Fed Survey: One-Third of U.S. Households Unprepared to Retirement

 

Reposted from National Reverse Mortgage Lenders Association, ©2014

The Federal Reserve Board published the results of a new online survey this week, which found that 31 percent of non-retired respondents have no retirement savings or pension, including 19 percent of those ages 55 to 64. Additionally, almost half of adults were not actively thinking about financial planning for retirement, with 24 percent saying they had given only a little thought to financial planning for their retirement and another 25 percent saying they had done no planning at all. Of those who have given at least some thought to retirement planning and plan to retire at some point, 25 percent didn’t know how they will pay their expenses in retirement. According to the survey, the Great Recession pushed back the planned date of retirement for two-fifths of those ages 45 and over who had not yet retired, and 15 percent of those who had retired since 2008 reported that they retired earlier than planned due to the recession. Among those ages 55 to 64 who had not yet retired, only 18 percent plan to follow the traditional retirement model of working full time until a set date and then stop working altogether, while 24 percent expected to keep working as long as possible, 18 percent expected to retire and then work a part-time job, and 9 percent expected to retire and then become self-employed. The survey was conducted on behalf of the Board by GfK, an online consumer research firm. Data collection began September 17, 2013, and concluded on October 4, 2013. Just over 4,100 respondents completed the survey. To view the survey’s key findings visit www.federalreserve.gov/econresdata/2013-report-economic-well-being-us-households-201407.pdf

Contemplations of a Crummy Magician

I stood waving my hands in front of the paper towel dispenser like some feeble magician trying to conjure paper towels, when the thought occurred to me: I frankly can’t remember the last time I heard someone complain about the rigors of pulling a paper towel from its dispenser. Electric paper towel dispensers solve a problem that never was a problem.

This got me to thinking: how many other fixes fix problems that aren’t problems? And if you can believe it, I actually came up with several – but that’s a different commentary altogether. It’s the corollary that hit home.

Finite choices

Remember functions? Those funky f(x) equations in math class? Basically, a function says if I do this, I get that – one solution for each problem.

Fortunately, most day-to-day issues have many solutions. But here’s the thing: the farther one travels into retirement, the more limited options become.

Most of us are going to need additional options if we’re going to enjoy what experts call “financial survival in retirement.” Not a cool term…but a very real problem.

Larger solution sets

In what I consider one of the most encouraging transformations in the history of the reverse mortgage product, I am seeing a regular stream of clients referred from the financial planning community. Seniors seeking informed input are turning to an informed source, namely their financial professional. Of course, I’ll never know how many financial professionals steer their senior clients away from reverse mortgage – but I do know an increasing number tell me they view reverse mortgage as a legitimate financial tool when used in concert with a comprehensive financial plan.

Financial professionals refer clients to me well before catastrophe strikes, before clients’ means have dwindled, before financial limits are reached – before the financial boat plunges over the cliff of desperation.

Planners understand that more financial buckets equal a better outcome – and they understand that a reverse mortgage is simply an additional bucket.

Real solutions for real life

I hear the same stories everyone else in the financial industry hears: seniors unable to return to full-time employment. A spouse lost, and the resulting 50% drop in income. A catastrophic event – or a chronic condition that became financially catastrophic. Or, simply, too much life left at the end of the money.

A real problem meets a real solution

Unlike the motion-detecting paper towel dispenser, reverse mortgage is a real solution to a real problem.  When put in place preemptively, before it’s just a crisis management tool, reverse mortgage can be part of a sound retirement plan.

No one is going to get by on just their Social Security. No one is going to make it on their 401-K. Few are going to survive on their pension, their annuity, their IRA, their bank account – or their reverse mortgage. But when added together, all these combine to create a long-term means of maintaining dignity and independence in retirement.

If you would like to explore how an FHA reverse mortgage might help with your retirement plans, give me a call. I always love hearing from you.

Laurie

Laurie MacNaughton [NMLS 506562] is a freelance writer and Reverse Mortgage Consultant at Middleburg Mortgage. She can be reached at: 703-477-1183 or Laurie@MiddleburgReverse.com.

