The #1 Fear in the United States is not the fear of death!
Why are so many of us approaching our retirement years with such trepidation? It’s pretty simple – the # 1 fear in the United States is the “fear of running out of money before we die”! Recently replacing the “fear of death” – now #2.
Who are they who fear entering their golden years most? The Baby Boomers who are turning 65 at the rate of 10,000/day and have experienced unprecedented losses in their retirement savings and decline in overall wealth due to the recent economic meltdown. In fact many Boomers do not plan on retiring anytime soon – determined to acquire enough money to maintain the lifestyle to which they’ve grown accustomed. The especially fear running out of money before they die! Does this mean we’ll be seeing 90 year old executives, salespeople or office workers? Or is there another solution?
Although investment portfolios are depleted and replacing lost savings may require working a few more years there is a bright spot. Recent homeownership statistics report a growing area of untapped wealth. Home Equity is now increasing in homes across the nation as real estate regains its value and we call that “Housing Wealth.” In fact “housing wealth” is now considered a resource by many financial planners that can be used to strengthen and preserve the longevity of assets. Potentially making it possible for Baby Boomers to have the financial resources necessary to retire and enjoy their golden years!
In previous generations “Housing Wealth” was the family inheritance and was sacred. It was expected that parents would leave the home, free of any mortgage, to their children. People routinely had sufficient assets for their retirement years – not only their home but also savings, a pension from the job they worked for 40 years; and passing those assets plus the family home to the next generation was what everybody did.
Attitudes are rapidly changing as the new wave of retirees cannot afford to follow in those footsteps. For Baby Boomers who have lost their savings, did not work the same job for 40 years with a pension, and whose only asset may be their home, funding retirement requires a new approach. Boomers are eyeing their housing wealth - the increased home equity - as their ticket to a decent retirement.
Baby Boomers are increasingly accepting the use of the Home Equity Conversion Mortgage (HECM) to tap into a portion of their housing wealth to fund retirement. Recent changes in the HECM (a federally insured reverse mortgage) have given it legitimacy with financial advisors as an important weapon in their financial arsenal. When the homeowner has sufficient home equity the HECM is extremely versatile. Financial advisors often recommend:
· Using this source of tax free cash rather than draw down their portfolio in a bad market. Thereby preserving the longevity of their assets.
· To postpone taking social security until a later date when the payout will be greater; and instead temporarily meet their cash flow needs with the HECM line of credit.
· Using the HECM as a line of credit for funding future health care needs like in-home care, buying long term care insurance and establishing an emergency fund
The HECM is only for homeowners over the age of 62, who continue to live in their home as their primary residence. There are no monthly principle and interest payments required until a repayment event occurs. The loan balance, which includes the principle, accumulated interest and mortgage insurance, is due when the last borrower on title permanently moves out, or if the homeowner fails to pay the property taxes or hazard insurance or other property charges, or does not maintain the property to FHA standards.
Changes in the HECM occurring October 1, 2013, now preserve more home equity, reduce loan costs for most borrowers, and settle concerns about the payment of property taxes, hazard insurance and other property charges with set asides (similar to an escrow account). On the horizon there will be financial assessment requirements to make sure the borrower will be able to meet all of their obligations after receiving the HECM.
The stability and preservation of this valuable financial tool for generations to come is important to everyone who cares about the older generation – especially since in the future most of us will be joining them. The Home Equity Conversion Mortgage (HECM) allows people to live out retirement in the home of their choice without monthly principle and interest payments, in many cases providing added cash flow and strengthening the longevity of assets. It can be said that the HECM has helped to remove the fear of running out of money before one dies!
Michel Kole is a Home Equity Conversion Mortgage Specialist with Golden Equity Mortgage, the Reverse Mortgage Division of Land Home Financial Services. With over 25 years as a lending professional. NMLS/CA-DBO#248631.
Golden Equity Mortgage
7670 Opportunity Road, Suite 165
San Diego, CA 92111
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