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Silver Separation and the Forty-Year Itch

by ReverseLady, posted in Caring for Aging Parents; A Daughter's Story, FHA HECM, Retirement Planning, Reverse Mortgage

They call it Silver Separation, or the Forty-Year Itch, and it’s one of the nation’s fastest-growing trends: divorce among couples aged 60 and older. In fact, though divorce rates nationally have dropped over the past decade, among older baby boomers divorce rates have risen more than 50%, according to a 2012 study published in the academic journal Gerontologist.

Experts cite many reasons for this trend, including longevity, greater financial independence among women, and less social stigma toward the divorced.

A study conducted by Bowling Green State University states, “Lengthening life expectancies decrease the likelihood that marriages will end through death and increase the length of exposure to the risk of divorce.”

For many, retirement becomes the watershed moment: kids are grown and gone, career battles fought, most major life-choices made.

“It’s a time some boomers look around and ask, ‘Is this how I want to spend the next 30 years?'” says Beth Von Keller, an elder law attorney in Manassas, Virginia. “In some cases a spouse decides the answer is “no.'”

However, later-life divorce can create vulnerabilities. “When older couples divorce, there is less time to recover financially,” Von Keller states. “Also, historically husbands and wives played a major role in spousal caregiving, and couples relied upon each other for emotional support. That falls away when older couples divorce.”

No one plans to divorce, but no life unfolds according to plan. And no amount of planning can insulate one from the unexpected. However, a solid “Plan B” can determine how successfully one navigates a new reality.

Reverse mortgage can play an important role in later-life divorce, providing funds for property settlements where one party wishes to remain in the home. It can also be an important means of income stream replacement.

If you need – or someone you know needs – to assess options, give me a call. I always love hearing from you.

Laurie

Laurie MacNaughton [NMLS# 506562] ∙ Reverse Mortgage Consultant ∙ Middleburg Mortgage, a Division of Middleburg Bank ∙ 20937 Ashburn Road ∙ Ashburn, VA 20147 ∙ 703-477-1183 Direct ∙ LMacNaughton@MiddleburgBank.com ∙ www.MiddleburgReverse.com

Retirement Advice for the Gentler Sex

by ReverseLady, posted in Caring for Aging Parents; A Daughter's Story

I like to ask questions, and one of my favorite is, “If you’re a baby boomer, what is your life expectancy?” The most common answer? 78.

Reality is, however, that one in three Americans live to at least 85, and most of these are women. So, as a woman, if your financial plans don’t include at least a decade of leeway the later retirement years can be tricky.

Below is a list of some of the best advice I have compiled regarding retirement.

  1. Continue working part-time during retirement. A wealth manager friend of mine likes to say, “Retirement is a journey, not a destination,” and increasingly seniors seem to assume this will be the case. In fact, according to a recent Pew Research study 3 out of 5 seniors plan to work at least part-time for as long as they can in order to delay a draw-down of savings.
  2. Continue to save. For most people, it’s unrealistic to save enough during the peak earning years to amass a nest egg large enough to carry them through retirement. However, even if you work part-time, put some of those earnings aside. It can make a huge difference.
  3. Don’t assume moving to a location with low housing prices makes your retirement savings go farther. While it may be true that cheap housing translates into a lower cost of living, that is not a given. Several states with low housing costs have high sales tax and high homeowners insurance. Savings from low housing prices can quickly be eaten up by high costs elsewhere.
  4. Lower taxes in retirement? Be careful here. You may very well be in a lower tax bracket once you retire, but as a percentage of income your taxes are likely to be greater. Furthermore, once retired you are likely to lose certain deductions and exemptions. So when planning, be realistic in calculating your tax burden.
  5. Don’t assume long-term care will come to the rescue. Here’s a fact I only recently became aware of: according to data available from U.S. Department of Health and Human Services, many long-term insurance plans only pay out for two to five years. For this reason it is very important to plan a many-pronged approach to long-term care. One misconception I hear frequently is that Medicare or Medicaid will pay for nursing home or in-home care. The issues surrounding government-sponsored care is so complex that there are attorneys who specialize just in these matters. An uninformed – or misinformed – spend-down can have very bad consequences, so be sure to seek counsel before spending down assets in order to qualify for benefits.
  6. I love my job and will work to my dying day. Frankly, I feel the same way. However, barring acquisition of a crystal ball, you just can’t count on working forever as part of your retirement strategy.
  7. Look into reverse mortgage. According to a recent report by the Boston College Center for Retirement Research, adding funds from a reverse mortgage significantly boosts financial wellness in retirement.