My Retirement Goal? Get Old, Get Sick, and Move Out of my Home

How many times has this happened to you: you ask someone their goals for retirement and they say, “Get old, get sick, move out of my home, and die in a care facility”?

Can I hazard a guess as to the answer?

New Numbers, No Surprises

In a new study entitled United States of Aging, jointly sponsored by National Council on Aging, USA Today, Florida Public Television, and United Healthcare, 2,250 Americans aged 60 and older were queried on a variety of aging-related issues.

Turns out, a whopping 90% of respondents say they wish to age in place. And nearly 3 in 4, or 74%, plan to make adaptive changes to their home in order to make possible aging in place. ⁱ

I just have to ask: Does this surprise anyone?

Senior Strategies, Booming Business

Russell Glickman, Washington, D.C. area universal design specialist and winner of the National Association of Remodeling “National Remodeler of the Year” award, says:

I am seeing definite trends in remodeling. As clients make design changes they’re asking more about long-term, universal design, such as first-floor bedroom suites. Also, lot of Baby Boomers are asking about their parents. They’re not really focused on themselves yet, but they’re planning to move their parents into the home. Then later, when they are at that point, they’ll modify the space for themselves.

With many Americans projected to live well into their 90’s, staying in the home as long as possible is often the most significant cost-containment strategy available.

But containing costs is only half the equation. More available money is the other half.

Alicia Munnell, director of the Center for Retirement Research at Boston College, says, “I see a future where people in their 60s are having dinner with friends and the conversation leads to: ‘Where are you getting your reverse mortgage?’ It will be the norm. It is going to take a while, but we will have a cohort of people entering retirement who only have $100,000 in their 401(k) plans.”ⁱⁱ

New Normal = “Old” Normal

We all are used to hearing the term “the new normal.” Truth is, “old” is the new normal, and we’re all – or soon will be – facing issues of aging.

And as we age, hopefully with grace, in dignity, and with financial soundness, the FHA Reverse Mortgage is likely to play a central role in helping many Americans achieve these goals.

Give me a call with your questions. I always love hearing from you.

Laurie

Laurie Denker MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant · Middleburg Mortgage, a Division of Middleburg Bank · 20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com · www.middleburgmortgage.com/lauriem

Visit my Informational Blog at https://middleburgreverselady.wordpress.com/

ⁱhttp://www.ncoa.org/assets/files/pdf/united-states-of-aging/2012-survey/8-2-12-United-States-of-Aging-Full-Findings-FINAL.pdf

ⁱⁱ(http://reversemortgagedaily.com/2012/08/15)

Thickness, Congestion, Repugnance…And the Preservation of Dignity

This week past my friend Jean and I took a road trip from sweltering Washington, D.C. to almost as sweltering Gloucester, Massachusetts. On the way we stopped in Boston to visit Jean’s parents, where she introduced me as the “geekiest friend” she knows.

I thought this unfair: she must have at least one geekier friend.

In any event, on the trip I listened with rapt attention to a lecture by Harvard professor Alvin E. Roth, the George Gund Professor of Economics at Harvard Business School.

The lecture carries the remarkably boring title, “What We Have Learned From Market Design,” and discusses three elements that trip up markets, whether we’re talking about kidney transplants, adoption…or, presumably, the hottest new iPhone.

Basically, the three elements are as follows:

Thickness: do enough people need what you offer?

Congestion: can enough be produced to make it widely available?

Repugnance: is what you offer socially acceptable?

Now, I’m a Reverse Mortgage Specialist, a mortgage banker. Seniors – or their adult children – come to me for money. So why did Dr. Roth’s lecture captivate me? And why do you care?

One of the biggest challenges facing us is how, as a nation, we are going to keep our seniors – our parents, friends, neighbors, the older members of our communities – safe, sound, and secure as they retire, relocate, and move ever deeper into old age. And much of this revolves around their housing.

