The Pension Problem is Now a Crisis

American taxpayers are already footing the tab for somebody else’s retirement and that bill is expected to grow considerably. Welcome to the pension fund crisis.  While some lawmakers have expressed a willingness to bail out underfunded private pensions many oppose the continued subsidization of the Federal Housing Administration’s MMI (Mutual Mortgage Insurance) fund which backs the Home Equity Conversion Mortgage program.

In the last decade, several private pension funds have revealed they are facing financial insolvency. Fast forward to the ‘new abnormal’ in the wake of the economic devastation unleashed by the COVID-19 pandemic and you’ll find the contagion of insolvency is spreading to pension funds that were once on a sound economic footing. Simply put, the pension problem has become a financial crisis.

For decades, and even recently, the idea of the government backstopping private pension funds has been avoided for fears of a voter backlash. In fact, this April five Republican senators wrote President Trump expressing their resistance to the federal government giving aid to supplement state budgets citing concerns of it being used to backstop pensions. “There’s not going to be any desire on the Republican side to bail out state pensions by borrowing money from future generations”, the letter said in part. 

With sales local and state tax revenues collapsing elected officials will be forced to prioritize funding vulnerable pension plans. That leaves public services such as education, public safety, and other programs in the crosshairs of severe cutbacks. 

So where can those without a pension or pension holders who may face a reduction in monthly payouts turn for help? Most likely it’s their home. Despite housing wealth typically being the largest asset for senior homeowners, its influence pales in comparison due to the political clout that private and public employee unions hold with state and federal lawmakers. Much of that influence differential can be attributed to the way that defined benefit plans or pensions are viewed compared to reverse mortgages. It’s much easier for elected officials to ignore the risks present in regional pension funds hoping for strong investment returns while protecting them at all costs.

Both homeowners and pension participants have made consistent monthly payments over many years; one in the hope of eliminating the expense of a monthly mortgage payment, the other for the promise of more stable cash flow in retirement.

Soon even those with a pension may consider tapping into their home’s value to help fill their cashflow needs. Perhaps some of our international counterparts were wise after all to call their reverse mortgages the ‘home pension plan’.

Social Security Insecurity

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Social Security & an IPA

Pressing The Reset Button: The Gap Years
As human lifespan climbs steadily towards the century mark, Social Security is only one — and woefully inadequate — means of funding a lengthening retirement period. In fact, we’re in the midst of creating second-stage work lives, or “encore careers,” that are evolving at the intersection of money, meaning, and social impact, says social entrepreneur Marc Freedman, author of The Big Shift: Navigating the New Stage Beyond Midlife

Adults 60 and over are returning to school in droves to train in entirely new areas, often centered around social issues such as the environment, health, education, and social services. Educational innovation, from lifelong learning to distance classes via the Internet, is proliferating to keep pace with this changing demographic. But where are the resources to pay for this transition training?


Retirement And Individual Purpose Account

Enter the Individual Purpose Account (IPA). Freedman suggests that rather than raid your IRA or your children’s college fund, why not create a tax-advantaged Individual Purpose Account targeting the transition years? Such accounts “could be both a policy opportunity and a potential bonanza for the private sector, which is offering retirement products but little in the way of savings vehicles for alternative approaches to the last two, three, or four decades of life.”

Reverse Mortgage Retirement Funding

Until such time as the government implements this visionary idea, a reverse mortgage might be an optimal resource to fund an IPA — especially because reverse mortgage holders can tap their loans only when needed, prudently saving the rest.

In fact, reverse mortgages can be reimagined as “seed capital” to help people invest wisely in the next stage of their lives, whether that involves expanding their education to enter an encore career, using a lifetime of accumulated knowledge and wisdom to consult or mentor, traveling, writing a book, or any combination of the above, and more. “Reverse mortgage” accurately describes this dynamic demographic, who are reversing expectations of retirement and reimagining what the next stage of life looks like!


When it’s time for an expert

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Our Mother’s Keeper

We’ve discussed it before, but it bears repeating, especially because seniors themselves are often loath to admit they’re growing older: there are certain situations where it’s wise to get expert guidance before a reverse mortgage client or prospect may actually “need” it.

Here are four areas where seniors (or the person with Power of Attorney) should consider reaching out for advice in advance. 

