Meet Bill and Harriet
- Bill retired last year and gets a small pension and Harriet’s had some health challenges and will need to retire within 6 months. Both are drawing on Social Security
- They have $200,000 in cumulative savings (IRA, 401K, Annuities)
- They believe they will need to draw about $17,000 a year from those savings if they want to maintain their basic lifestyle.
- They have a home worth $389,000 and it has a small mortgage of $75,000 which they pay $500 a month with about 20 years remaining.
The Housing Wealth Conversation
Advisor Asks “Bill and Harriet, would it be OK if we increased your monthly cash flow, reduced your expenses and added $200,000 back into your retirement savings?” Client Says: “(fill in the blank)”
The Simple Strategy
- Sell their existing house, (thus eliminating mortgage and payments)
- By doing just this, we have freed up $500 a month in cash flow or $6,000 a year. This reduces their initial withdrawal rate from 8.5% to 5.5%.
- They now have around $300,000 in proceeds left over from the sale of the home.
- They purchase a new $200,000 home but use the HECM for Purchase to do this vs. using all of their proceeds
- They strategy will provide Bill and Harriet with around $207,000 left over to add back into their retirement savings.
- Now their total retirement savings are $407,000 of which they are withdrawing $11,000 a year initially, which is a 2.7% withdrawal rate.
At the end of the day, Bill and Harriet have no monthly mortgage payments, a new home, lower taxes, lower maintenance, newer appliances and $407,000 in retirement savings, all because their new advisor knew something that the old one didn’t.