As reverse mortgages continue to gain notable mainstream press, they are also earning recognition for the vast need that lies ahead when it comes to the nation’s severe retirement crisis, according to a recent Huffington Post blog.
It is widely accepted that the Baby Boomer generation, which is seeing 10,000 Americans turn age 65 each day for the next 15 years, presents a favorable opportunity for reverse mortgage usage in the years to come. However, a group within this demographic dubbed the “mass affluent” stands to have the greatest potential in utilizing these loans.
“It’s a very misleading term because they’re not massively affluent. Rather there’s a mass of them and they’re almost affluent,” said Barry Sacks, a California tax attorney, author and nationally recognized expert on reverse mortgage trends, in the HuffPost blog article.
This group, as defined by Huffington Post, has $750,000 to $2 million of net worth at retirement and are people who typically have “almost enough money to live comfortably.” Additionally, it’s not uncommon for these individuals to have $750,000 to $1 million in a 401(k) and another $750,000 to $1 million in home equity.
Using a reverse mortgage also goes against what traditionally has been the public’s perception of conventional wisdom—in that a reverse mortgage should be used as a tool of last resort, that home equity should be reserved until a person has exhausted all of his money.
However, the problem with this thinking, Sacks said, is that it does not take into account the volatility of the securities portfolio of the 401(k) account or the IRA.
“…[Y]ou can use the reverse mortgage credit line to fill those troughs when the securities portfolio is down and don’t draw upon the securities,” Sacks said. “If you draw from a reverse mortgage credit line and allow the portfolio to recover, then there’s a far better chance there will be money flowing through a 30-year retirement.”
For those with less wealth stored for retirement, a reverse mortgage can still help, but not as significantly as those considered “mass affluent.”
Read more at The Huffington Post.
Written by Jason Oliva
