Reverse Mortgage Strategy Example


Financial Goals:

Client’s largest asset is their home worth over $400,000 and fully paid off. Their retirement savings are relatively modest and I would like to leverage their home equity to increase their retirement security through a hybrid term/tenure/RELOC strategy.

Reverse Mortgage Strategy:

See above. In addition, and to the extent we use a RELOC, the strategy would be to allow the line to grow for future use to pay for major medical expenses, long-term care, and as a hedge against the value of the home decreasing.

Additional Notes:

Planning ahead as I would like both spouses to be listed as borrowers, but youngest spouse does not turn 62 until this September. He is still employed and does not have immediate plans to retire.

Describe Your Client’s Situation

The Carefree Client:

These are clients who will not run out of money, but may benefit from lifestyle improvement. (Ex: Client who has $5 million in investments and is living in a $4 million home with nearly $2 million in housing debt–monthly mortgage payment more than $20,000.)

The Comfortable Client:

Those who are focused on improving retirement plans. These clients have a workable (or nearly workable) retirement plan but desire enhancement: increased retirement spending, the creation of a hedge for market corrections, establishment of legacy gifting with asset protection, and life insurance.

The Cautious Client:

Those who are focused on increasing contingency. In this case, a client has a workable retirement plan but not enough reserved for the unexpected or undesirable: prolonged poor markets, higher-than-expected inflation, unwise portfolio draws during bear markets, etc.

The Concerned Client:

Those who are focused on rescuing retirement income. The client’s retirement plan has encountered something unexpected. Perhaps one spouse had planned to work longer but couldn’t, or an unexpected health crisis drains the savings faster than expected. (Ex: Client plans to work for another 6 years, but is suddenly unable to work due to illness.)

The Constrained Client:

Those who are focused on survival. These are clients in dire circumstances, with little to no other savings or assets and limited monthly income.

Determine the Client’s Primary Goals in Order


“Will I have enough savings to meet my basic living expenses?”

According to most surveys, the number-one concern of retirees continues to be “running out of savings.” The advisor’s primary focus must be on the lifetime survival of clients’ savings to meet essential living requirements: food, housing, medical expenses, etc.


“Will I have enough money to enjoy retirement on my terms?”

It’s one thing to have enough savings to meet your basic needs, but it’s another to maintain your desired overall standard of living and not be forced to make moderate to drastic lifestyle changes. These lifestyle components tend to be more discretionary in nature and may include things like travel and leisure, self-improvement activities, social engagements, and helping a family member.


“How will I be financially remembered?”

Traditionally, legacy goals relate to leaving assets for subsequent generations, or to charities. However, I believe it includes significantly more. Perhaps your clients won’t have to borrow money from their children, move into their son’s spare bedroom, or ask their daughter to quit working to care for them.


“Will I have access to tax-advantaged money when I need it?”

The liquidity conversation is focused on such run-of-the-mill spending shocks as emergencies, expenses, unexpected illnesses, or death. Essentially, this involves something that you want or need to buy but don’t want to liquidate savings to do it. The “what ifs” of retirement are endless and having access to a reserve for the inevitable is essential.

Long-Term Care:

“Am I financially prepared for the costs of health-related expenses?”

A 2017 study by Fidelity Investments said that a couple retiring that year would need an estimated $275,000 to cover out-of-pocket health care costs in retirement. That’s a 6 percent increase over the prior year’s estimates and significantly more than 2014. Some experts have even suggested that this figure was low! This estimate applies to those with traditional Medicare insurance coverage and considers premiums, co-payments, deductibles, and out-of-pocket drug costs. It does not consider the cost of a nursing home or long-term care that clients may need; long-term care alone is estimated to be an additional $130,000. I have found this expense to be the one that most folks ignore almost completely.