher.

Medical expenses represent one item in retirees' budgets that can increase significantly when transitioning from your career job into retirement. According to the U.S. Bureau of Labor Statistics, employers on average subsidize 80 percent of the cost of health care premiums for their active employees and more than two-thirds of the costs for family coverage. 

HHS Secretary Tom Price says "we believe in the guarantee of Medicare for our seniors"

But these subsidies typically go away when you retire. As a result, you'll usually end up paying for the full cost of medical insurance premiums if you retire before age 65, when you're eligible for Medicare. After that, the federal government subsidizes about three-fourths of the cost of Medicare Part B, although you'll still pay substantial deductibles and co-payments.

One erroneous conclusion that some people might make after reading about the Fidelity study's results is that they need to have the full $275,000 amount set aside when they retire, to be dedicated exclusively to future medical expenses. While that might be great if you can swing it, most people don't have that luxury, and fortunately you don't need to do that. 

You can pay for much of your medical costs with your regular retirement income, such as your Social Security benefits, employer pensions if you have one, money you make working in retirement and your withdrawals from savings.

By making smart choices with Medicare and supplemental insurance, you can turn large, unpredictable expenses into regular monthly premium payments that you can then factor into your ongoing retirement budget. Because Medicare has substantial deductibles and co-payments that can amount to thousands of dollars each year, financial advisers highly recommend that you buy supplemental medical insurance in one of two ways:

1.      Purchase a "Medigap" plan that pays for part or all of Medicare's deductibles and co-payments, combined with a separate insurance plan that covers the cost of prescription drugs under Medicare Part D.

2.     Purchase a Medicare Advantage plan (MA) that typically integrates inpatient care, outpatient care and the cost of prescription drugs, and usually covers much of Medicare's out-of-pocket costs.

You can also save for medical expenses with a Health Savings Account (HSA), in which contributions have a unique triple tax advantage:

·         They're deducted from your taxable income when they're made

·         Investment earnings aren't taxed

·         Any amounts you withdraw for qualified medical expenses aren't included in your taxable income

Because of the triple tax advantages, HSAs are like a super-IRA, and you should save as much as possible in these plans while you're working.

Qualified medical expenses that can be paid from an HSA include:

·         Medical, dental, prescription drug and vision expenses, including any deductibles and co-payments

·         Premiums paid after age 65 for Medicare or for your employer's retiree medical plan (but not for Medicare supplement plans)

·         COBRA premiums

·         Long-term care services

·         Premiums for qualified long-term care insurance

You'll also want to plan for vision and dental expenses when you retire because Medicare doesn't cover these costs. Some MA or Medigap plans might help with these costs, so you'll want to ask about that when you're shopping for these plans. Another smart tip: Take full advantage of your employer-provided medical plan's vision and dental benefits before you walk out the door of your career job.

Long-term care is the wild card in your retirement planning. A lengthy stay in an assisted living facility or nursing home can quickly drain your retirement savings, even if you have substantial savings in an HSA, 401(k) or IRA. Ideally, you want to develop a thoughtful strategy to protect yourself and your family against potentially ruinous long-term care expenses, including some combination of:

·         Buying long-term care insurance

·         Holding home equity in reserve

·         Taking out a reverse mortgage line of credit and holding it in reserve for long-term care

·         Maintaining a separate investment account for long-term care, including an HSA

·         Buying a qualified longevity annuity contract (QLAC) that starts a lifetime income at an advanced age, such as age 80 or 85.

When you consider your potential costs for health care, you might be convinced it's a smart idea to work longer, which is a very reasonable -- and wise -- reaction to these threats. Working longer can not only extend subsidized medical care coverage from your employer, but it can also allow your Social Security benefits and savings to grow as long as possible.

You have a lot to consider when it comes to your retirement planning. But if you start now, you'll be prepared when the time comes to leave the work force entirely.

Visit us online today @ www.novareverse.com

Reverse Mortgage For Dummies Cheat Sheet

UNDERSTAND REVERSE MORTGAGES

People tend to shy away from the very idea of reverse mortgages, in part because of their former bad rap, and in part because of all the scary terminology. When someone starts spouting off about how you can “utilize the equity in your home on deferred payments with a conversion mortgage,” chances are pretty good you’re going to tune it out.

Reverse mortgages pay you to continue living in your home. You can think of your home as the Bank of You: You’re borrowing money that you would have earned had you sold your house. You can then use the money for whatever you want. Anything your heart desires (and your wallet can handle) is yours for the taking, whether it’s a vacation in Switzerland, moving your master bedroom to the first floor, or sending yourself to college!

