HEALTH WON’T ALLOW FOR EITHER LONG-TERM CARE OR LINKED BENEFIT INSURANCE? LINK HOME EQUITY TO AGING IN PLACE 

As a financial planner, you understand that one of main budgeting challenges your clients will face as they enter into retirement will be related to health costs. With that in mind, while you are not yourself a licensed insurance agent, you have begun to systematically refer clients to knowledgeable long-term care insurance colleagues. 

For those of your clients in their sixties who have the wherewithal to “pre-fund” long term care insurance while still preserving assets for their beneficiaries, you recommend they look into linked-benefit policies. (True as some of your colleagues have pointed out such a large prepaid premium commitment can divert client assets from investment accounts you would otherwise be managing. But, with the intention of remaining active in your financial planning practice for decades to come, you must put clients’ long-term benefit ahead of your own interests.)  

The problem you’ve described that arises for some of your clients is health-related, rather than a matter of affordability. While linked-benefit, or hybrid long-term care because the underwriting is focused on the life insurance aspect along with the long-term care aspect, may have less stringent health requirements than traditional LTC, health issues may indeed disqualify some.

First, you are certainly to be complimented for continuing to educate yourselves on long-term care insurance options on behalf of your clients. The escalating costs of senior care, whether in the form of home care, assisted living, or nursing home care, pose an enormous retirement planning challenge. That challenge is even more daunting for those unable to qualify for LTC insurance coverage. It will become important for many to consider using the equity built up in their home as the “insurance” element in their retirement plan, in the form of a HECM reverse mortgage set up as a line of credit.

With a government-backed reverse mortgage, so long as your clients continue to occupy their home, taking care of home maintenance costs, taxes, and insurance, no monthly mortgage payments* would be required. Monies withdrawn would be non-taxable, while the unused portion of their equity would grow at the same rate as that being charged on borrowed funds. Since by definition, a reverse mortgage represents a non-recourse loan, heirs would never be left owing any money to the lender.

When LTC insurance options become unavailable to clients, “linking” their home equity to their potential future need for long term care can be the key to “aging in place.”

https://mutualreverse.com/david-garrison

*Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

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STAY-AT-HOME SENIOR VALUES INDEPENDENCE 

Following a round of visiting with former neighbors who’ve sold their homes and moved into various luxury retirement communities, you’ve decided that lifestyle is not for you. Having nursed your husband through an extended illness prior to his passing, you have moved “back into life” again, becoming very involved in community and cultural activities. You value the very independence you feel some of those former neighbors have given up by moving, and you feel able to manage well in terms of upkeep.

Along with the life insurance benefits from your husband, you have been able to support your needs through a combination of Social Security, pension income, and investments. While in the course of his extended illness and later death, there were substantial costs; those have all now been paid in full, leaving you debt free.

Now, at age 69, you’ve been looking into taking out a reverse mortgage on the home, as a financial “back-up” plan going forward. While your son and daughter have been assigned power of attorney in your estate plan documents, you would prefer not to discuss the reverse mortgage with them. Eventually, you want them to have the choice of owning the home, either renting it out or of one choosing to live there once you no longer can, but, for a variety of reasons, you prefer not including them in the mortgage decision-making process or in your financial and estate planning in general at the present time. 

As a parent, you certainly do not need your children’s permission or approval to take out a reverse mortgage on your own home. However, if you are forced by illness to vacate the home, and when you die, your children will be contacted by the lender to inform them of their options. Children with prior knowledge, needless to say, will be better prepared to make informed decisions. There is no chance they would be financially harmed, since, in the unlikely event that the value of your home were to decline and end up being less than the debt at the time of your death, they would have no responsibility for the deficit. Should they decide to sell, any profit would be theirs to keep… 

When and if, at some future time, you decide to discuss your intentions with your son and daughter, they are sure to realize you’ve honored your own desire for independent “aging in place” while thinking ahead for their benefit as owners-to-be.

https://mutualreverse.com/david-garrison

David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

AUNT AND UNCLE’S HOUSING WEALTH CAN HELP YOUNGER RELATIVE HELP HERSELF

With no children of your own, the two of you (both retired for ten years) have always tried to be there for your six nieces and nephews, in terms of opening your home to them, taking them on trips, offering modest cash holiday gifts, contributing to 529 plans for them, and naming them as beneficiaries in your estate plan. With one of your nieces intellectually disabled and unable to attend college, you instead funded an investment account for her, allowing her to make withdrawals. You’ve been very pleased to see that she has decided to use some of the money to enroll in online courses, along with buying supplies to create jewelry which she sells on Etsy. (Your niece’s siblings and cousins are very supportive of her and have never resented the fact that your gifts to her surpass what you’ve given to them.)

