4 Ways Older Americans are Hurting Financially
Which demographic group is hurt the most by the Federal Reserve’s series of interest rate hikes and inflation? If you answered older Americans you would be correct. Here are four ways our older neighbors and friends are suffering in today’s economy. #1 Purchasing a home While older homebuyers are a smaller slice of the purchase market, many have a need or desire to either relocate or right-size during their retirement years. But there’s a catch thanks to the Federal Reserve’s measures attempting to lower inflation. Higher interest rates. A single percentage point increase in home mortgage rates pushes out 16% of low-income borrowers according to a recent Federal Reserve Board working paper. Some homeowners over the age of 62 could possibly use a HECM for Purchase to close the gap. Nevertheless, the odds are most are either unable to get a reverse mortgage, or unfamiliar with the loan and consequently will be pushed to the sidelines due to a lack of affordability. However, more significant problems loom for today’s American retirees, most of which are related to daily living expenses. #2 Repairs Most retirement planning is focused on meeting monthly expenses. But what about those unexpected lump-sum expenses such as replacing an aging HVAC system or purchasing a vehicle? MSN noted in a recent column that one trick economists recommend for housing costs is to budget 1% of your home’s total value for annual repairs and maintenance. For example, the owners of a $400,000 home should allocate $4,000 annually for potential unexpected purchases or repairs. #3 FoodThe U.S. Department of Agriculture’s 2023 forecast for food prices is stark. The agency predicts that food prices could be… 10% higher than they were in 2022. “Food prices are expected to grow more slowly in 2023 than in 2022 but still at above-historical average rates,” the USDA’s Food Price Outlook said in late March. Eating out will cost more as well with the USDA forecasting an 8.3% increase. While the rate of inflation has somewhat slowed, food prices continue to climb. #4 Medicare Workers who were fortunate enough to have health insurance benefits as part of their employment are likely going to have to foot the bill. The average Medicare premium for the standard part B is $164.90 a month, Part D runs about $49 a month, and typical supplement plans run about $155. For a single individual, health-related premiums can take $400 or more out of their monthly budget. A lifeline Money Magazine reports that since 2000 American seniors have lost 40 percent of their purchasing power, much of that in the last year. How in the world do older Americans cope? In several ways. Many choose to work longer while some are deciding to return to the workforce. Others are turning to the ‘gig economy’ taking jobs delivering food and other staples. Not surprising considering the uncertain economy and inflation. The tragedy is many older homeowners simply ignore or have misgivings about another potential solution that could allow them to enjoy their retirement without the burden of employment- a reverse mortgage. by Shannon Hicks March 27, 2023
How a Reverse Mortgage Works After the Borrower’s Death
When the last surviving borrower on a reverse mortgage loan passes away, the loan becomes due and payable. The amount due is equal to the full loan balance, which is the sum of the borrowed amount, interest, and other charges. Here’s an overview of how your client and their family can expect the reverse mortgage to work after death. 5 Things to Know About Conclusion In conclusion, a reverse mortgage loan must be paid back after the passing of the last surviving borrower. The estate is responsible for repaying the loan, and has several options for doing so, including selling the property, paying off the loan with other assets, or refinancing the loan. Typically, the loan is repaid within six months of the date of death, but extensions may be granted. Your client and their family should always speak with their attorney and/or financial advisor to determine loan repayment for their specific circumstance. The estate is generally not held responsible for any loan balance above the property’s value, thanks to the loan insurance.
