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5 reasons to consider a Reverse Mortgage (even before you retire!)

5 reasons to consider a Reverse Mortgage (even before you retire!)

When you live in Southern California, the equity in your home is often one of the most valuable assets in your portfolio. Not only are property values above the national average, but also home prices have tended to rise quickly (just talk to anyone who bought a home even five years ago!). Yet, few people see home equity as a “spendable” asset. But if you’re looking for a reliable source of cash today or 10 years hence, a Reverse Mortgage can be an ideal tool to turn your home equity into a tax-efficient source of income—even if you still owe money on your home.

Surprised? So was Lucy when we talked last month. I had already done the research and knew that she could qualify for a Reverse Mortgage. It seemed like the perfect way to access the cash she needed to take care of a half dozen home repairs she had been putting off since her husband died two years ago. As a retired widow, paying the $2,000 mortgage was cutting deeply into her resources, and she felt too cash constrained to set herself up for more bills to pay.

I suggested a Reverse Mortgage because I knew it could give Lucy the financial comfort she needed to maintain her home—whether she decided to stay put for the next 15 years or sell—and that it would also allow her some much-needed financial freedom. When I mentioned the idea, her eyes got wide. She couldn’t believe her ears. “Before Jack died, he told me a Reverse Mortgage was the last thing he would do,” she told me. “He said they were a scam.” She went on to say that using a Reverse Mortgage wasn’t something she even wanted to consider. “It’s too much of a gamble. I don’t want to risk losing my home.”

I can’t blame Lucy (or Jack, for that matter) for being wary. In the early days of Reverse Mortgages, they earned a bad reputation for being a shady product used by slick salesmen to take advantage of desperate, cash-strapped seniors. Despite late-night television ads that make them sound too good to be true, Reverse Mortgages really can be an important part of your overall retirement income strategy. In fact, while a Reverse Mortgage isn’t right for everyone, when used correctly and strategically, it may be just the solutionyou need to manage cash flow and protect your portfolio in retirement. Here are 5 reasons why it makes sense to consider a Reverse Mortgage today:

  1. A Reverse Mortgage is similar to a Home Equity Line of Credit—but with no monthly payments.
    A Reverse Mortgage is similar to a HELOC in that it provides a line of credit based on your home equity. Like a HELOC, that line of credit can be taken as a lump sum, in scheduled monthly payments, or reserved for future draws. However, while a HELOC requires you to pay back the loan with monthly payments over a set period, a Reverse Mortgage requires no monthly payments to the bank. Instead, the loan balance and interest accrues over time. Payment to the bank can be delayed until12 months after you leave your home.

     
  2. You can use a Reverse Mortgage to pay off your current mortgage.
    For many retirees in our “high rent” part of Southern California, paying even a reasonable mortgage on a fixed income can be a struggle. What’s great about a Reverse Mortgage is that because it’s based on the actual value of your home, you can use the money to pay off your current loan amount, potentially increasing your cash flow by thousands of dollars each month. You can also use a Reverse Mortgage to finance the purchase of a new home.

     
  3. It’s relatively easy to qualify for a Reverse Mortgage.
    Applying for a traditional mortgage or HELOC can be a challenge, especially if your income is limited. To qualify for a Reverse Mortgage, you must be at least 62, your home must be your principal residence, and you must have sufficient income to pay property taxes, homeowners insurance, and basic home maintenance. That’s it. Since you aren’t responsible for making monthly loan payments, even a less-than-perfect credit score or limited assets should not impact your eligibility.

     
  4. A Reverse Mortgage can help protect your portfolio.
    If the bulk of your retirement savings is held in an IRA, withdrawing assets before age 70½ will result in a sizeable tax burden. Using a Reverse Mortgage is a highly tax-efficient way to supplement your income and manage your cash flow. Because the money is a line of credit based on the value of your home, there are no taxes to pay. It can also give you the funds you need to delay Social Security until age 70, allowing you to take advantage of the Delayed Retirement Credit that increases your Social Security payment by 8% for each year you delay and nearly doubling your monthly Social Security income. (For more on this, see my blog Social Security & Women: Tackling the Challenges.) Plus, an available line of credit can prevent you from being forced to sell stocks from your portfolio should you need additional cash during a down market.

     
  5. Reverse Mortgages are regulated to protect the borrower.
    Lucy’s fear of losing her home is not uncommon. With a traditional mortgage, if the loan exceeds the value of your home, the bank can foreclose on your property and force you out of your home. Luckily, Reverse Mortgages are designed and regulated to protect seniors from this very scenario. A Reverse Mortgage is a “non-recourse loan,” which means that if the value of your home drops dramatically (think 2008!) you will never owe the bank more than the value of the loan. That alone can be a great source of financial security in your later years.

Of course, no line of credit is completely free of costs. Like traditional mortgages and HELOCs, Reverse Mortgages charge fees such as interest payments, origination fees, and closing costs. Reverse Mortgages also require a government-mandated, upfront mortgage insurance premium equal to 2% of the value of your home, plus 0.5% of the loan balance. But because these costs are rolled up into the loan amount, you pay no out-of-pocket expenses.