  1. Aging in place. We’ve focused on various aspects of caregiving but not its potentially astronomical cost. Even a healthy senior needs to plan for in-home assistance in the event they live to a ripe old age — or experience an event, such as a fall, that necessitates temporary assistance. According to Genworth Financial, the average annual cost of a home health aide is $45,760. A certified financial planner (CFP) could be an excellent guide for both seniors and the family members who are helping them plan ahead.
  2. Retirement planning. A vast majority of the 76 million Boomer retirees and soon-to-be retirees (which includes a healthy number of reverse mortgage professionals) are planning for an active lifestyle once work no longer takes center stage, as we focused on in this retirement resource guide. It’s also critical to make sure the numbers in your bank accounts and other financial resources can support the lifestyle and years a senior has left to enjoy. A CFP and accountant/CPA are both worth consulting as seniors or those in midlife look toward the future. One financial planner urges people to sit down with a retirement planning expert no later than age 40.
  3. End-of-life care. Does a senior want palliative and hospice care, a DNR (do-not-resuscitate) order, or every possible medical intervention when they’re seriously ill or close to death? These are issues many people refuse to face; yet having such information on record can prove vital if the patient is not able to make their wishes known. The Office of Chronic Care Advocacy recommends consulting with an Elder Law and Special Needs Law attorney to ensure someone’s long-term care and end-of-life care planning are accurate, complete, and up-to-date.
  4. Estate planning and asset protection. We looked briefly at estate planning and the importance of proper beneficiary forms in order to avoid financial snafus. This is especially important for high net worth individuals. An Elder Law and Special Needs Law attorney should be able to draft an estate plan that analyzes the effect on a loved one’s public benefits eligibility or tax status, says the Office of Chronic Care Advocacy. They will also network with professionals in allied fields, such as a financial advisor/certified financial planner to assist with investment strategies, or a geriatric care manager to provide a care assessment and help source and select appropriate caregivers if needed.

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Their Nest Egg is Gone. Now What?

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We looked at some of the country’s oldest retirees, who found their callings and joy late in life and want to keep working for pleasure as well as profit.

But what happens when you’ve saved and planned for retirement — and then the rug beneath your feet morphs into a magic carpet of debt and disintegrates?

That’s what happened to one Boomer couple, now 66 and 71, who had all their ducks in a row for a rosy retirement. A triple threat (serial job loss, serious illness, and the financial markets collapse) combined to effectively eliminate their savings.

To repair the damage, the couple invited their son and his family to move in while they tried to sell their house and move to a more affordable location. Too bad they didn’t know about or perhaps didn’t consider, a reverse mortgage, which might have been the ticket to a smoother ride through the rapids. Now, even with the husband once again employed, they are saddled with massive credit card debt.

Some financial pundits hold the opinion that owning a house itself is the culprit, and advise seniors to pay off their mortgage and rent in retirement. Yet this suggestion undercuts everything many older adults have imagined and planned for their entire lives: living out their days secure in the knowledge that their longtime home will see them to the end of life in comfort and security.

Clearly, housing is the overarching expense in retirement as it is in our younger years, as confirmed by a recent Employee Benefit Research Institute report. Yet it’s not the only concern — or expense. While paying for a roof over their heads remains a constant 40-45 percent chunk of expenses in retirement, medical costs rise sharply. By age 90, the report states, “health care expenses account for more than 20 percent of the households’ entire budgets.” End-of-life health care costs can be astounding, even with Medicare: those in the 95th percentile of health care spending in 2011 spent almost $30,000, while those in the 25th percentile spent less than $1000.

Preparation and adaptation are key. Whether or not a dream job is on the cards for a senior, knowing they will be able to remain in their home is essential. Awareness of the evolving reverse mortgage option and how this might benefit their nest egg is smart recourse when creating a retirement planning toolkit — especially since the mass affluent are already using HECMs strategically to support their portfolios in a down market.


Engaging Ways to Work Past 65

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Retiring at age 65 is so early 20th century — when people were lucky to even live to 65. Today, when we may have an entire generation’s worth of days to enjoy after age 65, retirement age is arbitrary. A lot has to do with how much we love what we do, how much we need the income, and how else we wish to spend our time.

A HECM can address the financial question, so anyone 62 or older is freed from working later in life solely to generate income. Knowing their home equity can provide a source of liquid assets as well as eliminate their largest monthly bill enables older workers to focus on the question of work itself: do they still want to work, and if so, how?