Reverse mortgage was never intended to be a replacement for a sound financial retirement plan. However, it can play an important role in augmenting what is already in place, and slow the burn-through rate on other retirement instruments.

Give me a call and let’s talk.

Laurie

Laurie Denker MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant, President’s Club · Middleburg Mortgage, a Division of Middleburg Bank · 20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com · www.middleburgmortgage.com/lauriem

Visit my Informational Blog at https://middleburgreverselady.wordpress.com/

Play My Guy

by ReverseLady, posted in Caring for Aging Parents; A Daughter's Story

Recently I attended an event at which the featured speaker, an attorney based in the Washington, D.C. area, led off with, “I hate reverse mortgages – I HATE them.”

Well, I’ll say this: if you’re an attorney, there’s nothing like a forceful opening statement.

As a reverse mortgage specialist who has been in the field several years, I am always interested in hearing what people have to say about reverse mortgages. So, after the event I asked the attorney what he hates about reverse mortgages. I thought he was going recite the same-ol’, same-ol’ outdated information, personal bias, and general peevishness toward the product. But I was wrong.

Here was his answer:

He said his firm sees reverse mortgages after a senior’s family has completely spent down savings, burned through assets, and utterly depleted the reverse mortgage. Then they turn to him for help.

I have to say, I have seen the same thing – an unplanned, undirected spend-down of assets which leaves the senior with no money and few options. Needless to say, this can result in a less-than-optimal outcome. And I hate it too.

In fact, I’ve given this approach to handling finances a name. I call it “Play My Guy.”

“Play My Guy” Approach to Financial Planning

I married young, and we started our family before I even graduated college. Consequently, I was still in my twenties when my girls were old enough to start playing video games, and I’ll admit it – I like video games. But as my girls got older and games got more sophisticated, I didn’t keep up my game skills. So every once in a while I’d be walking through the room where my kids were playing with friends, and would hear, “Hey, Mom, play my guy.”

Play your guy? Play your guy? I can’t play your guy – I don’t even know what this game is called.

A couple other things here.

I don’t know the rules to the game – I’ve never played this game. But let’s say I grab the manual and speed-read the rules. I still don’t have any experience. I’m going to get slaughtered. Preservation of self-esteem dictates you don’t just jump into something you’ve never done…even if it’s in the company of a bunch of 13-year-olds.

In much of life common sense prevents us from jumping headlong into certain activities. And yet, many adult children of aging parents plunge right into handling their parents’ finances and legal matters. The parents say the equivalent of, “Here, play my guy,” and one of the adult kids says, “Sure, I’ll play your guy. I can do this.”

Let’s say for argument’s sake the adult kids put in hundreds of hours on the internet and learn all about wills, trusts, estates, Medicare, eldercare, long-term care. Let’s pretend they’ve really learned all the rules. They still don’t have any experience. They’re going to get slaughtered – and it’s not going to be a roomful of 13-year-old girls laughing at them. In fact, no one’s going to be laughing.

So what this attorney was saying was that he hates mopping up after a slaughter. He hates being called into a situation in which there are few – if any – good options left. However, this same attorney conceded he recommends reverse mortgages when they’re used in strategic retirement planning.

A reverse mortgage is a powerful financial tool when used as part of a comprehensive, long-term retirement plan. It can mean the difference between financial sustainability and a less-than-desirable fallback position.

But just like with many things in life, rarely are deferred planning, poor management, and a piecemeal approach ingredients for a good outcome.

