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{Podcast} Ed Slott on Reverse Mortgages and Taxes in Retirement

I recently had the opportunity to interview my colleague and friend, Ed Slott. He is a nationally recognized professional speaker, star in several public television specials and creator of the The IRA Leadership ProgramTM and Ed Slott’s Elite IRA Advisor GroupSM.

Ed used to tell people, “Stay away from reverse mortgages,” but when he saw that the reverse mortgage topic seemed to be growing in popularity in the advisor community, he gathered together articles and several books and did some research.

In his exploration, he read my advisor-focused book, Housing Wealth: 3 Ways the New Reverse Mortgage Is Changing Retirement Income Conversations, and found he was basing his ideas on old stories and outdated fears about reverse mortgages. By the time he finished reading, his concerns had been addressed and a new world of retirement strategies had been opened. In this interview he shares his journey and the Housing Wealth strategies he has found most helpful.



Podcast Transcript

Don: This is Don Graves and today I’m talking to the nation’s IRA expert Ed Slott. You may have seen him on PBS or maybe you’re one of his Elite Advisors. Last year Ed read my book and he got excited about reverse mortgages and some of the ways they can help change retirement outcomes. He agreed to talk to me but he was in an airport and I was somewhere else, so you can hear my assistant speaking with him, but I wanted you to get the interview. I think it’s wonderful and I’ll be back with you at the end.

Elise: Ed, for the retiree who hasn’t considered housing wealth in their retirement planning strategy, what are the significant challenges that they face?

Ed: Well as a retirement advisor myself and for more than 30 years, the biggest challenge today is longevity, people living too long. That could be good or bad. But then the worry is, will the money last. And when you look at the available resources most people don’t count the house. But most people actually are proud. The retirees I speak to, I say, “Do you have a mortgage on your house?” and they proudly say no, no debt. But now all of that equity is tied up and it’s not being put to use. So it’s almost like you’re not using all the card you have to play; you’re not using all the cards in the deck and you may need all of those cards one day and it’s better to plan this out ahead of time going into retirement when you’re younger, than to operate as many people do now, in crisis mode, when all of a sudden they see their assets dwindling and then it’s a problem, it’s a crisis. And when you’re in a crisis that’s when you start taking money out of IRAs, paying higher taxes and not making the best financial decisions.

I think that’s where a reverse mortgage or a source of other income could help if it was planned out ahead of time. The thing that’s important about the reverse mortgages for me as a tax advisor, to me taxes are the single biggest factor that separates people from their retirement dreams. Most people have a lot of their money tied up in taxable retirement accounts like 401Ks and IRAs. To get to that money they have to pay a tax.

Now a reverse mortgage is a source of tax-free income. That’s a big difference coming into retirement, especially if you’re worried, like I am, looking at our deficits that tax rates might increase in the future, which means less of your retirement money may be available to you. So it’s very important to have a source of tax-free income that you can count on for the rest of your life, and the reverse mortgage provides several ways to do that. Whether it’s an income stream or a lump sum, but it’s something that should be planned in advance and not in crisis mode.

I also think people have to look at this again. From what I’ve seen and heard–in fact I  was just with someone last night, an advisor who just happens, I was with him last year at the same time also in Pittsburgh and I had mentioned–this is when I just started re-educating myself on reverse mortgages with Don’s book and other resources, and he said to me last year, “Oh no, we don’t go near that.” Last night he said to me, “You know we’re looking into that now. After I talked with you last year, I realize I’m not using enough of my clients wealth. I’m not optimizing it. I’m not using everything they have available, whether it’s for long-term care.” That’s one of the things he pointed out. He says we realize the clients may need big money for long term care expenses. If you have to take from taxable money, that increases that expense.


Free Download: Using Housing Wealth for Roth Conversions


So there are ways to look into these reverse mortgages now maybe even as a source of income to help with a Roth conversion where you’re turning IRA money that can be planned into a Roth conversion as a planned transaction rather than in crisis mode where you just have to take it all out and pay the top rate. Maybe a Roth conversion over several years planned out at lower brackets would help push more money into tax free territory adding to the amount of tax-free money you have available if you had a reverse mortgage. A reverse mortgage can provide actually income or sources of funds to pay the tax on a Roth conversion.