The concept is kind of abstract if you’ve been paying a lender for the past 30 years or so, and it may be difficult to grasp at first. Take a look at the quick reference points below:

• You’re a homeowner who owes little or nothing on your home. You decide you need more money to live the lifestyle you want, but your biggest asset is your home and you certainly don’t want to sell it to get the money you need.
• A reverse mortgage lender figures out how much it can lend you based on your home value, your age, and interest rates, and loans you some percentage of the money you would have gotten if you’d decided to sell your home.
• You still own your home and continue to live in it, but now you’re getting payments from the lender, so your cash flow problem is solved.
• You pay the loan back (with interest) only when you don’t live in the house full time anymore, usually due to moving out or death.
• You never owe more than your home is worth, no matter how much you’ve accumulated in debt.
• You keep any leftover equity after the sale of the house; if you owe the lender $67,000 and your home sells for $200,000, you put the difference in your pocket and walk away smiling.

A reverse mortgage is sometimes called a deferred payment loan, and for a very good reason. Instead of paying off the home loan as you borrow money, the payments are put off (deferred). This is why reverse mortgages can be such a good choice for seniors; when you’re on a fixed income or living off of your savings, it can help to have some extra cash in hand to supplement.

REMEMBER!   Because payment is deferred, you are spending the equity in your home, rather than earning it (as you would with a traditional forward mortgage). Since equity is an intangible value, you never feel the effects of the equity going down, but you sure feel the money flowing steadily into your checking account.

KNOW WHAT A REVERSE MORTGAGE ISN’T

A reverse mortgage can be a lot of things: a way to make ends meet, a nice chunk of change for a rainy day, a fabulous dream vacation, or a remodeled kitchen. But there’s one thing it’s definitely not — free money. There’s no free lunch here.

WARNING!  While reverse mortgages allow homeowners (who are at least 62 years old) to borrow against their home’s equity and still maintain ownership of the home, your loan will need to be paid back, just like any other loan (whether it’s due when you move or upon your death).

There are fees involved that can include payments to the originator, the appraiser, postage fees, recording fees . . . the list goes on and on. (These are the same sort of fees you paid for the mortgage that bought you the home you live in now.) You also have to pay interest on your loan, which is generally right around the interest rates on traditional mortgages.

REMEMBER!  You only pay interest on what you borrow, so any money that you don’t use from your pool of reverse mortgage funds isn’t charged.

WARNING!  A reverse mortgage is also not a direct value-to-dollar loan. You are loaned a percentage of your home value, based on age, interest rates, and area. Don’t expect the full value of your home, or you’ll be very disappointed. Before you make plans to spend money you don’t yet have, go online and click on the reverse mortgage calculator. This very cool tool from the National Reverse Mortgage Lenders Association gives you an estimate of what you may be able to borrow.

Lastly, a reverse mortgage is not an all-encompassing loan that’s right for everyone. Just because you qualify by being a 62-year-old homeowner doesn’t mean you’re an ideal candidate. To find out whether or not a reverse mortgage is right for you, here are a few of the basic questions you can ask yourself:

• Are you at least 62 and own your own home?
• Do you plan to be in your home for at least 5 years?
• If you’re getting the loan to purchase or pay off something specific, have you looked into other options for financing those expenses?
• Are you comfortable with the terms of the loan?

The more of these questions you can answer “yes” to, the more ready you are for a reverse mortgage.

QUICK REVERSE MORTGAGE PLANNING TIPS

Before you make up your mind about pursuing a reverse mortgage, take a minute to make sure you’re starting out on the right foot. Having a strong foundation will make your loan process much easier, both for you and for the professionals involved.

For the best planning, follow these tips:

• Know all you can about reverse mortgages before you walk into your counselor’s or originator’s office. It pays to be well-informed, and you’ll be more relaxed when you know what to expect.
• Make sure you qualify for the loan (you’re at least 62 and own your home). When in doubt, just go for it. It never hurts to go talk to the counselor, and if you don’t qualify the counselor may know of another program that can solve your financial situation.
• Get to know the loan options. Read about each one, and consider which works best for you based on your home value, county, and age. Get your family’s input as well, but always do what feels right to you. After all, it’s your loan.
• Plan your repayment carefully. Don’t leave this important step to the last minute or unresolved for your heirs. Lay out a plan and be sure to record it in your will. Talk to your family about their future responsibilities.
• When you go to your counselor meeting, take along a friend or family member who can help you take notes, ask additional questions, and weigh in afterward. Sometimes it helps to have someone there to bounce options off of, or just hold your hand while your counselor explains your choices.
• Get your money’s worth out of your originator. Ask as many questions as you can think of, call if anything comes up before or after the loan closes, and feel free to ask for help along the way. You’re paying for their services — make it count.
• Before your appraiser arrives, spruce up your house (within reason). Give everything a good scrubbing and fix the little things that are broken. Try to look at your home from an appraiser’s point of view and be realistic in your expectations of your home’s value.
• If you’re an adult child of someone who’s thinking of getting a reverse mortgage, find out all you can about the loan, and be a part of the process if your parent allows it.
• If you’re a baby boomer, start planning now! Pay off as much of your current mortgage as you can afford, and get your home ready to be a retirement paradise.
• Most importantly, if you ever have questions or don’t feel comfortable with some part of the loan, stop! Ask questions and get them resolved before you move on.