By the time you learned about INvestABLE accounts, your niece had passed the age of 26, and had therefore become ineligible to start such an account. Now, at a recent seminar sponsored by a local charity that assists the physical and intellectually disabled, you’ve learned that the age for establishing an Indiana ABLE account was raised this year to 46. You now intend to set up an ABLE for your niece and begin contributing to that account instead of to her regular investment account. More than that, you are giving thought to altering your estate plan in general, doing more for all the nieces and nephews, yet finding ways to do that without jeopardizing your own financial security or crimping your own lifestyle.

As you re-examine all your gifting and estate planning options going forward, you might consider accessing your housing wealth in the form of a reverse mortgage. With no need to make monthly mortgage payments,* there should be no “lifestyle crimping” involved. In fact, cash withdrawals you make for gifting to the nieces and nephews will be non-taxable. Furthermore, the unused portion of your equity will grow at the same rate of interest as that being charged on the borrowed amounts.

Your niece, meanwhile, will be allowed to add funds she earns through her jewelry crafting to her own ABLE account. By the way, if your other nieces and nephews still have funds in their 529 accounts, those monies can be used for professional certifications or ongoing education expenses, even rolling over the money to Roth accounts.

The two of you are to be congratulated on keeping abreast of changes in the financial arena, and on continuing to think of the needs of loved ones along with your own.

*Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

LINKING HOUSING WEALTH TO LONG TERM CARE

After retiring and relocating to Hoosierland three years ago to be nearer the grandchildren, you’re looking forward to (hopefully) decades of “aging in place” in your much smaller and now beautifully refurbished and fully paid for Indiana suburban home. While in the course of relocating you had updated your estate planning documents in accordance with Indiana laws, you now have the time to pay more attention to details and together have begun to attend various in-person and online seminars on investments and estate planning. Both in your late sixties and in good health, and with both children doing well in their own right, you are determined to remain in control of your own “destiny”.

At these lectures and webinars, one topic that immediately caught your attention was long term care, because your policies have now three times been taken over by new insurance companies, and the premiums have now twice been significantly increased. At a recent session, you heard for the first time about the option to buy a combo life/long term care policy called linked benefit. You find the concept of making one (albeit very large) payment and never worrying about future increases very appealing in and of itself, but what you find really important is that, in the event you don’t need to use any or all of the benefits in the form of actual long term care costs, your children would “get the money back” in the form of a death benefit. 

The problem, needless to say, is one of funding such a large single-sum (true, the option exists to spread the linked benefit insurance over a few years). Both your retirement plan accounts and your joint investment accounts have done well this past year, but there is no way they could support withdrawals of that magnitude. Reluctant as you are to incur debt, the concept of locked-in Long term Care coverage is so appealing, and with stellar credit records, you’re considering applying for a home equity loan.

You’re to be complimented on remaining highly active in “remaining in control of your own destiny,” continuing to educated yourselves on planning options. Should you decide to move forward with the purchase of linked-benefit insurance coverage, consider accessing your housing wealth in the form of a reverse mortgage rather than a “forward” home equity loan.  

With a reverse mortgage, so long as you continue to occupy the home, there will be no need to make monthly mortgage payments.* The money you withdraw to make the insurance payment will be non-taxable, and the unused portion of your equity will grow at the same rate of interest as that being charged on the borrowed portion. 

When, at a future time, neither of you is able to occupy the home, your heirs will have the option to keep the home, possibly using the policy’s death benefit to pay off the loan, or surrender the home to the lender. (Since a reverse mortgage is by definition a non-recourse loan, heirs will never be left owing any money to the lender.)

Linked benefit insurance is a way to create a death benefit for your beneficiaries and a pool of money to pay for covered long term care needs. By “linking” long-term care with your housing wealth, you have the opportunity to avoid all three negatives you mentioned: (1) dealing with ever-increasing long term care premium notices. (2) tapping into your joint investment and your retirement accounts, and (3) new monthly mortgage payments.*

You’re to be congratulated for exploring options and “paying attention” to important retirement planning details, remaining “in control of your own destiny.”

*Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

THE “PAY YOURSELF” RULE OF RETIREMENT SPENDING

One of the scariest things about retirement, Donna Fuscaldo admits in a recent Kiplinger piece, is that you stop collecting a regular paycheck. The “Pay Yourself” rule of retirement spending is designed to enable retirees to be proactive instead of reactive with their spending, providing consistency by aligning withdrawals in retirement with the old paycheck mentality.

Daniele Beasley, a Wealth Advisor at Mission Wealth outlines the steps in this “simple” plan, recommending that prospective retirees adding up all their sources of income (Social Security, pension, investment income), considering the effects of inflation, their own longevity, short and long-term market volatility, and taxes (on IRA and pension withdrawals, as well as on the sale of investments), all in order to “create a paycheck” for themselves. “Sure, it requires a few steps,” Beasley comments, but “once you’ve completed them, you’re good to go”. Ironically, The Kiplinger article about being “good to go” ends with a reminder to “revisit your withdrawal rate at least annually to account for changes in market performance.”