And that’s where Dr. Roth’s lecture comes in:

Thickness: In America, 10,000 – TEN THOUSAND – boomers a day turn 62. The U.S. Census Bureau defines a mid-sized town as one having 250,000 people. That means every 25 days enough people in America turn 62 to fill a city – an entire mid-sized city. We are talking about lots and lots and lots of people – 76 million, to be precise – who over the next 18 years are going retire, move…and in many cases, need additional funds to make it through retirement. People, lots of people, need, or will need, an FHA HECM, also known as a reverse mortgage.

Congestion: Under current guidelines, to qualify for a reverse mortgage a person must be at least 62 and have sufficient home equity to pay off any existing loans on the home. The reason credit score, employment, or income doesn’t matter is because the borrower does not pay back the loan; the home pays back the loan once the borrower no longer needs the home. As long as we have homeowners, we have what we need to keep those homeowners in their own home.

Repugnance: I’ll be blunt – the old, pre-FHA reverse mortgage had a wretched history. However, the new FHA HECM is federally insured, federally regulated, and very closely monitored. This is as it should be – after all, we’re talking about your parents and mine, your neighbors and mine, and, eventually, you and me. Nonetheless, despite all the meticulous oversight, addressing fear of my loan product is a big part of what I do. With the huge educational programs and advertising campaigns over the past few years, the perception has begun to change, but misunderstandings still abound.

We’re all in the same boat: day by day we get older, our parents get older, and the nation’s financial situation gets a little more strained. The fear of running out of money in retirement dogs many of our seniors. Ask seniors and they’ll tell you: reduced circumstances and the attendant loss of dignity is not far from their thoughts. Fortunately, there are options.

If you or someone you know would like to talk, give me a call. I always love hearing from you.

Laurie

Laurie MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant · Middleburg Mortgage, a Division of Middleburg Bank · 20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com · www.middleburgmortgage.com/lauriem

Visit my Informational Blog at https://middleburgreverselady.wordpress.com/

To watch Dr. Alvin E. Roth’s lecture go to:   http://www.youtube.com/watch?v=7qrYC0Ojf-o

Reversing Years’ Worth of Skepticism

Even if they don’t adhere to it, most people have at least heard of the “bucket” strategy of saving for retirement. Basically, it’s a method of asset allocation, a way to diversify investments and save for the day you’re no longer working full time.

But here’s a question you might not know the answer to: for most people, what is the biggest – and best funded – bucket?  Cash equivalents? Fixed-income securities? Pension?

Answer: No, no, and no. For most people, the single biggest “investment bucket” is their home.

You can think about it this way: you might have designated several buckets. But if you didn’t put sufficient money into them during the working years, those buckets are not going to get you through retirement. However, most Americans paid into their home, even during the past few years when times were tough.

But here’s the problem: after spending years pouring the first fruits of one’s income into the home, that money is frozen, tied up in an illiquid asset. It’s an investment, certainly. But it’s not one easily converted into an income stream for retirement.

Increasingly, however, drawing upon that bucket by means of an FHA reverse mortgage is being recommended as a way to meet seniors’ financial needs during retirement.

FHA reverse mortgages have been around since 1988. But until recently, the financial planning community viewed them as the dirty underbelly of financial products.  It was the rare financial planner who saw any legitimate use for them whatsoever, let alone who used them in a strategic way.

However, within the past few years scores of scholarly studies have shown both the near-term and long-term positive impact of reverse on standard of living, financial portfolios, and estates.

In “How Important Is Asset Allocation To Financial Security in Retirement?” authors Munnell, Orlova, and Webb with Center for Retirement Research at Boston College state:

…[F]inancial advice…tends to focus on financial assets, applying tools that give prominence to the asset allocation decision. But most people have little financial wealth, and financial tools are often silent on the levers that will have a much larger effect on retirement security for the majority of Americans. These levers include delaying retirement, tapping housing equity through a reverse mortgage, and controlling spending [emphasis added].