Suze Orman Says Yes to Reverse Mortgages
Suze Orman on her CNBC show recently responded to a viewer question by stating that a reverse mortgage is a better option than selling stocks. During the segment, a caller stated that his 85-year-old father had been liquidating stocks over the past few years to pay for larger ticket items, including the upkeep of his home. His question was, “is it better for him right now to continually unload his portfolio and incur capital gains on the stocks he sells or risk borrowing, in a sense, against his kids future during these crazy times?” The father would like his two kids to inherit the home and his investments after he passes. Suze says that a reverse mortgage would be the better option. Her reasoning is as follows: The heirs will have a better chance of recouping the lost value of stocks over the years since the stock market recovers faster than the real estate market. Reverse mortgage interest rates are low and the mortgage relief bill that came into effect in October makes reverse mortgages far more beneficial than ever to take out today than ever before because of fees being limited. This segment highlights how a reverse mortgage can help extend the value and life of other assets when they are provided additional time to gain value before being drawn down. When looking at retirement plans, older homeowner’s need to take a holistic approach. There is no one size fits all solution. A reverse mortgage will not be the right solution for everyone; however, it should not be overlooked as part as the overall retirement plan. When consulting a retirement planner be sure to bring up the option of a reverse mortgage. After all, the home is more than likely the largest source of untapped capital for most senior homeowners. Credit: Josh Borba
Can Reverse Mortgages Be Refinanced?
The short answer is yes, a reverse mortgage can be refinanced. However, just because it can be refinanced, doesn’t mean that it’s the right decision for your clients. In this article, we’ll talk about refinancing into a traditional mortgage, refinancing into another reverse mortgage, and why a borrower would, or wouldn’t, want to refinance. When refinancing into another reverse mortgage, the client(s) must show a net tangible benefit such as adding a spouse, gaining access to additional funds, or moving from an an adjustable rate to a fixed rate reverse mortgage. Refinancing to a Traditional Mortgage When a client refinances a reverse mortgage, they are obtaining a new loan to pay off the old one, just like they might do when refinancing a traditional mortgage. Similarly, when refinancing a reverse into a traditional mortgage, the new loan would be used to pay off the existing loan. A reverse mortgage can be repaid or refinanced into a traditional mortgage with no prepayment penalty, at any time. Clients should consider their circumstances and weigh the pros and cons of refinancing, before deciding to refinance their reverse. Refinancing to Another Reverse Mortgage Clients may be interested in refinancing to another reverse mortgage when their home value, interest rates, or other needs have changed. When refinancing to another reverse mortgage, the client(s) must show that the refinance will result in a bona-fide benefit to the borrower(s). All reverse products have set standards to ensure that the refinance is a benefit to the borrower(s). This can include a required percentage increase of Principal Limit vs. closing costs, and the increased amount of available funds. Your clients should always speak with their attorney and/or financial advisor first, to determine if a reverse to reverse refinance is right for them. Why Refinance a Reverse Mortgage? There are several reasons why someone might consider refinancing a reverse mortgage, including: Why Not Refinance a Reverse Mortgage? Although refinancing a reverse mortgage is possible and there are many reasons to refinance, it’s important to keep in mind that refinancing is not always a good idea. Your clients may not want to refinance if any of these apply to their situation: Summary To summarize, yes, a reverse mortgage can be refinanced and when your client’s situation permits, it can be a benefit to them. However, refinancing is not always a good idea, nor is it always possible. Clients should consider their financial situation, how much of their home equity has been used, and should weigh the pros and cons. They should always speak with their attorney and/or financial advisor first, to determine if a reverse to reverse refinance is right for them. Lastly, just because a refinance does or doesn’t make sense now, doesn’t mean it will or won’t in the future. Please also note that if your client is considering a reverse mortgage refinance and it was not their idea, they should take precaution to ensure it is not a scam. A refinance should always be a benefit to the client, not simply a benefit to a lender, contractor, or relative.
