Reverse Mortgage Blog

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"The Sun Orbits the Earth"

August 22, 2018

“The sun orbits the earth.”


We’ve all heard it before. ‘That’s common knowledge’ or ‘history shows us,’ and other platitudes and cliché sayings to guide our decision making. Some, like the conventional wisdom above are easy to shrug off…today. Ask Copernicus, Kepler or Galileo how close-minded society can be to a change in the status quo of beliefs and you start to develop some perspective around how intransigent conventional wisdom can be in our decision making. We will not try to prove that conventional wisdom can be wrong. Many others have proven that in the past. What we will do at Wellspring is rely on science, math and research in our decision making. It’s especially important for sensitive subjects such as retirement planning and home equity.


The conventional wisdom in home equity is simple and pervasive, a dangerous combination. What are the correct and current notions surrounding home equity in retirement planning? Today, conventional wisdom is that home equity should not be used in retirement. If and when home equity must be used in retirement. It should only be used as a last line of defense.


This idea surrounding the utility of home equity in financial plans is nearly systemic online and among major publications today. And, it is wrong.


Surely, it’s not always wrong. Each individual’s path to retirement and estate planning success is different and each situation requires a rigorous understanding of a client’s current financial ‘snapshot,’ as well as, the capital assumptions and cash flow built into a financial plan. For some households it is in their best interest to never integrate home equity into their planning. However, for the vast majority of Americans, including the mass affluent, home equity absolutely should be considered and in many instances deployed into the retirement income plan.


Let ‘s set aside conventional wisdom for a moment, or what we can call the old paradigm. What is it about home ownership and home equity that makes the subject of tapping equity in retirement so taboo?


Is it our desire to leave something tangible behind when we pass to our heirs? Is it the Dave Ramsey’s of the world that have built businesses around the idea of being completely debt free without providing the guidance on how to still create, grow and maintain a nest egg with all the many retirement challenges? Psst, someone remind Tim Cook over at Apple that debt is bad if you don’t need to use it. Maybe, it’s just got a bad rap?


Could it be more likely that it’s a lack of financial education for broker dealers and financial professionals? After all where should Americans go for financial information and education? Is there information readily available to older Americans to understand how to deploy a large financial asset in the overall wealth picture that is not being managed by a professional? Unfortunately, outside of the work we promote here at Wellspring, there does not seem to be great resources to help clients to have a conversation around this.


Truly, there is a complete misunderstanding of the utility and application of home equity in retirement, and a complete lack of education from the experts and professionals we rely on to provide us with guidance and support in retirement. Regardless, to plan correctly we must dismiss the sacrosanct ideology defending home equity. We must question the status quo, we must become educated and we need to find someone who can help interpret the challenges and reveal the math problem to be solved. That math problem is known as Retirement Income Planning.


The challenges here are immense: most are under prepared with the amount of savings needed for a 25-30 year retirement picture, the safe withdrawal rate on financial assets is 4% or less, long term care is not just a concern but a reality for most of us as we age, inflation, financial market volatility, sequence of returns risk, and spending habits, just to name a few.


So what does financial research tell us about home equity in retirement planning? What does this large body of research conclude about Reverse Mortgages? Over the last number of years there has been overwhelming evidence coming out of the financial services industry clearly defining the value of coordinating a home equity strategy with our investment portfolios. This evidence doesn’t come from mortgage professionals it comes from leading financial services educators in the country. It is coming from one of the largest credentialing education institutions in the country for financial services professionals; the American College of Financial Services. It comes in the form of modules and chapters built into the material for designations like the RICP (Retirement Income Certified Professional.) It comes from well designed and published studies in our institutions of higher learning such as Texas Tech and Boston College. It comes from our thought leaders in the financial services world that have worked hard to eliminate bias and to create objective analysis of retirement income distribution planning. It most certainly does not come from conventional wisdom and this information is not being readily taught to financial professionals or the clients they are serving who fall at or near retirement.


What do we do? Where is this research? How can we find it, interpret it and create improved outcomes for retirement planning? First, be diligent. Find an advisor that has been educated on these topics, someone who can tell you how housing well can play a role in retirement planning. Look for designations such as the CFP (Certified Financial Planner) and the RICP (Retirement Income Certified Professional. Find a professional that can answer how they integrate home equity into their planning or how home equity improves retirement outcomes. If they are not aware of the information, why?  Nearly half of older adults in this country have a large portion of their wealth tied up in their homes.


Many are facing a current or future retirement crisis in the form of longevity (potential to outlive their assets), market corrections that challenge the future income needs and long term care incidences that can derail almost any plan. If home equity can help us mitigate even some of this risk it is a worthwhile tool to consider.


Secondly, educate yourself. Retirement is no longer the finish line, it is the beginning of a long and challenging road to navigate. Turn to the true experts and thought leaders in the field of financial planning. Experts like Wade Pfau, John Salter, Jamie Hopkins, Barry Sacks and Michael Kitces. All have published commentary on reverse mortgages and built thorough research in support of the topic. The information will surprise you.


Third, continue to follow us here at the Wellspring Lending Group. Our expertise is steeped in a strong foundation and knowledge in the financial services market place and we have years of experience helping advisors implement tools into their client’s financial plans. Here we will help you interpret this information so you can be better prepared for the challenges in retirement. The information is out there, and we are happy to be your conduit. The data we share is bold, new, and will transform the way we view the world. Or at the very least, our retirement plan.



Toney Sebra (CA) & Josh Blum (FL) profile picture
Toney Sebra (CA) & Josh Blum (FL)