Of particular interest to many financial planners is that, when set up as a monthly payment option, a reverse mortgage basically annuitizes the home – and it’s a considerably bigger annuity than most people would have been able to establish in the years they were supporting their family, helping with college tuitions…and paying their mortgage.

Rick Gow, wealth manager with the independent investment firm Lara, Shull, and May in Falls Church, Virginia, cites the example of a 66-year-old with a house valued at $400,000.

After subtracting closing costs, the retiree could receive a tax-free, monthly check of $1,252 for as long as the home remains the primary residence. By the time the homeowner turns 85, disbursements would total more than $289,100; by age 95, the total payouts would be over $435,600.

If the homeowner were to take a onetime, lump sum payout, he or she would receive approximately $256,800.  A third option would set aside that amount in a line of credit, the balance of which grows over time, tax free.

There is also a newer, reduced fee FHA reverse mortgage, called the HECM Saver. The over-all payout is less with this option, but Gow points out the lower closing costs make it a good option for some.

The majority of Americans fear running out of money in retirement more than they fear death, according to a May, 2012 AARP bulletin. In an America where 10,000 boomers a day turn 62, the FHA reverse mortgage has an increasingly pivotal role to play in retirement planning.

I always love hearing from you. Call me at any time with questions.

Laurie

Laurie MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant · Middleburg Mortgage, a Division of Middleburg Bank · 20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com · www.middleburgmortgage.com/lauriem

Visit my Informational Blog at https://middleburgreverselady.wordpress.com/

Babies Don’t Have Dumb Ideas

When my daughters were teenagers I often said the biggest difference between teens and babies is that babies don’t have dumb ideas yet.

But both teens and babies have this in common: just a couple years later, both are more capable, more independent, and better able to care for themselves.

It’s tough to acknowledge, but I now have to add my mother to the comparison.

My mother is probably the most gifted person I know: brilliant, beautiful, funny, well read, extensively traveled, graceful and poised.

But she is getting old, and her proficiency in daily tasks is falling away at a relentless pace. And, unlike either babies or teens, a couple more years is not going to make the issue any better.

NPR Morning Edition’s Jessica Smith, in “Baby Boomer Money Squeeze Worsens, Multi-Gen Households Rise” (June 6, 2012), writes,

Roughly 78 million baby boomers are moving into their retirement years now. At first, they will be the “young” old. Legions of retired boomers soon will be walking around the mall, volunteering with community groups and taking grandchildren on trips.

At first, that can be good for the economy. But this immense generation, born between 1946 and 1964, will keep aging. Based on current medical outcomes, most of the people who live beyond age 85 will end up with dementia or other disabilities that require costly care.

Here’s how fast the numbers will ratchet up: In 1990, only about 3 million Americans were over the age of 85. Today, the figure is 6 million. By 2050, the United States will be home to about 19 million people older than 85, according to U.S. Census projections.(http://www.npr.org/2012/06/05/154001412/baby-boom-money-squeeze-is-set-to-get-tighter)

Almost 20 percent of advanced elderly Americans now live with their aging adult children, putting tremendous pressure on “leading edge” boomers who are hitting traditional retirement age. Boomers tended to have fewer children, later in life, which in some cases has resulted in their still having dependents at home at a time previous generations would have been saving intensively for retirement. Additionally, many middle-aged parents find themselves helping grown children who have lost jobs, homes, and businesses – the classic “sandwich generation” squeeze, made more intense by a prolonged recession.

We are a becoming a nation of the old and the older, the squeezed and the very squeezed.

Writes Ms. Smith, “For individuals, families, local government officials and federal taxpayers, this demographic shift will drain dollars and attention, and force extremely difficult decisions about living arrangements, as well as end-of-life care.”

When we have these talks about taxes and government, what kind of numbers are we talking about?  The primary number to watch is the national debt: in 1970, when boomers were young, the national debt ran about 28 percent of gross domestic product. It now stands at 70 percent.

And, as in the case of my mother, a couple more years is not going to make this issue any better.