Give me a call or shoot me an email regarding your experiences with finances in an aging population. I always love hearing from you.

Laurie

Laurie Denker MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant, President’s Club · Middleburg Mortgage, a Division of Middleburg Bank · 20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com · www.middleburgmortgage.com/lauriem

Visit my Informational Blog at https://middleburgreverselady.wordpress.com/

So What is the “Fiscal Cliff,” Anyway?

by ReverseLady, posted in Caring for Aging Parents; A Daughter's Story, FHA HECM, Retirement Planning, Reverse Mortgage

You’re wondering what the Fiscal Cliff is all about? Here are the main issues:

In 2013, tax cuts for individuals will expire, along with long-standing tax breaks for businesses. Taxes for President Obama’s health care law will kick in, as will spending cuts enacted by Congress as part of the debt-ceiling deal. Long-term jobless benefits will also expire.

So What?

Here’s what: The Congressional Budget Office (CBO) estimates that if all these items occur, an estimated $600 billion will disappear from the U.S. economy in 2013, and push the country into a double-dip recession. Given that Europe is officially in a recession for the second time in four years, if our leaders don’t act now our economy is going to fall headlong over the same cliff.

And keep your head on a swivel regarding inflation. While the latest Producer Price Index and Consumer Price Index reports show inflation remained tame at the wholesale and consumer levels in October, inflation can quickly get out of hand.

What does this mean for home loan rates?

Inflation is the arch enemy of mortgage rates. However, home loan rates should continue to benefit from the uncertainty in Europe. This is because investors will likely continue to see our bond market – including mortgage bonds – as a safe haven for their money. But inflation is a very real threat to home loan rates: if inflation hits, look for mortgage rates to go up.

The bottom line is this:

Home loan rates remain near historic lows, making now the best time ever to talk with the seniors in your life about extinguishing their “forward” mortgage with a HECM Refinance. Also, there has never been a better time to use a HECM for Purchase to get into a home appropriate for aging in place. It’s hard to say how much longer rates will stay this low.

Call me with questions you or your clients might have – I always love hearing from you.

Laurie

Laurie Denker MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant · Middleburg Mortgage, a Division of Middleburg Bank · 20937 Ashburn Road, Suite 115 · Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com · www.middleburgmortgage.com/lauriem

Visit my Informational Blog at https://middleburgreverselady.wordpress.com/

Virginia’s Livable Home Tax Credit Program

by ReverseLady, posted in Caring for Aging Parents; A Daughter's Story

Did your parents want to leave their home when they retired? Do you wish to leave yours?

If you do, you are overwhelmingly in the minority: fully 95% of people polled state they wish to age in place. But what if the layout of the home just doesn’t work?

Tax Incentives for Improving Accessibility in the Home

For individuals with accessibility issues in the home, Virginia’s Livable Home Tax Credit (“LHTC”) program provides financial incentives for improving accessibility in residential housing. The credit applies to the purchase of a home or to the retrofit of a current home.

Tax credits up to $5,000 are available for the purchase or construction of an accessible residence, or up to 50 percent of the cost of retrofitting an existing home, not to exceed $5,000. If the tax credit exceeds the eligible individual’s tax liability, the credit may be carried forward for up to seven years.

It is important to note: applications must be filed with the Virginia Department of Housing and Community Development (DHCD) by February 28, 2013 for a purchase or retrofit completed in 2012.

For more information visit the DHCD website at www.dhcd.virginia.gov/LHTC

Laurie

Laurie Denker MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant · Middleburg Mortgage, a Division of Middleburg Bank · 20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com · www.middleburgmortgage.com/lauriem

Visit my Informational Blog at https://middleburgreverselady.wordpress.com/

Thickness, Congestion, Repugnance…And the Preservation of Dignity

by ReverseLady, posted in Caring for Aging Parents; A Daughter's Story

This week past my friend Jean and I took a road trip from sweltering Washington, D.C. to almost as sweltering Gloucester, Massachusetts. On the way we stopped in Boston to visit Jean’s parents, where she introduced me as the “geekiest friend” she knows.