Now that 70 seems to be the new 60, at minimum, with people engaged in encore careers that fulfill them on many levels, it seems work, itself, is a tonic that helps keep people feeling purposeful and of use. According to a Gallup poll, almost a third of U.S. workers anticipate working past age 67.

Engagement Remains High

Baby Boomers appear even more reluctant to retire in their mid-sixties than previous generations, with ten percent saying they “never expect to retire.” Seeing as Paul McCartney just scored his first number one album in 36 years, at age 76, that’s understandable!

What’s intriguing is that older workers seem to be more psychologically engaged than their younger counterparts, perhaps because they’ve established a good work ethic over the decades — or simply want to ensure they hang on to their job as long as they want to keep it.

But if an older worker is ripe for change, possibilities beckon.

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Jobs in Cool Places

Just as HECM holders are now able to romance the road by lodging in high-end co-work/co-live environments for short periods of time, the types of positions they might find are worth exploring, once the pressure of full-time employment eases. That’s where CoolWorks comes in.

For 23 years, CoolWorks has been connecting people seeking meaningful and exciting work with employers looking for their energy, enthusiasm and knowledge. Sound like any seniors you know?

From national parks to retreat centers, conservation centers to dude ranches, CoolWorks lists positions that may appeal to older workers seeking something a little different. They even have a category, Older and Bolder, which states, “If you rest, you rust!”

An encore career might be a season working (or volunteering) at Yellowstone National Park, for example, or exploring life in a new state (perhaps one where a senior will later downsize with an H4P). Be forewarned, though: while there is a plethora of positions available in California, Colorado, Wyoming, and even Alaska, there’s just a single opening in Hawaii at the moment. Having it all is still a premium.

Education Transformation

For elders who feel called to contribute to the common good, volunteer opportunities abound, especially as they concern younger generations. Since this may be their grandchildren, seniors may be particularly interested (just as many Snake People are designing devices and healthcare apps to assist their aging grandparents.)

Founded the same year as CoolWorks (1995), Experience Corps teams volunteer retirees with schools, where they assist in classrooms or after-school programs, tutor kids in math or reading, and dispense an ample dose of the “grandparent love” children crave. Even the most accomplished adults find the program infinitely satisfying.

Says Alice Kirk, in her second year as a school volunteer, “I started law school at 47, finished at 50, and passed the bar the first time. This is more rewarding than that. This is my opportunity to give back. I don’t know how I could quit.”

The average age of a volunteer is 65, and no prior teaching experience is required. Life experience is what matters. And your HECM clients have it in spades — and hearts.

Reimagining Home — And Travel

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One of the great blessings of being physically and financially fit in later life is the ability to travel. For couples with both partners in good health, the traditional model works: book a travel package or a cruise, stay in fine hotels, take lots of pictures and return to the nest.

For the next wave of seniors, however, this picture is shifting. Among Boomers, there’s a boom in gray divorce. Or someone may be a silver single due to losing a spouse, yet still long to travel, seeking a safe as well as enjoyable experience.

Millennials may have the key: new nomadic ways to live “location independent” (L.I.). Their solutions can work for the silver set.

Hotels Are So 20th Century

A number of emerging sites offer a creative way to travel at a much more comfortable level than couch surfing or hostels. These innovative businesses are a nexus of work, travel, and adventure, providing both connection and potential companionship — an attractive invitation for seniors traveling solo, as well as with friends and spouses.

Though mature travelers may not desire to be fully L.I. like their younger counterparts, living nomadically in spurts is eminently possible with a reverse mortgage. While a senior with a HECM must maintain their home base as their primary residence, extended stays elsewhere are fine; each return to the house ‘resets’ the clock for absences.

And that’s good news for those who own a home and choose to apply for a HECM. Because living as a short-term nomad has never been more appealing — or accessible. Consider these options:

Romancing the Road

Roam provides high-end co-work/co-live spaces in desirable destinations such as San Francisco, Bali, and Tokyo, with other locales in development. Someone retired, semi-retired, or whose work is fully remote, can enjoy privacy and comfort among a diverse community for a week, a month, or longer, then return home refreshed.

Behere describes itself as the platform for women to live in cities around the world, without long-term contracts or obligations.