According to Centers for Medicare and Medicaid Services, Medicare will remain solvent until 2024. Starting last year, Social Security already began paying out more than it takes in.

As former U.S. Comptroller General David Walker, a federal spending expert says, “Government has grown too big, promised too much and waited too long to restructure. It is going to spend less over time … which means that individuals will have to plan, save and invest for the future.”

Plan, save, invest…and take out a reverse mortgage, according to research put out by Boston College in May, 2012.

….but more in my next piece about several watershed reverse mortgage articles published this spring by major research institutions.

Laurie

         Laurie MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant · Middleburg Mortgage, a Division of Middleburg Bank ·                   20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com www.middleburgmortgage.com/lauriem

Visit my Informational Blog at https://middleburgreverselady.wordpress.com/

FHA Weighs Rule Reversal, Boon for Condo Sales?

Daily Real Estate News | Tuesday, May 22, 2012

The Federal Housing Administration is reportedly considering revising rules that many in the real estate industry have called overly strict and that have left many condo units ineligible for FHA’s low-downpayment mortgages.

For example, one sticking point under the FHA’s rules has been that “individual condo units cannot be sold to buyers using FHA-insured mortgages unless the property as a whole has been approved for financing,” The Wall Street Journal reports. However, condo association boards are increasingly opting not to obtain recertification of their buildings for FHA loans due to its tightened regulations against condo units.

FHA’s regulations “have had an enormous impact on individuals,” says Moe Veissi, president of the National Association of REALTORS®. More condo unit residents are finding they are unable to sell their unit because the condo board hasn’t obtained approval from FHA, Veissi told The Wall Street Journal. This then can have a roll-over affect that negatively impacts the price of condo units in the buildings then.

Half of all condo buyers tend to use FHA mortgages, and it’s an important source of lending for first-time and minority home buyers, Christopher L. Gardner, managing member of FHA Pros, a consulting firm that helps condo boards obtain FHA approvals, told The Wall Street Journal.

FHA officials say they are willing to reconsider some of their rules that have raised such an outcry among condo owners, lenders, and real estate professionals. For example, one rule the FHA is reportedly reconsidering is its stance on non-owner occupancy. As of now, FHA requires that no more than 50 percent of the units in a condo building be non-owner occupies. “This rule alone has made large numbers of condominiums in hard-hit markets ineligible for FHA financing, where investors have purchased units for cash to turn into rentals,” The Wall Street Journal reports.

FHA also is reportedly revisiting its condo rules on how many owners in a building can be delinquent on their fees. As of now, FHA refuses to approve a project if more than 15 percent of the condo units are 30 days or more late on their condo association fees, The Wall Street Journal reports.

Source: “Condo Sales May Become Easier if FHA Revises Rules Governing Mortgages,” The Wall Street Journal (May 18, 2012)

Financial Planners to Reverse Mortgage Lenders: Educate Us

by Elizabeth Ecker Published in News, Reverse Mortgage

A panel of financial planning professionals shared insight with attendees of the National Reverse Mortgage Lenders Association conference in Irvine, California last week. By and large their message to reverse mortgage professionals was: education is paramount.

While some financial planners do understand the viability of reverse mortgage products and they ways in which they can work for clients, and even with the help of recent positive financial planning press on the products, there is still work to be done on the education front, they say.

“I was getting a lot of phone calls about reverse mortgages,” said Pat McClain, senior partner and founding principal of Hanson McClain Advisors of his early experience with reverse mortgages. “I initially had a negative attitude toward reverse mortgages. But I realized they weren’t the reverse mortgages of old; they actually help people if used correctly.”

McClain, who became one of the founders of Liberty Reverse, now advises clients on financial planning. While his mind was changed, there are still others who need help understanding how the products can work.

“In terms of clients’ perceptions, there is still a lot of work to be done,” says Jerry Clements, certified financial planner with Ameriprise. “For most there is a negative connotation when I talk to clients.”

