Groundbreaking New Study Shows Reverse Mortgages Can Reduce Risk and Increase Retiree Wealth | Business
SAN DIEGO – (BUSINESS WIRE) – December 1, 2021–
Finance of America Reverse (FAR), a retirement solutions company, announced that a new study published today in the Financial Planning Journal reveals that reverse mortgages can provide a critical risk mitigation tool for millions of retirees, dramatically reducing exposure to longevity and market risks while increasing their investment portfolios.
The pioneering study, To reduce the risk of retirement portfolio exhaustion: include home equity as an uncorrelated asset in the portfolio, found that retirement strategies that use a reverse mortgage as an alternative source of cash flow to a traditional investment portfolio have the greatest benefit for wealthier Americans, typically defined as those with 100,000 to $ 1.5 million in investable assets.
“When it comes to reducing investment risks, this study is perhaps one of the most important findings since the introduction of modern portfolio theory (MPT) in effect in 1952,” said Phil Walker, vice president of strategic partnerships and retirement strategies at FAR and a co-author of the study with Drs. Barry and Stephen Sacks. * “Many retirees fear that their investments may not be able to support their lifestyle or last through retirement, and those who dip into their portfolios when markets are depressed are permanently at a disadvantage. by the fact that they will never recover. The inclusion of a reverse mortgage through a coordinated withdrawal strategy addresses this problem by reducing the risk of running out of money for retirees and dramatically increasing their earnings over time.
Short-term market volatility poses a risk to retirees, with one year’s losses of market downturn impacting portfolio growth and therefore retirees’ disposable income and quality of life. However, those who use a reverse mortgage as a buffer asset during down years are likely to reduce their exposure to market volatility by almost 10 times and could significantly increase their net worth over a 30-year retirement.
With the recent growth in property values, homeowners aged 62 and over have amassed more than $ 10,000 billion in real estate wealth, according to the National Reverse Mortgage Lenders Association. While some wealthy retirees may choose to live off real estate investments, royalty income, dividends, or other passive income streams, for the vast majority, the simplest source will be to tap into home equity. via a reverse mortgage. Plus, because the proceeds from a reverse mortgage are not taxable, they are probably the most profitable alternative source of income for most retirees.
Implications for Wealth Management and Reverse Lending
The study provides critical insight for financial planners and the wealth management consulting industry in light of the massive portfolio gains made possible by including home equity in a retirement plan. It also signals a massive demographic shift for the reverse mortgage industry as a whole and strengthens its positioning as a broader wealth management solution for Americans entering retirement with higher net worth.
While wealth managers have adhered to MPT principles of asset allocation and portfolio diversification for over half a century, reverse mortgage products have been largely overlooked due to outdated perceptions. Still, the results of this study suggest advisors should consider including home equity as an asset in retiree portfolios given their duty to help clients manage and reduce risk.
“These findings will have massive implications for the retirement planning community and counselors of nearly 20 million wealthy Americans in droves in the years to come,” according to Walker. “The results are clear: Most high net worth retirees should have a retirement plan that includes a reverse mortgage strategy from day one, and financial advisors should view this strategy as part of their fiduciary responsibility to minimize risk for them. retirees. “
FAR President Kristen Sieffert added, “This momentous research supports what many in the industry have long believed and evangelized: Home equity can and should be seen as part of a plan. balanced and comprehensive retirement plan. It also builds on our efforts to produce more research and training material explaining the benefits of using home equity to supplement a retirement plan. The study will hopefully help educate Americans and their advisors on the merits of reverse mortgages as they chart a financial roadmap that helps them thrive in their golden years in a way that they had not imagined possible.
* Finance of America Reverse (FAR) maintains a strategic partnership with the Financial Planning Association and funded this study.
About Finance of America Reverse
As a retirement solutions company and a member of the Finance of America Companies (NYSE: FOA) family of companies, Finance of America Reverse is committed to giving people the tools they need to achieve financial independence and get down to work in retirement. Through its team of licensed credit officers and its network of professional and wholesale partners, Finance of America Reverse offers products and services designed to help older Americans include home equity in their retirement plans. The company is nationally licensed and is a proud member of the National Reverse Mortgage Lenders Association (NRMLA).
For more information, please visit www.FAR.com or find us on Facebook, YouTube, LinkedIn or Twitter.
© 2021 Finance of America Reverse LLC Licensed Nationwide | Equal Housing Opportunities | NMLS ID # 2285 (www.nmls.consumeraccess.org) | 8023 East 63rd place, office 700 | Tulsa, OK 74133
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CONTACT: Quincy Mix
Sloane & Company
KEYWORD: CALIFORNIA UNITED STATES NORTH AMERICA
INDUSTRY KEYWORD: PROFESSIONAL SERVICES RESIDENTIAL BUILDING & REAL ESTATE FINANCE CONSTRUCTION & REAL ESTATE BANKING ACCOUNTING
SOURCE: Reverse America’s Finances
Copyright Business Wire 2021.
PUB: 12/01/2021 09: 00 / DISC: 12/01/2021 09:03
Copyright Business Wire 2021.