The Reverse Mortgage: A Strategic Lifetime Income Planning Resource

Whether or not the United States faces a retirement crisis, there is little doubt that many older Americans are not well prepared financially. Many retirees face the prospect of running out of money as they age. The reverse mortgage is a financial instrument that can brighten the financial prospects of older Americans and reduce the chances of an old age spent in financial straits.

Recent research has shown that strategically combining reverse mortgages and investment portfolios can significantly boost sustainable retirement income. Moreover, in the last three years the regulatory framework has been revised to encourage the further development of the market for these instruments. Practically, the history of making the features of reverse mortgages better known in the financial planning community dates only to 2011 (Kitces [2011a], [2011b], followed by a series of blog posts and conference presentations).

Today there is an evolving understanding of reverse mortgages as a valuable financial planning tool. Reverse mortgages are now seen as well suited for retirees – not only homeowners who are underfunded and turn to a reverse mortgage as a last resort, but also those who enter retirement well-funded. An introduction to this new view is provided in a recent book for homeowners and advisors (Giordano, [2015]).

In the fall 2015 issue of the Journal of Retirement, financial blogger Tom Davison and reverse mortgage loan originator Keith Turner published an article entitled, “The Reverse Mortgage: A Strategic Lifetime Income Planning Resource,” that explains how reverse mortgages work, noting recent changes to their regulatory framework, and reviews the recent research that demonstrates how a reverse mortgage in combination with a conventional asset portfolio can enhance the well-being of retirees. It is addressed mainly to financial planners working with clients with an actual or potential interest in reverse mortgages.