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{Case Study} How One Retiree Improved Tax Efficiency and Preserved Portfolio Savings through Housing Wealth

Client Scenario 

Susan, age 74, is a widow living in the foothills. She owns a home worth $385,000 that is free and clear. Monthly cash flow is tight living on a fixed income, and longevity runs in her family.


Assets: $297,000 in stocks, mutual funds and IRA

Social Security: $1278/month

Pension: $815/month

Distributions: RMD’s total $3700/year but withdrawing $7000/year, and withdrawing an additional $690/month in dividends.


Goals | Concerns 

Longevity

Her mother lived to age 95, and her grandmother lived to age 92.

 

Legacy

Desires to travel, and would also like to leave a legacy to her children.

 


Options

1. Susan could increase withdrawals from her investment accounts to cover her income needs, but this may also increase the risk of running out of money during a lengthy retirement.

2. She could consider establishing a reverse mortgage tenure payment.
If established at her current age (74), this would provide monthly, tax-free income ($995 per month) for the duration of the loan and help to reduce portfolio distributions by over 2% annually–improving the longevity of her investable assets.

If Susan delayed converting the reverse mortgage to monthly tenure payments and allowed the line of credit to grow, she could receive higher tenure payments. (See chart)

If she waited until age 80, she could receive $1,811 per month, or at age 85, $2,901 per month.

Summary

By strategically incorporating the reverse mortgage in her retirement income plan, Susan was able to improve the tax efficiency of her monthly income stream, reduce dividend income from mutual funds, and reduce IRA withdrawals closer to a RMD only scenario. Overall, her portfolio preservation was maximized.


Dr. Wade Pfau and Don Graves
on the Uses & Benefits of Tenure Payments

Wade walks us through a case study detailing how the tenure payment can significantly preserve retirement savings.

Don Graves, RICP®, CLTC®, Certified Senior Advisor, CSA®
Don Graves, RICP® is a Retirement Income Certified Professional and one of the Nation’s Leading Educators on the Emerging Role of Reverse Mortgages in Retirement Income Planning. He is president and founder of the HECM Institute for Housing Wealth Studies and an adjunct professor of Retirement Income at The American College of Financial Services. He has helped tens of thousands of Advisors as well as more than 3,000 personal clients since the year 2000
Don Graves, RICP®, CLTC®, Certified Senior Advisor, CSA®
Don Graves, RICP®, CLTC®, Certified Senior Advisor, CSA®
Don Graves, RICP®, CLTC®, Certified Senior Advisor, CSA®

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