I thought this unfair: she must have at least one geekier friend.

In any event, on the trip I listened with rapt attention to a lecture by Harvard professor Alvin E. Roth, the George Gund Professor of Economics at Harvard Business School.

The lecture carries the remarkably boring title, “What We Have Learned From Market Design,” and discusses three elements that trip up markets, whether we’re talking about kidney transplants, adoption…or, presumably, the hottest new iPhone.

Basically, the three elements are as follows:

Thickness: do enough people need what you offer?

Congestion: can enough be produced to make it widely available?

Repugnance: is what you offer socially acceptable?

Now, I’m a Reverse Mortgage Specialist, a mortgage banker. Seniors – or their adult children – come to me for money. So why did Dr. Roth’s lecture captivate me? And why do you care?

One of the biggest challenges facing us is how, as a nation, we are going to keep our seniors – our parents, friends, neighbors, the older members of our communities – safe, sound, and secure as they retire, relocate, and move ever deeper into old age. And much of this revolves around their housing.

And that’s where Dr. Roth’s lecture comes in:

Thickness: In America, 10,000 – TEN THOUSAND – boomers a day turn 62. The U.S. Census Bureau defines a mid-sized town as one having 250,000 people. That means every 25 days enough people in America turn 62 to fill a city – an entire mid-sized city. We are talking about lots and lots and lots of people – 76 million, to be precise – who over the next 18 years are going retire, move…and in many cases, need additional funds to make it through retirement. People, lots of people, need, or will need, an FHA HECM, also known as a reverse mortgage.

Congestion: Under current guidelines, to qualify for a reverse mortgage a person must be at least 62 and have sufficient home equity to pay off any existing loans on the home. The reason credit score, employment, or income doesn’t matter is because the borrower does not pay back the loan; the home pays back the loan once the borrower no longer needs the home. As long as we have homeowners, we have what we need to keep those homeowners in their own home.

Repugnance: I’ll be blunt – the old, pre-FHA reverse mortgage had a wretched history. However, the new FHA HECM is federally insured, federally regulated, and very closely monitored. This is as it should be – after all, we’re talking about your parents and mine, your neighbors and mine, and, eventually, you and me. Nonetheless, despite all the meticulous oversight, addressing fear of my loan product is a big part of what I do. With the huge educational programs and advertising campaigns over the past few years, the perception has begun to change, but misunderstandings still abound.

We’re all in the same boat: day by day we get older, our parents get older, and the nation’s financial situation gets a little more strained. The fear of running out of money in retirement dogs many of our seniors. Ask seniors and they’ll tell you: reduced circumstances and the attendant loss of dignity is not far from their thoughts. Fortunately, there are options.

If you or someone you know would like to talk, give me a call. I always love hearing from you.

Laurie

Laurie MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant · Middleburg Mortgage, a Division of Middleburg Bank · 20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com · www.middleburgmortgage.com/lauriem

Visit my Informational Blog at https://middleburgreverselady.wordpress.com/

To watch Dr. Alvin E. Roth’s lecture go to:   http://www.youtube.com/watch?v=7qrYC0Ojf-o

Reversing Years’ Worth of Skepticism

by ReverseLady, posted in FHA HECM, Retirement Planning, Reverse Mortgage

Even if they don’t adhere to it, most people have at least heard of the “bucket” strategy of saving for retirement. Basically, it’s a method of asset allocation, a way to diversify investments and save for the day you’re no longer working full time.

But here’s a question you might not know the answer to: for most people, what is the biggest – and best funded – bucket?  Cash equivalents? Fixed-income securities? Pension?

Answer: No, no, and no. For most people, the single biggest “investment bucket” is their home.

You can think about it this way: you might have designated several buckets. But if you didn’t put sufficient money into them during the working years, those buckets are not going to get you through retirement. However, most Americans paid into their home, even during the past few years when times were tough.

But here’s the problem: after spending years pouring the first fruits of one’s income into the home, that money is frozen, tied up in an illiquid asset. It’s an investment, certainly. But it’s not one easily converted into an income stream for retirement.