Money management tips for retirees
Tue, Mar 21st 2023 07:00 am Metro Creative Graphics What constitutes a perfect retirement is different for everyone. Some people may imagine spending their golden years fishing their days away, while others may aspire to finally embrace their inner globetrotter. Though individuals’ retirement dreams differ, every retiree will need money, which only underscores the importance of a wise and disciplined approach to money management. Average life expectancies have risen considerably over the last several decades. According to estimates from the United Nations Population Division, the average life expectancy in Canada for both sexes is just under 83 years, while it’s slightly more than 79 in the United States. Those figures are a welcome sign, but they may inspire a little fear among seniors who are concerned that they might outlive their money. No one knows how long they will live, but everyone can embrace a handful of money management strategies to increase the chances that they won’t feel a financial pinch in retirement. •Study up on the tax implications of withdrawing from your retirement accounts. Every retirement investment vehicle, whether it’s an IRA or a 401(k), has tax implications. Money withdrawn too early may incur tax penalties, and even money withdrawn long past retirement age could elevate retirees into a new tax bracket that could prove costly. A financial adviser can help retirees determine the tax implications of withdrawing money from their retirement accounts, and may even develop a detailed guideline of when withdrawals should be made and how much should be withdrawn in a given year in order to minimize tax liabilities. •Prioritize your own needs. Though retirees – particularly those with children and grandchildren – may feel an obligation to help their families in difficult financial times, generosity can be very costly for adults who have stopped working. Retirees may or may not have opportunities to generate new income, and even those who do likely won’t make enough to meet their daily financial needs. Given that reality, retirees must prioritize their own financial needs, including their immediate needs and those they will have for the rest of their lives. Though it might be difficult to turn down loved ones’ requests for financial help, retirees must make sure they can pay their bills and maintain a quality of life that won’t jeopardize their long-term health. •Examine your housing situation. Equity in a home is a feather in the cap of many retirees. Retirees who own their homes and live in locations with high property taxes might be able to cash in on their equity by selling their homes and downsizing to a smaller home with lower property taxes. If moving is not a consideration, discuss a reverse mortgage with a financial adviser. A trusted financial adviser can highlight the advantages and disadvantages of reverse mortgages, which are a great option for some people to improve their financial well-being in retirement. •Stick to a budget during retirement. The U.S. Department of Health and Human Services reports that roughly 70% of individuals who turn 65 will need long-term care in their lifetimes. That’s just one expense retirees must budget for, and it’s more sizable than some people may recognize. In fact, the Fidelity Retiree Health Care Cost Estimate found that the average retired couple age 65 in 2022 will need roughly $315,000 to cover health care expenses in retirement. And health care costs are just one of many expenses retirees can expect to have. Budgeting and avoiding overspending can ensure retirees have the money they need when they need it. No one wants to outlive their money in retirement. Various strategies can help retirees effectively manage their money so they can enjoy their golden years without having to worry about their finances.
Seniors will face the Credit Card Crunch
by Shannon Hicks March 21, 2023 Credit card companies are beginning to slash credit lines. It happened once before and it’s happening again. In January 2020 the world economy was pulled into chaos by the COVID-19 pandemic. At that time, several credit card issuers began slashing credit card limits to hedge their risk in an uncertain economy. Fast-forward three years and bank card issuers are beginning to pull back their credit exposure in a new potential pandemic- bank insolvency. Even without the failure of Silicon Valley Bank lenders are becoming increasingly wary seeing signs of an impending economic recession while credit card balances and delinquencies climb. One population most vulnerable to the coming credit crunch is seniors who may find themselves stuck between higher minimum payments and reduced available credit on their cards. The National Council on Aging (NCOA) reports 41 percent of households headed by those between the ages of 65-74 are carrying credit card debt. 28% of those 75 and older also carrying a credit card balance. The financial burden is significant for older Americans living on a fixed income. However, the days covering basic expenses with a credit card may be coming to an end. For example, a retiree with a $5,000 credit card balance and a $15,000 credit line would have a utilization ratio of 33%, just above the ideal ratio of 30% where outstanding balances have little if any impact on a consumer’s credit score. However, if that credit line was reduced to $7,500 the credit card utilization ratio double to 66% utilization of available credit. This reduces the senior’s overall credit score and removes a potential source of funds for emergencies. Who’s at risk of having their credit limit reduced? Frankly, anyone. However, those who don’t use a card for an extended period of time or show signs of risky borrowing such as maxing out another card are the most likely candidates. Anecdotal reports have emerged of higher-income cardholders with excellent credit receiving a notice of a credit line cut on cards they’ve rarely used. But what about retirees? Older Americans who are paying their living expenses with credit cards will need to make some hard decisions. How long can this pattern continue and what happens when credit cards are not an option. Fortunately, many older homeowners could escape the credit card trap by eliminating required monthly mortgage payments and possibly securing a line of credit whose unused portion increases each month. Merely eliminating one’s mortgage payment could allow one to aggressively pay off credit card balances each month, or even in one fell swoop when their reverse mortgage funds. More importantly, seniors may find they have increased financial flexibility without the burden of required mortgage payments, and perhaps later begin making optional payments of interest and principal when their situation has stabilized. Credit cards are a two-edged sword. The credit banks and card issuers lavished upon us when our economy was awash with dollars can be taken away just as quickly. The advantages of a Home Equity Conversion Mortgage should be explored for its potential to boost monthly cash flow and perhaps provide a source of future credit, a credit line that cannot be reduced merely because of a credit crunch or a drop in one’s credit score.
