Financial Planning Toolkit:Reverse Mortgages

March 2014

Reverse Mortgage FundingSocial Security Delay

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Financial Planning Toolkit:Reverse Mortgages

• Single woman retired, turning 62, expects to live to age 95

• Living expenses $87,000/year

• Social Security benefit at Full Retirement Age (FRA) of 66 is $2,500/month

• Pension from age 62 is $5,000/month

• $500,000 investments in IRA

• $240,000 Reverse Mortgage Line of Credit

• California resident; combined state and Federal tax bracket ~33%

Scenario Highlights

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Financial Planning Toolkit:Reverse Mortgages

62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

Client's Age

SS starts at 62, no Reverse Mortgage5% Success Rate

Client runs out of money in95% of her lifetimes

Social Security starts at 62: IRA Funds Remaining Income Gap

SS starts at 62$500,000 IRA funds spending

No Reverse Mortgage

IRA Balance

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Financial Planning Toolkit:Reverse Mortgages

Delayed Social Security: Reverse Mortgage Funds Income Gap

62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

Client's Age

Reverse Mortgage draws fund early spending

$500,000 IRA starts funding spendingafter Reverse Mortgage is spent down

Social Security starts at age70,IRA grows with reduced draws

IRA Balance

SS delayed until 7090% Success Rate

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Financial Planning Toolkit:Reverse Mortgages

Social Security Reverse MortgageLine of Credit Success Rate On Graph?

62 $0 5% On graph

70 $0 3%

62 $240,000 79%

70 $240,000 90% On graph

Synergy from Reverse Mortgage and Social Security Delay

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Financial Planning Toolkit:Reverse Mortgages

• Reverse Mortgage funded 6+ years of spending

• More assets to spend: $240,000 home wealth plus $500,000 IRA

• Taxes matter: Client in a 33%+ tax bracket, combining state and Federal

• Reverse Mortgage tax-free $1.00 has spending power of IRA $1.50

• $240,000 from Reverse Mortgage is tax-equivalent to $360,000 from IRA

•Investment portfolio untouched until age 68• 6+ years of growth before withdrawals, 6 fewer years of withdrawals• Reduces “sequence risk”: withdrawals when bad returns hit early

• Investment portfolio draws after age 70 reduced by largest possible SS

Why did Reverse Mortgage filling the Income Gap Work So Well?