It’s only obvious if you know your options

Laurie Denker MacNaughton ©2016

I read a great term recently: retrospectively obvious.

Maybe it struck me because over the years I have done many things that were retrospectively obvious – from trying to take off my jeans while still wearing my tennis shoes to asking a vegan for a restaurant recommendation. Not good, not good.

But some of life’s avoidable difficulties are not retrospectively obvious, only because there is no known alternative.

Yesterday I met with a husband and wife who could have been neighbors, friends, or colleagues: both hold graduate degrees and have pension plans, they own a lovely home, they change their oil every 5,000 miles. Ok, so I’m not sure about that last one. But you get the point.

But here’s what they also have: retirement accounts that are almost tapped out – and they haven’t yet retired though they’re both approaching 70.

How did this happen? Profligate spending? Extravagant lifestyle? That’s what most of us would assume if given the bare bones of the scenario.

But the answer is far more common, far more relatable, far more touching: for 17 years they bankrolled the wife’s incapacitated father, until he died this spring at the age of 92.

First they used the father’s long-term care – until it ran out. Then they used the father’s savings, until those ran out. Then they sold the father’s home and moved him in with them. Then they continued to care for him, draining their own saving to cover what Medicare did not.

Now they’re looking to retire. They’ve done the math. If they live to age 90, their own adult kids are going to have to bankroll them – which means the adult kids won’t be able to save appropriately. You can see the dominos lined up far into the future.

Let me interject here on a personal level: my own parents both died within the past few years. I will be the first say it was a blessing to journey with them through their final chapter – and I can testify to the fact the financial cost was not inconsequential. Ignoring aging parents’ needs is not what I’m talking about here.

What I am talking about is that, as a parent myself, I would do anything possible to prevent my adult daughters from having to bankroll me as I age.

“Self-pay through the end of life” is a term I heard years ago while attending a conference on aging. And this is where reverse mortgage plays a role.

A reverse mortgage is a home equity loan. End of story. However, it’s a home equity loan that does not have a monthly repayment obligation. Rather, the loan is repaid when the last person on title permanently leaves the home.

But there’s another element – a lesser-known element – of a reverse mortgage line of credit that makes it a valuable long-term financial planning tool: the line of credit grows over time, not unlike an annuity. However, unlike an annuity, the funds from a reverse mortgage are non-taxable.

Rarely is a reverse mortgage going to be the full solution to funding retirement. But here’s what a reverse mortgage is: a home equity loan for the years when having a monthly mortgage payment can be a back-breaker. It can be a miracle for adult children struggling to bankroll their parents’ longevity, and make aging in place possible.

A reverse mortgage is not a fit for everyone. But as I’ve said many times, no one is going to get by on just their Social Security. No one is going to make it on their 401-K. Few are going to survive on their pension, their annuity, their IRA, their bank account – or their reverse mortgage. But when added together, all these combine to create a long-term means of maintaining dignity and independence in retirement.

In retrospect it seems so obvious that a reverse mortgage can help fund a parent’s longevity. But it’s only obvious if you know your options.

If you would like to explore how an FHA-insured reverse mortgage might help you or your loved ones in retirement, give me a call. I always love hearing from you.

Laurie