Seniors not ready for ‘crushing’ costs of late-life care
Later-life care has become as the baby boomer demographic reaches 73 million March 20, 2023, 2:46 pm By Chris Clow The costs of senior care are often extraordinary, and the baby boomer demographic — which consists of 73 million Americans, the oldest of whom are turning 77 this year — is not prepared for it, according to the Washington Post. “The dilemma is particularly vexing for those in the economic middle,” the story reads. “They can’t afford the high costs of care on their own, yet their resources are too high for them to qualify for federal safety-net insurance. An estimated 18 million middle-income boomers will require care for moderate to severe needs but be unable to pay for it, according to an analysis of the gap by the Center for Retirement Research at Boston College.” Questions related to the supply of home health aide workers and the aversion most people have toward nursing homes also hamper the prospects for addressing this need, on top of the fact that people don’t often consider these kinds of questions until very late in life. While the vast majority of older Americans prefer to age in place within their own homes, dedicated care staff to accomplish such a goal is in short supply to meet senior care needs, the story reads. “[M]edian costs for 40 hours a week of assistance from a care aide in the home, for things such as bathing, dressing, eating and toileting, run over $56,000 a year,” the story says. “A shortage of home care aides, moreover, was exacerbated by the pandemic.” Moreover, assisted living facilities are often out of reach for many seeking senior care, with base rent of around $4,000 a month. That cost balloons significantly if the resident has dementia, the story says. According to data from Genworth, the average monthly cost for different types of senior care is lowest when looking at an in-home care aide ($4,690). Assisted living is $4,977, while dementia care is $6,709. Nursing homes are the most expensive at over $10,000 per month. The reverse mortgage industry has aimed to position itself as a potential path toward financing in-home care for older people. A recent study showed that people often believe that programs like Medicare cover the costs of long-term care, but this is not actually the case. A 2022 report from the Associated Press cited reverse mortgages as an option to pay for long-term care, while reverse mortgages were described as having “reemerged” as a payment option in a story from U.S. News and World Report. However, the home value and amount of loan proceeds available would ultimately determine the sustainability of such a funding option.
The Heirs’ Responsibility When It Comes to a Reverse Mortgage
When a homeowner has a Reverse Mortgage, the loan typically becomes due when the borrower sells the property, the last surviving borrower permanently moves out of the home, or when the last surviving borrower passes away. In the case of the latter, the heirs become responsible for the loan. Responsibilities Upon the last borrower’s passing, the heirs become responsible for a number of things regarding the loan. We’ll explore each of these responsibilities below. When your clients choose to get a reverse mortgage, we encourage them to ensure their heirs are aware of the potential responsibilities. By understanding their obligations, the heirs can make sure they are able to fulfill their responsibilities and avoid any potential difficulties. Contributor SmartFi
Lawmakers consider increasing retirement age to save Social Security The proposal could emphasize a commonly cited use case for reverse mortgage loans
A bipartisan group that is led by two U.S. senators — Angus King (I) and Bill Cassidy (R) — is reportedly considering a plan that would gradually raise the retirement age under the Social Security program to 70 in order to keep the trust fund solvent, according to Semafor. “This is an example of two leaders trying to find a solution to a clear and foreseeable danger,” the senators’ spokespeople told Semafor in a statement. “Although the final framework is still taking shape, there are no cuts for Americans currently receiving Social Security benefits in our plan. Indeed, many will receive additional benefits.” The proposal would also include a sovereign wealth fund that could be seeded with $1.5 trillion in borrowed money as a way to impact stock investments, according to Semafor. Failure to generate a return of 8% would cause both maximum taxable income and the payroll tax rate to increase, which would aim to put the Social Security trust fund on solvent ground for the next 75 years. If Congress fails to act on making the Social Security trust fund more solvent, then people who rely on the program could see a reduction in their benefit payments as soon as 2032. That estimate was recently