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Reimagining Retirement Income for the Mass Affluent

How New Collaborative Strategies are Working Together to Dynamically Change Outcomes

I am pleased to share my second article for the Society of Financial Service Professionals entitled “Re-imagining Retirement Income for the Mass Affluent: How New Collaborative Strategies are Working Together to Dynamically Change Outcomes” You can download the PDF HERE, and my earlier articleCan Reverse Mortgages Hedge the Most Common Retirement Income Risks?HERE

The Changing Retirement Income Landscape

One doesn’t have to look too far into the Retirement Income landscape to realize that we are in a time of true challenge. For years, retirement planning had focused nearly exclusively with getting to the top of the mountain, planting our flags and declaring mission accomplished! This process was strategically marked by having the right type of Asset Allocation to maximize the accumulation.

Now that our clients have reached the top of the mountain, a different focus emerges. Income Allocation.  It’s no longer the cash pile as much as it is the strategic dispensing of cash flow at this stage of the game.

Last week Olivia Mitchell, a well-known professor of insurance, business economics, and policy at the Wharton School of the University of Pennsylvania hosted a conference at which other world-famous economists, fiscal experts, and portfolio managers examined long-term trends in the marketplace and how they affect retirement.

Here are a few excerpts:  “We are living in a world now of more subdued economic growth, a lot of debt, and muted inflation, which we call ‘the new neutral.’ We expect this to continue for the next five to seven years.”… “Even the roomful of economists and experts ..ultimately came to commonsense conclusions; Retire later, work longer.

A present-day scenario for dealing with Retirement Income reminds me of the late 90’s movie, Armageddon.

In the movie, a crisis of biblical proportion has arisen, an asteroid the size of Texas is hurling towards earth with 18 days remaining before total world annihilation. As conventional measures have failed the conversation expands to think outside the box. This leads NASA to find Bruce Willis. He leads a rag tag bunch of oil riggers known for their specialty, to combine forces in a collaborative effort to help avert the crisis.

I think it’s fair to say that a global retirement income crisis is on the horizon, and though conventional financial measures have worked in the past, the impact of this situation will require new conversations and outside the box thinking. Let’s unpack these four key concepts: Crisis, Conventionality, Conversation and Collaboration.


The Crisis That Is Upon Us Now

Nobel Laureate and MIT professor Dr. Robert C Merton called the current situation a “Global Retirement Income Crisis.” The Professor is not alone in his thinking. Many financial futurist and thought leaders have rightly opined that Retirement Armageddon is fast approaching earth and its impact could be catastrophic for many. There are many facets to this financial asteroid but let’s just unpack a few.

  • The Longevity of Baby Boomers and Beyond
    78 million born between 1946 and 1964 will have three bona fide challenges (1) They will live longer than previous generation! We could stop right here and unpack the implications.  The American College has identified 18 Major Risks of Retirement Income (www.18risks.com) but Longevity risk stands out because it is a Risk Multiplier.  The longer you live the direr the other 18 risks become. Planning for a 20-year retirement was considered long, but today we need to plan for 30, 40, 50 and perhaps even 60 years for some alive right now. This in and of itself is huge, but today’s boomer has two other issues as well. (2) They are carrying more cash flow destroying debt than any prior generation and (3) They have not saved nearly enough to sustain a lengthy retirement.
  • The Demise of the Pension System
    Though nearly obsolete for most current employees, there are still many existing retirees that are receiving a pension. Recent reports tell us that nearly every major pension system in the country is in danger of failing in some measure, even if that means they will no longer cover the medical costs of their members. United Airlines, Delphi and Bethlehem Steel all failed their combined 408,268 members with nearly $17.2 billion in claims to Pension Benefit Guaranty Corp. And that is just the top 3!
  • The Angst over Social Security
    The system needs to be tweaked and though we keep kicking the can down the road, the editing of the program is needful by either pushing the full retirement age back or reducing benefits to a certain income class or age group. Hopefully, the dilemma is going to be addressed and resolved, but the anxiety that it produces in tense times is not helpful.
  • The Uncertainty of the Markets
    We no longer live in a singular market silo. What happens in China, France, and Greece affects the United States.  Assets have grafted into a global system leaving less control and heightened susceptibility to market fluctuations.

