Reverse Mortgages and Financial Planning

Reverse Mortgages & Financial Planning.

There is a common belief amongst many advisors and seniors that the federally insured reverse mortgage is a last resort proposition.

On the other hand if one examines how the reverse mortgage might integrate and affect the other aspects of an older persons financial plan, one may find hidden benefits that are not readily understood..

A case in point to illustrate’ Alice C is a widowed woman in her early 70’s, her home is in Burien, a suburb of Seattle. She owned her home free and clear. Her income basically was from social security, and liquidating her IRA.

She was concerned about the dwindling amount in her retirement account. She began to investigate a reverse mortgage. However, her neighbors were advising against it. She was concerned and apprehensive. She observed a notice in the local senior service newspaper, and contacted John Kennedy a local financial planner specializing in reverse mortgages.

After many meetings she decided to take out a reverse mortgage.

To my surprise  on March 23, 2008 I received the following e-mail:

----- Original Message -----

From: Alice Crawford

To: John Kennedy

Sent: Sunday, March 23, 2008 12:46 PM

Subject: THANKS A MILLION!

Dear John:

Because of your help, I was able to facilitate that reverse mortgage on my house, which, in turn, allowed me to avoid taking out a lot of funds from my (dwindling) IRA last year, even though I HAVE had to withdraw from the Reverse line of credit.  I not only managed to pay for the new roof on my house, but also have been able to utilize some of the line of credit when needed, for other living expenses.

 THIS FINALLY allowed me to qualify for the one-half exemption in my real estate taxes for the first time, AND ALSO qualifies me for one-half reduction in my Seattle City Light electric bill (which has always been a killer!)  That made a big difference in the amounts I have had to pay over the years, and has drastically reduced my need for so much supplemental income.

 NOW, to my delight, when approaching the "ever-despised" task of doing my federal income tax return, I find that my Social Security income last year IS NOT TAXABLE, because I did not have to take out a lot of IRA funds to supplement it!!

 IF IT WERE NOT FOR YOU, AND YOUR KIND AND PATIENT GUIDANCE THROUGH THE REVERSE MORTGAGE PROCESS, I WOULD BE IN MUCH WORSE FINANCIAL SHAPE RIGHT NOW, AND I SIMPLY CANNOT THANK YOU ENOUGH !!!

 HAPPY EASTER TO YOU!  I HOPE THAT YOUR LIFE IS CONTINUING TO GO WELL, AND THAT YOU ARE HAPPY AND HEALTHY, AND ALSO CONTINUING TO FIND PEOPLE WHO NEED YOUR HELP!

 Best,

Alice Crawford


The point is that the proceeds from a reverse mortgage are classified as a loan, and so are not considered income for purposes of means testing, or for income tax. The savings to her are over $3,000 per year.  In her case it is much wiser to use her home as an asset, rather than to liquidate additional retirement principal.

The average middle class senior has his net worth 70% in his or her home; 65% of these elderly rely on social security for over half of their income, one third rely on social security for 67% of their income


 

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