Visit us online today!  www.novareserve.com 

Home Equity Loan Vs. Reverse Mortgage Loan

Considering Tapping Your Home Equity? Compare Your Options First

Rising costs and expenses coupled with a fixed income can be a significant challenge as you age.

If savings, Social Security, and modest retirement income is proving insufficient, you may be considering the role your home could play in meeting daily living expenses or planning for a secure financial future. When it comes to your home, selling to downsize is one option. You might also consider finding someone to share your home.

There are also financial products and tools that can help unlock the equity you’ve built up over the years. Each option has its pros and cons, and they vary in feature options.

Earlier this year, NCOA asked senior homeowners about their understanding of home equity release products. The homeowners told us that, despite their home equity representing a majority of their overall retirement assets (from 60-80%), few understood home equity products, and most would be reluctant to use one. The research also revealed some negative bias against a reverse mortgage line of credit, based on the product name, and preconceived notions of the product.

Here’s a comparison of the most common home equity release products:

Home Equity Product Comparisons

Home Equity Lines of Credit (HELOCs)	Reverse Mortgage Line of Credit (Home Equity Conversion Mortgages or HECM)	Home Equity Loans
Borrowers have access to funds for a specified time period	Borrowers have access to funds for no specified time period	Borrowers have access to a specified lump sum up front for a specified time period
Must make minimum monthly payments	No minimum payments required	Must make specific set monthly payments
Lender can freeze or reduce the line of credit	Lender cannot freeze or reduce the line of credit	Lender cannot freeze or reduce the loan amount
Home subject to foreclosure if minimum payments, taxes, or insurance not paid, or borrower does not keep the home in good repair	Home subject to foreclosure if taxes or insurance not paid, borrower does not keep the home in good repair, or does not live in the home as primary residence	Home subject to foreclosure if minimum payments, taxes, or insurance not paid, or borrower does not keep the home in good repair
Loan balance must be paid back in full, even if borrower owes more than home is worth	Borrowers or heirs never pay back more than the home’s fair market value when sold	Loan balance must be paid in full, based on a fixed interest rate on a specific schedule
Fees and costs to obtain the HELOC can include closing costs	Fees and costs to obtain the HECM can include closing costs, counseling fee, and mortgage insurance premiums	Fees and costs to obtain the Home Equity Loan can include closing costs

If you’re looking for tools to unlock cash from your home to plan for the future, or to meet your current needs, here are a few tips to get started:

• Download NCOA’s free booklet, Use Your Home to Stay at Home© (available in both English and Spanish).
• Contact a Department of Housing and Urban Development (HUD) approved housing counselor, or other trusted financial advisor, with questions or to discuss options.
• Shop around and compare quotes to assure the best value for the solution you’re seeking.
• Take a free and confidential BenefitsCheckUp® to find out if you’re eligible for relevant property tax relief or other public benefit programs.

Don’t wait for an emergency. Plan now, so you don’t have to make your choice in a crisis. Getting educated about the many options available for accessing your home’s equity can help secure your future and maximize your resources for a long, healthy life!

Visit us online today @ www.novareverse.com

How Does A Reverse Mortgage Work?

(CBS) — It’s a tax free source of income, but only 2 percent of seniors take advantage of it.  View CBS 2 Cost Cutter Dorothy Tucker shows who could benefit the most from a reverse mortgage.  http://chicago.cbslocal.com/2017/08/11/how-does-a-reverse-mortgage-work/#.WZHDX2gi01M.facebook

“It gave my dad the sense of independence,” says financial expert Terry Savage.

She says a reverse mortgage can help people like her dad live comfortably in their own homes until they die.

It’s like using your home equity as another retirement savings account.

“It comes out as a tax-free withdrawal for you to live on,” Savage says.

A reverse mortgage works best for someone who owes little or nothing on the original mortgage and plans to live in the home for more than five years.

“Do your research, shop around and talk with a federally approved housing counselor,” advises Jason Adler with the Federal Trade Commission (the FTC has information here).

He says fees, interest rates and restrictions vary. Plus, you still have to pay property taxes & insurance.

“Failure to do those sorts of things can make the loan immediately due and could eventually lead to foreclosure,” warns Adler.

Here’s something else to consider: When you move out of your home or die the balance due on the reverse mortgage loan will be paid through the sale of the house.

If the home sells for more than you owe, you or your estate will get money back. But if you’ve borrowed more than the value of the home, the lender keeps it.

“They can never charge your heirs more than the house is worth, you simply turn over the property to the reverse-mortgage lender,” says Savage.

You have to be 62 to take out a reverse mortgage.

Savage suggests taking a monthly check, rather than a lump sum payment, which you might use up too fast.

Visit us online @ www.novareverse.com