How are you feeling today about the rapid fall of the stock and financial markets? It is kind of like the feeling you had riding the big scary roller coaster as a kid and you experienced the “big drop.” I know I left my stomach at the top. The rule of roller coasters is big peaks can lead to big drops. We all know they are coming when riding a roller coaster. It is part of the excitement.
Not so much fun when it comes to the financial markets and your hard-earned money. Not so much fun on this roller coaster drop. Despite knowing the rhetoric and history of market ups and downs, how much preparation do most take to prepare for the downside? I know there are tools and strategies that have been used, some more effective than others.
What most retired people dread in the down market is seeing their financial future diminish with less time for recovery. Even worse is the prospect of having to draw funds to live on at such a bad time. If there are no other resources, you have no choice.
Do you think it would help if you could draw on tax free resources not tied to any financial market, unaffected by the roller coaster ride, that would allow you the time for the markets and your retirement resources to recover? What if you could live on these funds for a year, two years or even longer? Would giving your resources in the down-market time to recover benefit you in the long run? Do you have such a strategy to help mitigate the longevity risk of your retirement funds following a down market?
Let’s consider the research from experts such as Sacks & Sacks, Dr. Wade Pfau, Jamie Hopkins, Shelley Giordano and Don Graves all financial gurus specializing in managing/winning at longevity risk in retirement. They consider the fact that “winning” consists of two factors, not running out of money during retirement AND ending up with more money in the end. Do those sound like your goals?
What do they recommend? Almost without exception these researchers and financial gurus recommend folks consider the advantage of using the wealth in their home as one of the tools and resources available. Sacks & Sacks ran exhaustive scenarios with and without the use of housing wealth. Their conclusion was the folks who never used this resource had the lowest likelihood for success. Those who used housing wealth as part of a prudent plan, had the greatest. They also concluded, those who engaged this strategy earliest were the most successful. Does this surprise you?
How can it work? Fairly simply. First, if you have a current mortgage with a monthly payment, think of how much longer your other resources would last if you could reduce your monthly outgo by that payment. Second, if you have no current mortgage or a small one, you can create a Line of Credit from which to draw. Using these funds to live on after a down market allows time for the other funds to recover. Scenario after scenario shows the benefit of this strategy with the benefit of increasing longevity AND having more money at the end. “What would your life be like without a mortgage payment?”*
Did you know the Line of Credit is guaranteed by the Federal Government to both grow (today’s growth factor is approximately 4%) and to be there, even if your home value is zero? One prominent financial expert, Don Graves, calls it “equity insurance.” The funds drawn are not taxable. If you need $20,000 you draw that amount not $25,000+ as you would from taxable funds. Would this help your other funds last and grow? If you need $30,000 - $50,000 to live on, not touching your other retirement accounts, you can do so. You can also take a lump sum, set up monthly income stream or both.
Also, if you want to delay taking Social Security this is a viable tool to help you do so.
Lastly, you can also create an income stream guaranteed by HUD. This may be set up as an income for life, for a term or a specific amount for however long it will last. You can create an income stream AND leave funds in the line of credit for future needs. It is an amazing and multifaceted tool. I reckon it is like a Swiss Army knife with the amount of uses at your disposal.
These are just some of the strategies. You have worked long and hard to invest your money to build wealth in your home. With wise counsel and adept strategies, that wealth can protect your other assets allowing them all to work in concert to mitigate longevity risk and likely have more money left at the end in all your accounts.
People who say they will “wait till they need it” don’t understand the dynamics and power of this valuable resource. The sooner you include this as part of a strategy, the better the results in the long run. More and more financial advisors are concluding that it is a valuable part of the discussion on winning strategies to incorporate home wealth into the game plan.
If you would like to discuss this further or want details on the studies mentioned, just reach out to me and I will provide that to you. I love to educate, helping people see their options and ultimately “help people dance.”
My next blog will be on the changes made to the program, fixing the issues that once existed.
Contact me for more information and to see if a reverse mortgage might benefit you. I educate; you decide.
We educate; YOU decide.
(586) 753-9000