But what this advisor was worried about and I was reminding them last night and he agreed, I said you were worried about these old stories about all the horrors of reverse mortgages. I think people have to realize what’s changed. The big problems that people had are the big fears, fears that have been addressed in the new reverse mortgages.

Elise: Speaking of fears, as you talk with your viewers and the advisors that you train, what do you find are the most significant fears retirees have as they attempt to overcome the challenges you’ve laid out for us?

Ed: Well the number one fear is running out of money in retirement. You know, there’s two things going on now. People want to retire early, but that means they’ll have more years that their money has to last. So you can have somebody retiring at 65 but they may need income to last them for another 30 years given today’s life expectancy. This is why I’m so big on managing taxes and having tax free sources of income, because if the only income you’re pulling down is taxable and tax rates increase, you could be working with half your assets or half of the assets you think you have. Whereas tapping into the home equity now in a planned transaction rather than in crisis mode, that’s the way to do this. So it relieves the stress, the fear, the doubt, the worry. You know people want peace of mind. That’s the number one thing. And they’re not using all the assets they have.

And another thing that people are starting to realize, maybe out of sentimental reasons, people think just because they have a free and clear home or even if they have a mortgage on it, some people really don’t realize even if you have a mortgage you can use a reverse mortgage. They think that their children who may have grown up in that home want that home. I can tell you from working with clients, they don’t want that home. They want the money. That home is usually sold very quickly after death and the proceeds are distributed to the children. Well I think it’s better. And most retirees when you talk to them say I’d like to have a chance at using those proceeds during my life and then whatever’s left that’s gravy for their children. But I may need the availability at least.

Maybe I won’t spend it all but I would like to have them available. So I’m tapping into every possible resource in the most tax efficient manner and make sure to protect myself that I don’t run out of money in retirement, because if I do rather than my kids worrying about maybe they’ll get a little less, I don’t want them having a kick in for me. That’s like a reverse inheritance.

Elise: So true. Ed, let’s move on to Roth conversions. Are the advisors you train finding it helpful to have another asset like their clients’ housing wealth to effectively execute this strategy and minimize their clients taxes?

Ed: Yes, they’re coming around now. More financial advisors are coming around now because they see the value. Especially in today’s low tax rate environment, now’s the time to strike, to get that money that’s locked up in 401Ks and IRAs, get it out at the lowest tax rate. That’s the core foundation of good efficient tax planning. Forget the deductions when the rates were higher, which they all did and pull out the income when rates are rock bottom low, which they are now. They’re the lowest in history, but it’s not going to stay that way. So now is the time to act and they’re more open to reverse mortgages as a tax-free source of income to pay tax on a Roth conversion but the Roth conversion can be planned. You can use the tax brackets to stay in lower brackets rather than what I said before, having to pull it all out at the highest rates. Maybe when rates are much higher in the future in crisis mode, when you’re just grabbing at everything because now you have a problem that could have been resolved with good planning ahead of time. And good financial advisors look at themselves not as just investment advisors but as planners and they have to plan for their clients’ longevity through age 95. It’s not unusual. You have a couple that one of them is going to live to 95 or higher. So they are coming around more so than they have in the past.

And many of them are getting re-educated on the benefits of the new types of reverse mortgages. Both the options that are available now, how they work and to alleviate the fears of the stories of the past. Another thing they ask about are the fees and that’s important to know. People say these things have fees and yes, they do. A lot of products have fees but you have to know what you’re getting for your money. So I think people have to understand part of the fee is paid for insurance on these reverse mortgages, so you don’t have the problems where beneficiaries may have to kick in money if it’s not worth as much after death. That’s what you’re paying for. You’re paying for the plan to work.

Elise: You’re paying for the plan to work. That’s a great line. And Don covers that question in his books which I know you’ve read. You were kind enough to write the foreword for his new book for clients. Can you share some of your thoughts and a few of your takeaways?

   

Ed: I’ve read several books as Don knows on reverse mortgages. I’ve read professional versions like Wade Pfau’s and that’s good for professionals. I suggest professionals read it for a deep understanding. Don starts it out similarly about the problem, the things I talked about longevity. Not using all that’s available to you as far as your equity and assets, especially the home, may be the largest asset that may be mortgage free. But says why it’s important to start planning and using–at least having it available. Not even using it just basically getting it in place just in case. That’s what planning is about. You never know what the future brings but when something happens you don’t want to start scurrying around and trying to find a fix. It never really works well that way. Anything regarding retirement planning and taxes has to involve long-term planning. So that’s what you’re doing.