But, Clements says, there are ways reverse mortgage professionals can work with financial planners to bring them up to speed. Some are working with reverse mortgage advisors already, others are not.

“A lot of us still have preconceived ideas. …hopefully over time with education [the reverse mortgage] could be something they integrate more as a tool to prevent portfolio failure,” he says.

While real estate professionals focus on location, location, location, McClain says, for financial planners, it’s education that counts.

“For us in the financial planning community, it’s education, education, education,” he says. “You may assume we understand how it works, but some do not have a clue. It’s a process. It may take years to develop the relationship, but if you do and there’s that trust, you will be top of mind. Our clients are asking about it and the more educated we are the more we can help our mutual clients.”

Looking ahead, McClain says, the reverse mortgage could be incorporated into financial planning calculators.

“Figure out as an industry how to bake calculators into financial planning software, so it shows up as a line item. It will make a difference in three to five years, whether they recognize it now, or not.”

Wall Street Journal: Without a Reverse Mortgage, Most Americans Won’t Make it Through Retirement

Saturday’s Wall Street Journal article by Tom Lauricella minces no words: “Your financial adviser doesn’t want you to read this column.”

What would cause this venerable financial publication to introduce a piece in such robust terms?

Because, based upon research done by the highly esteemed Center for Retirement Research at Boston College:

Without making any changes to their savings and investment strategies, 74% of households would fall short of their income needs at age 62, and 47% would fall short at age 67, when individuals (born in 1960 and later) become eligible for full Social Security benefits.

By anyone’s standards, these are scary numbers.

This sobering data, fortunately, is not the whole story. The article goes on to state that when certain “levers” are pulled, seniors’ odds improve significantly.

By adding two factors – the aforementioned “levers” – to a retirement portfolio, research demonstrates that odds swing greatly in seniors’ favor.

So what are these two levers?  First is working longer. This cuts down the number of years spent in retirement, and adds savings to the retirement kitty. Demographic studies consistently show people are working significantly longer even compared to just a few years ago, and this trend looks poised to continue.

And the second lever? For many Americans entering retirement, or for those already retired, a Reverse Mortgage makes possible living out their retirement years with dignity and in financial security.

With the FHA-insured Reverse Mortgage, homeowners never give up title, cannot get underwater, never make a payment as long as they remain in the home, and never have to move.

Read the whole article at: http://alturl.com/jiu2o

CNBC Reports on Financial Planners’ Rising Interest in FHA Reverse Mortgage

“Financial planners often don’t even understand [reverse mortgages] because the lessons they have learned (from other financial products) don’t apply,” said Barbara R. Stucki, vice president of home equity Initiatives at the National Council on Aging.

But advisers are now jamming them into their tool boxes. Financial planners who once shunned them as too costly and confusing are starting to see their value – especially as other cash sources dry up for retiring baby boomers.

“A reverse mortgage can be a perfectly good way to use your home equity,” said Stephanie Moulton, an Ohio State University public policy assistant professor and reverse mortgage expert who has worked a reverse mortgage counselor for American Association of Retired Persons.

“The danger is that boomers might draw down their equity and spend it on the wrong thing, like expensive vacations, and find themselves with none left at age 75 when they need it even more. But if you use reverse mortgages as part of a financial strategy, they can be a sophisticated product that fills a real need.”

How They Work

Reverse mortgages are offered to people who are at least 62 years of age. There are two main types set up under the FHA’s Home Equity Conversion Mortgage, HECM, and referred to by insiders as ‘heck ‘em.’ (The Federal Trade Commission has a reverse mortgage primer on its site.)

The “standard,” or traditional, reverse mortgage, gives you a stream of income for a number of years, usually as long as you live in your home. As with Social Security, though, there is no “means-testing” or upper income limit. The program can pay thousands of dollars per month on principle of up to $625,000. It is government-guaranteed and not taxable income, and it is not likely to affect Social Security or Medicare benefits. The older you are, the higher the payout.

Read the article at: http://alturl.com/qo9p2