revised downward from other estimates that speculated benefit reductions would occur in 2035. Historic levels of inflation are also adding to the complexity, as the past two years have seen historic increases in the program’s cost of living adjustment (COLA) to account for higher living costs. However, research concluded that while the larger Social Security benefit payments were welcome, the larger COLA failed to outpace inflation in 2022. Many American seniors are dependent on Social Security benefits, and they often interact with the reverse mortgage business as a result. The reverse mortgage industry has long contended that using the product could be a way for more seniors to delay taking Social Security until the maximum benefit kicks in, currently at age 70. While the Consumer Financial Protection Bureau (CFPB) has warned in the past that using this tactic could be expensive, commentators have said that home equity could be a viable path toward maximizing the program’s benefits. “You may still face big bills or have trouble making ends meet in retirement,” wrote personal finance columnist and financial planner Liz Weston in 2021. “In that case, your home’s equity could be helpful. You could access your home’s value by selling it, using a reverse mortgage or getting a home equity line of credit. But you can’t tap equity you don’t have. In 2016, 46% of homeowners age[s] 65 to 79 still had mortgage debt, according to Harvard University’s Joint Center for Housing Studies. The median balance owed was $77,000.” Another common use case for a reverse mortgage loan outside of Social Security is moving into a transaction that does not require a monthly mortgage payment. March 7, 2023, 12:33 pm By Chris Clow
How to pay for assisted living expenses
Most people’s social security income and savings are insufficient to cover assisted living expenses. Most combine cash from multiple sources, including home-sale proceeds, long-term-care insurance benefits, and contributions from relatives, to achieve the required amount. Affording Assisted Living Cost 1. Use the Personal Savings It can be easy to afford assisted living facilities with savings and income from several sources. It can be your official retirement plan, the 401(k), or other private savings or investments. They can play a significant role in preparing for long-term care or assisted living. Saving money can be important for your financial security, quality of life, or future. 2. Apply For Veterans’ Benefits Veterans typically benefit from health care coverage and other medical insurance the United States government provides through the Department of Veteran Affairs (DVA). It can assist you in saving the cash that you would use on health care. One can use this money to save for other critical things, such as housing. Veterans are, however, eligible for other government programs, such as VA pensions, which are monetary supplements. Because this cash is a supplement, veterans shouldn’t show they are in financial distress. 3. Use Life Insurance Plans If you have been paying life insurance policy premiums for a significant period, you can use that cash to afford assisted living. You might decide to leave some cash for your loved ones; however, the payout for the cash-out could help you. 4. Use a Reverse Mortgage This can be risky, but it is a way to afford assisted living. You can use this option if a family member or a loved one is still living in the home and you are entering long-term care or assisted living. Those who own homes and are older than 62 years old can take out a reverse mortgage and borrow around 74% of their home’s value. It can be a significant advantage, although it involves several financial obligations. Therefore, consider the pros and cons before deciding financially on future care or assisted living. 5. Take Out a Long-Term Care Insurance Policy This insurance policy will make sure you can afford assisted living if you need it after retirement. You can purchase this policy through private insurance companies. Different firms provide different premium requirements depending on multiple factors, including age, amount of coverage, and health. Opting into this option would only be appropriate if you have an underlying condition, as insurance firms do not allow coverage. 6. Take Out a Loan Loans are often risky, but a short-term loan can help you pay for assisted living cost. A bridge loan will help you close the financial gap and therefore afford to pay for long-term care. A loan can be useful if you want to sell your home to pay for long-term care but have not found a buyer. You can repay the loan later when your home finds a buyer. Final Word There are several ways of paying for assisted living costs, including taking out a loan, using annuity income, and using social security income to pay for long-term care or assisted living.