It might be an older woman’s answer to traveling alone: a foreign living experience that provides carefully curated, fully furnished apartments close to city centers, with a vetted city host, workspaces — even a fitness membership. With this flexible foundation, a senior woman can live in a new city, one month at a time, immersing herself in the local culture and community to the degree she chooses.

Then there’s Unsettled, which, as it name implies, is designed for those in transition. The Unsettled experience offers retreats in locations from Tuscany to Morocco, Buenos Aires to Bali, and features an inclusive global community that includes entrepreneurs, freelancers, or anyone who is seeking new perspectives, inspiration and growth. Since many Boomers fall into one or all of these categories, Unsettled might call to them as a different sort of travel adventure.

Traveling Safely: Wallet Medical Cards

So a senior decides roaming the third millennium way sounds appealing, and proceeds to use some of their HECM proceeds for a grand adventure. Are they prepared for what might happen in a foreign city — even if it’s within U.S. borders?

Don’t be a walking medical mystery, counsels speaker Dick Schaaf, who travels frequently for business. He says, “Anyone who travels may someday find themselves in need of medical assistance. But if you’re alone, and unable to answer even basic questions about your health at the moment of need, valuable time can be lost — and potentially fatal mistakes can be made — while first responders and medical personnel try to figure out what to do.

“For years, my wife and I have carried homemade medical info cards in our wallets. Mine has my name, date of birth, my cellphone number plus hers, a list of all my medications (correctly spelled name, dosage and frequency), plus my blood type, known allergies, insurance providers (no account numbers, though), and the fact that I’m an organ donor.

“I print six business-card-sized cards with all of this information on card stock. One copy goes in my wallet. One of mine goes in my wife’s, with one of hers in my wallet, too. Other copies go into travel carry-ons plus our passports, and we keep a set on our desks, which greatly simplifies updating medical information when we’re talking with our physicians, dentists, etc. I date the cards each time I update and reprint the info so we always know we’re carrying the most current versions.”

“Surbia”: A New Idea? 

Despite the sense most of us have that the homes we inhabit are typical of life in America, the concept is scarcely a century old. Bruno Haid, the founder of penned an enlightening read about the evolution of American housing.

Home today is less where one’s mortgage (or reverse mortgage) is, and more about the lives we live in them, regardless of location, he says. This is what’s given rise to the spate of new short-term co-living environments.

Once all the particulars of how we may live are handled with a high degree of efficiency, we can focus on the experience — what it really means to have “the time of our lives”.

This quest to redefine “home” has also given rise to surban communities, a portmanteau of suburb and urban (or just a contracted form of suburban). In an era when cars are much less essential than they use to be, with rides available at the swipe of a smartphone, this form of mixed use living, which weds the best of cities and suburbs, is attractive to many retirees.

And with a surban setting and HECM available, the next adventure beckons.

You’re 55+. Now What?

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A century ago, most people passed away soon after they retired. Life spans were decades shorter than they are today, and people literally worked right up until the day they died.

Today, when a retiree at age 65 can expect to live an additional generation or more beyond retirement, many older adults are embarking on encore careers or transitioning into satisfying volunteer activities. But retirement itself begs the larger question: how do we do it?

How to Live in Retirement

Parents prepare us to enter primary school, often getting us accustomed to being away from home in nursery school or a daycare setting. Then college prepares us (more or less) to enter the workforce.

But while there are financial planning and retirement planning experts, such as reverse mortgage professionals, who focus on the practical aspects of having enough money to live on in retirement, no one teaches older adults how to be retired, maintains Joseph Coughlin, founder of MIT’s AgeLab and author of The Longevity Economy.

He writes, “Retirement is perhaps the largest purchase you will ever make. And it is a purchase.” This makes sense: we “buy into” every other age and life stage. “Retirement clients need a new engagement experience in order to suspend many of the wants of today for the sake of planning, let alone saving, for tomorrow.”

55-signThe Good Life, Redux

We see the signs by gated or nicely landscaped entrances: “Active 55+ Community”, and maybe we’re curious…what is life like on the inside? The blog for a leading developer of US retirement communities posted an interesting piece last month: Can Retirement Communities Make You Happy?

I expected to read some wisdom akin to what Coughlin discusses, but the post focused on healthy activities (tennis, walking, bocce, golf…), living in a home that accommodates aging in place (ranch-style), and amenities such as security, and medical services nearby.