There is much more that could be said, but the Crisis is pertinent and the asteroid is on the way.  To say that we are living in times of global financial uncertainty is an understatement. The pebble that splashes in China or anywhere else in the world will have ripples throughout the world. At age 51, my wife and I may be able to recover, however the group that is most vulnerable to those ripples are those who are in the distribution phase of their retirement.  A market correction, Black Swan or financial crisis could leave them crippled with no remedy for a quality retirement.

So, the question persists, “How will we help 78 million baby boomers and existing retirees to maintain consistent purchasing power and quality of life over an ever-increasing length of time?”

The Conventional Tools We All Use

There are three traditional financial weapons used in fighting the Retirement Income crisis. They have proven both powerful and pertinent in times past. These three buckets represent the primary ways in which Income is coming to retirees now or assets will be converted to create it.

  • The Income Bucket:
    Employment, Pension, Social Security, Income Annuities, Bond Ladders and other resources used to create income.
  • The Investment Bucket:
    Qualified and Non-Qualified Plans, as well as other investment vehicles used primarily to create growth in the Allocation phase but now must be managed wisely in planning for withdrawals that must sustain a long retirement.
  • The Insurance Bucket:
    Life Insurance, Deferred Annuities, a Personal Business, Rental Property etc. Resources that are backed by an Insurance firm or representing something that can be converted to income in the future.

From these three conventional financial buckets, advisors must create sustainable lifetime income through whatever primary philosophical distribution strategy they gravitate: systematic withdrawal, time segmentation, flooring or any combination or hybrid. It doesn’t matter since they all revolve around and draw from the same three buckets.

My good friend Dr. Wade Pfau wrote an article on www.retirementresearcher.com outlining, 39 Hybrid Retirement Income Planning Techniques. It’s a profound piece of work that outlines the different ways you can structure the Income Allocation, but even in those 39 ways, you still only have the three primary buckets to work from.


One of the hybrid strategies, Dr. Pfau mentions has been pioneered by Thrive Income founder and American College Adjunct Professor, Curtis Cloke.  This past weekend I was invited to a Wall Street firm to present with other thought leaders and was again privileged to hear Curtis share his Divide and Conquer Income Allocation Strategy.

His plan has garnered a lot of attention and praise and is closely aligned with Tom Hegna’s, “Paychecks and Play checks” strategy.  It consists of two profoundly simple steps: (Step 1) Create Lifetime, Inflation Adjusted guaranteed predictable income using Insurance related products with mortality credits to provide income for the essentials in retirement. (Step 2) Create a more aggressive asset allocation with dollars remaining in the market to provide for additional inflation protection and money for discretionary items.

The math and science behind this approach are solid, and the “Psychenomics” are profound. But is this enough to meet the goal of helping retirees to maintain consistent purchasing power and quality of life over an ever-increasing length of time? The reason I bring up Curtis and Tom specifically is that both men have said, “No” it is not enough. They have expanded their retirement income conversations, models, books and even software to now include another critical element. The one we are discussing next.

An Expanding Conversation We Must Have

Recently the American College of Financial Services had an article that elucidated this very subject. It was called “Making a Case for Reverse Mortgages in Retirement Income Conversations” It featured Dr. Robert C. Merton, Dr. Wade Pfau, myself and a few other financial though leaders speaking about the changing role of housing wealth in retirement income plans.

Just the other week, for the first time in their history, The Investment News Retirement Income Summit had a presentation on Reverse Mortgages, here is an excerpt from their website:”

“Despite home equity being the largest asset of many retirees, financial advisors have long dismissed reverse mortgages as not applicable for their clients or merely a tool of last resort. However, the tide has been changing as recent research incorporating reverse mortgages into retirement income planning has demonstrated that the strategic uses of reverse mortgages are far more reaching than previously understood. Reverse mortgages can be used effectively for Roth conversions, tax efficient withdrawals, increasing a client’s withdrawal rate, and improving the longevity of a retirement income portfolio…”

A Home Equity Conversion Mortgage, commonly called a Reverse Mortgage is an equity release tool, sponsored by the federal government since 1988, that allows seniors age 62 or better to convert a portion of their homes value and turn it into tax free dollars, without the requirement of a mandatory mortgage payment. It’s really just that simple. {For more advisor focused information go to www.housingwealth.net}

No longer the maligned red headed step child of retirement income planning, the reverse mortgage has come front and center in retirement income planning. But Why?