Whatever your conclusion as to the likelihood of the “Pay Yourself Rule” succeeding in its goal of “dialing down retirement stress” for your clients, as a financial advisor it will be important for you to include their housing wealth in the planning process. For homeowners envisioning an “aging in place” retirement, for example, a HECM reverse mortgage set up as a line of credit can be the key to “regularizing” their income flow, in fact allowing them to reduce or even avoid ill-timed, tax-triggering, forced withdrawals from both qualified and non-qualified investment accounts. 

While your clients’ investment portfolios will always be subject to variations in return, their reverse mortgage line of credit is a “fixed” account, with the as-yet untapped portion of their equity growing at the same rate as the interest being charged on the borrowed portion. 

“It all starts with a plan,” Daniele Beasley stated, suggesting that “Your financial advisor or tax professional should be able to help you determine the percentage” for the Pay Yourself strategy, cautioning that “the rate should be reassessed annually to ensure it’s aligned with your current reality.” 

For clients anticipating having their home be the centerpiece of their “retirement reality”, consider the prominent role home equity can play in their “pay themselves” future.

David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

Despite having taken a different approach with your children, making clear that, once they’d completed their schooling, their finances would no longer be your concern, you’re now considering offering your very talented grandson help in launching a music school. Very passionate and hard working, he’s raised quite a bit of capital on his own, but needs a big chunk   of cash to renovate the building.

While you’re hardly in a position to offer any giant sum, you would like to, over the next year or so, commit a meaningful amount to the “cause.” Your own financial situation is relatively stable. Your home is paid off and in good shape. Over the last ten years, you’ve been able to manage well on retirement plan income, other investment income and social security, bringing in an occasional speaking engagement fee. The past year has been a good one, portfolio-wise, and neither of you has had any significant health issues to date. At the same time, you’re concerned that any significant financial spend, even if spread over two calendar years, might trigger an uncomfortable level of tax. 

One “tack” you apparently haven’t considered is using the equity accumulated in your home as the source of funds to help your grandson ready the structure to house his school. The two of you would arrange for a reverse mortgage set up as a line of credit. Since no principal or interest payments will be required, there will be no effect on the cash flow supporting your own income needs; draws from the line of credit will be tax-free.* Meanwhile, any unused portion of your line of credit will grow at the same rate as the interest being charged on the loan.

Just as, with the passage of years, the two of you have apparently changed your thinking (about offering financial help to offspring beyond their college years), using reverse mortgage funding might be a way help your mission-driven grandson help his students “make music.”

*Please consult a tax specialist.

David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender

REVERSE MORTGAGE CAN BE GRANDPARENTAL GUARDRAIL

“It might be time to stop supporting your adult children,” the Economy section of your Indianapolis Star advised, with the part about grandparents’ own financial security being put at risk really “hitting home” to you. “There’s nothing wrong with providing financial support to adult children or grandchildren,” a Credit Karma consumer financial advocate is quoted as saying, “but if it begins to have a negative effect on your own finances, it’s probably time to set some guardrails.” 

All well and good, but when illness and job insecurity have rendered an adult child unable to provide for his own children’s needs, the two of you have been stepping up to help. Having only recently paid off a second mortgage you’d taken out to do an “aging in place” home redesign, you have now reached the point of increasing your withdrawals from your own investment accounts. Meanwhile, along with every else, you’ve been notified of a sharp increase in your prescription drug costs. Despite this “negative effect on your own finances, you cannot imagine standing by while your granddaughter is forced to drop out of college or allowing your grandson to halt his efforts to enroll next fall. Your daughter-in-law is working two jobs, while your son continues to have escalating medical debt as he recovers from a severe health setback.

Given your intention to “age in place”, you might consider using your housing wealth as the “guardrail” for your own financial security. You would begin by applying for a HECM reverse mortgage, set up as a “standby line of credit”. Unlike either your original mortgage or that second mortgage you just paid off, there are no mandatory monthly mortgage payments* due on a reverse mortgage (the house itself is the collateral for the non-recourse loan). You could draw on your equity as needed to help your son and grandchildren, even to help with your own medical costs. Meanwhile, the unused portion of your home equity would be credited with growth at the same rate of interest as that being charged on the borrowed funds. 

It does not sound as if the time has come for you to withhold support from your son and his family. On the other hand, turning your housing wealth into a “grandparental guardrail” might be a path well worth exploring.

https://mutualreverse.com/david-garrison

*Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

Equal Housing Lender