Granted, these are all essential features of optimal retirement living, and no doubt contribute to happiness. But are such superficial features sufficient to define retirement living? As one 50-something business professional I spoke with about this topic opined, “How much golf can you play?”

Finishing Well

Our later years can be an opportunity to dive deeper into meaning, if we’ve not done so earlier in life: what has my life been about? Have I fulfilled my purpose? Could I now mentor others?

This what we explored in posts on retiring right, and shifting “from aging to sage-ing”, as wisdom teacher Rabbi Zalman Schacter-Shalomi describes creating a highly positive old age suffused with purpose.

He says, “[Retirees] may consider going back to work, but for many elderly people that would be neglecting what they most need to do, which is to harvest their lives. Anything that takes one away from that task leads to depression; anything that will further that task brings elation: ‘Ah, that’s what I need to do right now!’

“Part of the harvesting process involves letting go of old grudges, doing one’s energy budget and figuring out how much life energy is tied up in not forgiving.

“This is all part of what I call ‘life repair,’ which also includes paying attention to intergenerational relationships and finding the pearls in anxious memories.”

HECM and Higher Purpose

While it may sound a trifle unusual, using one’s home equity to power a purposeful retirement could hold appeal to elders who are ready to explore meaning and generativity (guiding future generations) in their later years.

It’s not only a smart investment strategy; this idea might be particularly relevant for Boomers, many of whom came of age during the height of the personal growth era. If they deferred this focus while building a career and raising a family, retirement could be the calling card to turn inward and be of service to younger generations.

And if a high-powered senior eschews both retirement and exploring higher purpose? The workforce will welcome them back with gratitude and open arms, says this New York Times piece on unretirement and senior work fulfillment. Either way, it’s a win.


Out of Money Due to A Health Emergency?

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“So many people spend their health gaining wealth, and then have to spend their wealth to regain their health.” Variously attributed to A.J. Reb Materi and the Dalai Lama, these words ring true for those climbing the career ladder. But what happens when someone has diligently saved and invested, and loses it all due to a health crisis?

Sixty-eight-year-old Lynne FitzGerald is a prime example. Still young by today’s “senior” standards, FitzGerald found herself bereft of retirement savings after being diagnosed with stage-four colon cancer twelve years ago. Told she had a year to live, unable to work, and with a mortgage and a child in high school, FitzGerald liquidated her investments.

But she beat the odds, becoming a cancer survivor. Yet more than a decade on, she hasn’t been able to recoup her lost savings.

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Face the Fear — and the Finances

“There is much to be said about tackling financial arrangements for elders, and what they can do to protect their assets and makes things easier upon their deaths or encroaching poor health,” observes one seasoned HECM loan originator, citing our recent post on the family money discussions that do not take place nearly often enough.

He continues, “As a former banker and investment adviser, plus through a lot of personal experience, I have learned much. When I do Reverses, I am able to touch upon this material in relaxed conversation, mixed in with the reverse product presentation. It shows my clients I know what I’m talking about, and that I’m there for them on a personal level. So many seniors are unaware of what they could and should do to protect themselves and their loved ones.”

He recommends ticking the boxes on these six pro-active steps:

  • Beneficiaries: Be sure you have named current beneficiaries on your investment accounts, life insurance policies, IRAs and 401K accounts.
  • Set up POD (pay on death) on your bank accounts, or create a separate checking account with a trusted child or sibling to meet the financial needs upon your death, while your estate is being settled.
  • Probate or revocable trust? Decide now how you wish your estate to be handled.
  • Select a Certified Elder Law attorney to learn more about your options and to be certain all your paperwork is up to date and meets the requirements of the state in which you reside. If you moved within the past several years, you may not have a valid will.
  • Locum tenens: Consider adding a trusted resource person to a bank account so they are able to write checks for you in case you become incapacitated at some future date. Sudden illness and accidents can be difficult enough without accumulating unpaid bills and other expenses.
  • Learn about Hospice in your location if you are failing, or a loved one is facing death. They can do much to support you and your family through these difficult times.

Increasing Retirement Income

Besides part-time or even full-time gigs, The Motley Fool suggests a dozen ways to generate more retirement income — with number eight being a reverse mortgage. For seniors facing health challenges, this can be one of the better forms of “health insurance,” because if someone opts for a line of credit (HELOC) they need only “pay for it” (i.e., activate the loan) when they need the money. If Lynne FitzGerald had had such information, perhaps she would still have her home today.
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