The simple reason is that nearly 87% of baby boomers and existing retirees own their homes. There is currently $3 Trillion dollars in retirement home equity that exists. The US Census Bureau has stated that the average person retiring today will have more than 60% of their total wealth in housing wealth. A recent CNBC article said, “Retirees cannot continue to ignore home equity and still reach their retirement income goals.” Housing wealth is simply too large to ignore!

The Power of Collaboration to Avert Armageddon


Just like in the movie Armageddon, the Crisis was real and the global impact undeniable, so it is with Retirement Income sustainability for millions of people. The conventional strategies have been great and effective, but are they enough to prevent the new crisis and challenges faced?  The financial thought leaders have expanded the conversation to consider the HECM.  Now let’s welcome them into the planning family and see what they can really do.

Today’s HECM, when integrated with conventional strategies forms a powerful catalyst that help clients, Increase Cash Flow, Preserve Assets, Mitigate Risk and Ensure/Enhance Liquidity throughout retirement.  Let’s look at three examples of how to implement them with the existing buckets.

Collaborating with the Income Bucket – Social Security Deferral

Most advisors would agree that having our clients, particularly the married client’s primary wage earner defer Social Security withdrawals until age 70 is a solid conventional strategy. Now watch what happens when we combine that approach with a HECM.  This normally occurs when the client sees the wisdom of deferring Social Security but also needs the money prior to age 70 to live. One of the ways we can solve that problem is to establish a HECM and use a monthly tenure payment for the 3, 5, 7 years of deferral to meet the income required. When the client reaches the deferral time, we turn off the HECM payment and turn on the Social Security. This of course results in about an 8% increase in benefits for each year of deferral. But some other benefits of the collaborative strategy could be (1) Keeping them in a lower tax bracket due to proceeds from a HECM being non-taxable (2) Give their other assets and annuities time to grow and or be vested for a higher payout (3) A shortened retirement draw period by the years of deferral which (4) creates a greater probability of sustainability of assets.

Collaborating with the Investment Bucket – Mitigating Sequence and Withdrawal Risk

In my last article, “Can Reverse Mortgages Hedge the Most Important Retirement Income Risks” I shared a very powerful and overlooked tactic. It is simply to have a non-correlated buffer asset set up so that our clients can draw from that source vs. their portfolio in the year following a down market. Life Insurance can be used as that buffer asset, but not all clients have that in place, have enough or even want to use it. The other asset that 87% of clients have access to is housing wealth. By simply converting the home into a HECM line of credit (growing at around 6% today), they can draw from this during the recovery years. As I outlined in the past article, this strategy alone resulted in nearly $1mil more to the estate, a better retirement experience for the client and 3x the fees for the advisor.  A true win/win/win for all.

Collaborating with the Insurance Bucket – Equity Insurance for Spending Shocks

The majority of our clients have homeowner’s and auto insurance but will fortunately never experience a catastrophic loss. Wise financial stewardship says that it’s wise and prudent to still have this in place for a small price to share the risk just in case. However, there is another insurance that the majority of boomers will absolutely use over a long retirement. It’s called Equity Insurance which is access to the appreciating equity in your home regardless of home’s future value, your income or credit. It cannot be frozen, cancelled or reduced as long as the client maintains the terms of the loan. It has been deemed the 8th financial wonder of the world.

The “What If’s” of retirement will come. Out of pocket health care costs for today’s retirees are predicted to be well over $250,000 not including the 70% who will need some sort of long term care stay and the expenses associated with it. When these spending shocks happen (and they will), the client who has a Collaborative strategy will not have to meet those challenges with gloom and despair but will have a backup source to meet the challenges.

The Retirement Income Asteroid crisis is on the way. The earliest fragments have already hit and have sent concerning ripples of what is to come.  The conventional strategies are good and time tested, but may not be enough for the Mass Affluent Baby Boomer. There is no doubt that expanding the conversation and opening up the collaboration to include the HECM is making a world of difference and could possibly be just a first step in preparing for other surprises that lie ahead.

Here’s to joining Bruce Willis and NASA to save the planet (this time) but even more about learning the skills and strategies required for when the next crisis arises.  dg

Bonus Video: Are Reverse Mortgages Right
for Mass Affluent Clients?

Don Graves, RICP®

Don Graves, RICP®

President and Chief Conversation Starter at HECM Advisors Group/Institute
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®
Don Graves, RICP®

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