Increasingly, however, drawing upon that bucket by means of an FHA reverse mortgage is being recommended as a way to meet seniors’ financial needs during retirement.

FHA reverse mortgages have been around since 1988. But until recently, the financial planning community viewed them as the dirty underbelly of financial products.  It was the rare financial planner who saw any legitimate use for them whatsoever, let alone who used them in a strategic way.

However, within the past few years scores of scholarly studies have shown both the near-term and long-term positive impact of reverse on standard of living, financial portfolios, and estates.

In “How Important Is Asset Allocation To Financial Security in Retirement?” authors Munnell, Orlova, and Webb with Center for Retirement Research at Boston College state:

…[F]inancial advice…tends to focus on financial assets, applying tools that give prominence to the asset allocation decision. But most people have little financial wealth, and financial tools are often silent on the levers that will have a much larger effect on retirement security for the majority of Americans. These levers include delaying retirement, tapping housing equity through a reverse mortgage, and controlling spending [emphasis added].

Of particular interest to many financial planners is that, when set up as a monthly payment option, a reverse mortgage basically annuitizes the home – and it’s a considerably bigger annuity than most people would have been able to establish in the years they were supporting their family, helping with college tuitions…and paying their mortgage.

Rick Gow, wealth manager with the independent investment firm Lara, Shull, and May in Falls Church, Virginia, cites the example of a 66-year-old with a house valued at $400,000.

After subtracting closing costs, the retiree could receive a tax-free, monthly check of $1,252 for as long as the home remains the primary residence. By the time the homeowner turns 85, disbursements would total more than $289,100; by age 95, the total payouts would be over $435,600.

If the homeowner were to take a onetime, lump sum payout, he or she would receive approximately $256,800.  A third option would set aside that amount in a line of credit, the balance of which grows over time, tax free.

There is also a newer, reduced fee FHA reverse mortgage, called the HECM Saver. The over-all payout is less with this option, but Gow points out the lower closing costs make it a good option for some.

The majority of Americans fear running out of money in retirement more than they fear death, according to a May, 2012 AARP bulletin. In an America where 10,000 boomers a day turn 62, the FHA reverse mortgage has an increasingly pivotal role to play in retirement planning.

I always love hearing from you. Call me at any time with questions.

Laurie

Laurie MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant · Middleburg Mortgage, a Division of Middleburg Bank · 20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com · www.middleburgmortgage.com/lauriem

Visit my Informational Blog at https://middleburgreverselady.wordpress.com/

Babies Don’t Have Dumb Ideas

by ReverseLady, posted in Caring for Aging Parents; A Daughter's Story

When my daughters were teenagers I often said the biggest difference between teens and babies is that babies don’t have dumb ideas yet.

But both teens and babies have this in common: just a couple years later, both are more capable, more independent, and better able to care for themselves.

It’s tough to acknowledge, but I now have to add my mother to the comparison.

My mother is probably the most gifted person I know: brilliant, beautiful, funny, well read, extensively traveled, graceful and poised.

But she is getting old, and her proficiency in daily tasks is falling away at a relentless pace. And, unlike either babies or teens, a couple more years is not going to make the issue any better.

NPR Morning Edition’s Jessica Smith, in “Baby Boomer Money Squeeze Worsens, Multi-Gen Households Rise” (June 6, 2012), writes,

Roughly 78 million baby boomers are moving into their retirement years now. At first, they will be the “young” old. Legions of retired boomers soon will be walking around the mall, volunteering with community groups and taking grandchildren on trips.

At first, that can be good for the economy. But this immense generation, born between 1946 and 1964, will keep aging. Based on current medical outcomes, most of the people who live beyond age 85 will end up with dementia or other disabilities that require costly care.