Back to Don’s book. Don’s book explains it so when you’re finished reading it you almost say to yourself, “Why didn’t anybody tell me this? Why wasn’t I looking into this. Why wasn’t my financial advisor telling me about this?” And it makes you question why you haven’t taken advantage of it. And I think the biggest thing, it educates you on the new types of reverse mortgage and the questions to ask when you consider these reverse mortgages. You come out of that book feeling, okay, this is something I need to take a look at.

I think after reading Dan’s book people say you know I don’t need an actor. Don’s book is better than any actor. It open your eyes to look at these, the new versions of these things and dispel the fears of the past. And at a minimum, I think everyone should be at least open to looking into whether they can take advantage or whether a reverse mortgage is for them and whether they should take advantage of it asking the questions. That’s what this book does. It makes the issues very clear and understandable. And it just opens up another door if you need that door.

Elise: Ed, I’m curious. In the midst of your re-education, was there something specific you read that led you to believe the reverse mortgage can be a helpful tool?

Ed: Well, yeah. I started reading more articles on it about the changes and then I actually took steps because as an educator I want to know if my ideas are still correct and I was going based on just old fears and I think people have to re-educate themselves or at least open their eyes to the way it works now. So that’s why I actually read three books on this topic, and Don’s was, I think the third. But after reading three different books and then getting into more articles, I you know this is something that’s changed and you really have to change your thinking. I’m not saying it’s for everybody. I don’t want to come across like that. But everybody should either know more about it and look into whether it’s the right move for them.

It’s an option to use more of your assets. You work for this money, why only play with half a deck? You have a certain amount of assets and not to include all of them in the mix for a full retirement plan that has to last, it would be a benefit to you to look at everything you have available to you.

Elise: All available assets as Don likes to say. Ed, what are some of their retirement outcomes you can forecast for those retirees who consider utilizing their housing wealth.

Ed: Well having more tax-free income is not so you can go and spend it all; that’s not what most people want in retirement. It’s just a way to have peace of mind knowing there’s more money there and it can be set up as guaranteed income for life. So you can take the worry, the fear, the anxiety of running out of money in retirement off the table. To me, from the people I see, that’s the big elephant in the room. Will my money last as long as I do?

And it’s just another tool in the tool kit to make sure, to work towards having true financial security that will cover you for the rest of your life. And it should be looked into. That’s the main thing I want to get across. Not that everybody should do it but everybody should know it exists, know how it works, know about the new versions of reverse mortgages, know about the old fears and how they’ve been corrected and just do an honest evaluation to see if it can work for you. I’m not going to say it’s a new tool in the toolkit but it’s a new updated version of the tool that works much better than it ever did before for most people.

Elise: Well Ed, thanks for joining us today. Any last thoughts you’d like to share with the listeners.

Ed: My voice as a trainer of retirement professionals. I’m actually including that in my materials. As you saw I included it in my public television materials because I want more people to at least have access to new, updated and accurate information.

Elise: Great stuff. Well Ed, thank you again for joining us. We appreciate you. Have a great day.

Don: Wow. Wasn’t that fantastic. Thank you, Ed Slott. Thank you, Elise Chambers for doing the interview.

What was his point? He wanted his advisors and their clients to have updated and accurate information about reverse mortgages and that’s what we’re about here at the Housing Wealth Institute. You can learn more at www.HousingWealth.net or some of the books that Ed referenced, you can go to www.HousingWealthBook.com and always feel free to e-mail me, AskDonGraves@gmail.com.

 Well, we’ll talk to you next time. We’ll see you real soon. Bye now.


Ed Slott was named “The Best” source for IRA advice by The Wall Street Journal. He is a nationally recognized professional speaker and has starred in several nationally aired public television specials including his most recent, “Retire Safe & Secure! with Ed Slott” (2019).

Slott created The IRA Leadership ProgramTM and Ed Slott’s Elite IRA Advisor GroupSM, which were developed specifically to help financial professionals earn recognition as leaders in the IRA marketplace.

As a thought leader in the retirement industry, Slott is often quoted in The New York Times, The Wall Street Journal, Forbes, Money, Kiplinger’s, USA Today, Investment News and a host of additional national magazines and financial publications. He has also appeared on numerous national television and radio programs.

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®

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