Here’s how fast the numbers will ratchet up: In 1990, only about 3 million Americans were over the age of 85. Today, the figure is 6 million. By 2050, the United States will be home to about 19 million people older than 85, according to U.S. Census projections.(http://www.npr.org/2012/06/05/154001412/baby-boom-money-squeeze-is-set-to-get-tighter)

Almost 20 percent of advanced elderly Americans now live with their aging adult children, putting tremendous pressure on “leading edge” boomers who are hitting traditional retirement age. Boomers tended to have fewer children, later in life, which in some cases has resulted in their still having dependents at home at a time previous generations would have been saving intensively for retirement. Additionally, many middle-aged parents find themselves helping grown children who have lost jobs, homes, and businesses – the classic “sandwich generation” squeeze, made more intense by a prolonged recession.

We are a becoming a nation of the old and the older, the squeezed and the very squeezed.

Writes Ms. Smith, “For individuals, families, local government officials and federal taxpayers, this demographic shift will drain dollars and attention, and force extremely difficult decisions about living arrangements, as well as end-of-life care.”

When we have these talks about taxes and government, what kind of numbers are we talking about?  The primary number to watch is the national debt: in 1970, when boomers were young, the national debt ran about 28 percent of gross domestic product. It now stands at 70 percent.

And, as in the case of my mother, a couple more years is not going to make this issue any better.

According to Centers for Medicare and Medicaid Services, Medicare will remain solvent until 2024. Starting last year, Social Security already began paying out more than it takes in.

As former U.S. Comptroller General David Walker, a federal spending expert says, “Government has grown too big, promised too much and waited too long to restructure. It is going to spend less over time … which means that individuals will have to plan, save and invest for the future.”

Plan, save, invest…and take out a reverse mortgage, according to research put out by Boston College in May, 2012.

….but more in my next piece about several watershed reverse mortgage articles published this spring by major research institutions.

Laurie

         Laurie MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant · Middleburg Mortgage, a Division of Middleburg Bank ·                   20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com www.middleburgmortgage.com/lauriem

Visit my Informational Blog at https://middleburgreverselady.wordpress.com/

FHA Weighs Rule Reversal, Boon for Condo Sales?

by ReverseLady, posted in Caring for Aging Parents; A Daughter's Story
Daily Real Estate News | Tuesday, May 22, 2012

The Federal Housing Administration is reportedly considering revising rules that many in the real estate industry have called overly strict and that have left many condo units ineligible for FHA’s low-downpayment mortgages.

For example, one sticking point under the FHA’s rules has been that “individual condo units cannot be sold to buyers using FHA-insured mortgages unless the property as a whole has been approved for financing,” The Wall Street Journal reports. However, condo association boards are increasingly opting not to obtain recertification of their buildings for FHA loans due to its tightened regulations against condo units.

FHA’s regulations “have had an enormous impact on individuals,” says Moe Veissi, president of the National Association of REALTORS®. More condo unit residents are finding they are unable to sell their unit because the condo board hasn’t obtained approval from FHA, Veissi told The Wall Street Journal. This then can have a roll-over affect that negatively impacts the price of condo units in the buildings then.

Half of all condo buyers tend to use FHA mortgages, and it’s an important source of lending for first-time and minority home buyers, Christopher L. Gardner, managing member of FHA Pros, a consulting firm that helps condo boards obtain FHA approvals, told The Wall Street Journal.

FHA officials say they are willing to reconsider some of their rules that have raised such an outcry among condo owners, lenders, and real estate professionals. For example, one rule the FHA is reportedly reconsidering is its stance on non-owner occupancy. As of now, FHA requires that no more than 50 percent of the units in a condo building be non-owner occupies. “This rule alone has made large numbers of condominiums in hard-hit markets ineligible for FHA financing, where investors have purchased units for cash to turn into rentals,” The Wall Street Journal reports.

FHA also is reportedly revisiting its condo rules on how many owners in a building can be delinquent on their fees. As of now, FHA refuses to approve a project if more than 15 percent of the condo units are 30 days or more late on their condo association fees, The Wall Street Journal reports.

Source: “Condo Sales May Become Easier if FHA Revises Rules Governing Mortgages,” The Wall Street Journal (May 18, 2012)