For most borrowers, that 2% is a small price to pay for the flexibility of turning their home equity into a spendable cash resource. And if you use the Reverse Mortgage to pay off your existing mortgage, you may even offset this cost completely. Do keep in mind that a Reverse Mortgage is best if you plan to stay in your home for the next five or more years. Otherwise, the upfront costs may outweigh the benefit.

One last thing to remember is that the best time to get a Reverse Mortgage is before you need it. A Reverse Mortgage should never be used as a last resort when all of your other assets have been depleted. Instead, consider applying for your line of credit while interest rates are still low so you can lock in a great rate. Having this flexible resource available if and when you need it can help turn your home equity into a powerful and strategic financial planning tool for decades to come.


A Reverse Mortgage is a complex planning tool that should be used as part of a carefully constructed wealth management plan. If you need help deciding if a Reverse Mortgage makes sense for you, let’s talk. As always, we’re here to help! 

 

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Want a great financial plan? All you need are the clues

Want a great financial plan? All you need are the clues

Solving puzzles is in my blood.

Growing up, solving jigsaw puzzles was one of our favorite family activities, and there was always a puzzle in the works on our card table. Sometimes we would work on them together, huddled over the still-broken image as we searched for the right shape, the right color, or the perfect edge. Just as often, any one of us walking by would spot a perfect fit and happily pop a piece into its rightful place.

Sunday brought with it a different challenge: the delivery of the Sunday crossword. My parents would work on it together (always in pencil), and we’d all try to help—even if it took us days to get the answers right. Even today, the New York Times online crosswords are a bit of an obsession for me. I love the challenge. I love the form. And I love that I’m always learning something new. (Today’s tidbit: Napoleon died in exile on the island of St. Helena. Who knew?!)

I suppose it’s no wonder I became a financial advisor… and that I love what I do.

The exciting thing about financial planning (at least for a puzzle geek like me) is that, just like for jigsaw and crossword puzzles, the process is all about uncovering a solution based on a set of clues. The more clues you have, the more context. And the more context, the easier it is to find the solution.

Julia is in her mid-40s and owns a fast-growing small business in Laguna Beach. Julia was referred to me by one of my long-time clients, and I could tell from the moment I met her that she is a smart businesswoman. But like many busy business owners, she has never really focused on her personal finances. I was excited to sit down with her and dive into her first-ever financial plan and start solving her financial puzzle.

When we met in January, my first question was, “What do you spend your money on each month?” Like many first-timers, she didn’t have an easy answer. She knew her annual income. She knew how much she had in her current investments. But she didn’t have a real sense of her expenses, how much she had remaining to spend as she pleased each month, or what she could (or should) be doing with her excess cash. Luckily, she had done her homework for our meeting, including gathering together all of the fragments of her finances. Her tax returns, her bank and investment statements, and (most importantly) her goals and dreams for the future. With her file box on the table, we had all the clues and context we needed to move forward.

Fast-forward to March, and Julia’s financial picture looks a whole lot more complete than it did just 8 weeks ago. The pieces had been there, but she’d had no idea where to put them, how they worked as a whole, or (and this is a big one) how each piece impacted the others. By working with the clues, we were able to puzzle out solutions to her key challenges, including:

  • How her spending habits were impacting her ability to save for a long retirement—and the tradeoffs she needed to make in both areas.
     
  • How she could balance investments in her business with other investments to diversify her assets and ensure she won’t have to depend solely on income from her business in retirement.
     
  • How her investments could be restructured to leverage her savings and better protect her from risk.

Julia has already made a ton of progress, but she’s still “piecing together the edges.” There’s much more to be done, and we’re working together to discover new clues and uncover solutions to each challenge we see. She has clearly defined her goals and can see the path forward, and I am helping her understand how all the pieces work together—and how we can adjust them to fit when they don’t. I hope Julia is having just as much fun as I am.

Julia thought she needed to put off working with an advisor until she “had all the pieces in order.” I wish she hadn’t waited! Now she understands that, just like most other puzzles in life, sound financial planning doesn’t require having 100% of the facts to start making better, wiser decisions. All you need to start solving your puzzle is your own set of financial clues. An advisor’s job is to use her experience and knowledge to see clues through a different lens and, ultimately, create a step-by-step plan to help you reach your goals. For me, that’s (at least!) half the fun.

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Sharing is Caring: A call to ‘Blaze it Forward’

Sharing is Caring: A call to ‘Blaze it Forward’

I’ve known Jeanne and Gideon Bernstein for years. We are friends and members of the same temple, and Gideon and I value each other’s ideas and input in our work as financial advisors. In the time that I’ve known them, what has continuously amazed me is their dedication to helping make the world a better place for everyone. This young family has always been tireless in their efforts to help others. As charity organizers and volunteers. As caring friends and neighbors. As true pillars of the community. Years ago, I asked Gideon why he took the time to post about all of his activities on Facebook. His reply: “Sharing is caring.” Simple. Wise. And I got it.

Fast-forward to the night of January 2, and suddenly Gideon and Jeanne’s lives were turned completely upside down. Their oldest son, Blaze, home from college for the holidays, was missing. A happy, accomplished, responsible kid, he had gone to meet a friend late that evening and never returned. The community response to Blaze’s disappearance mirrored the Bernstein’s own unfailing passion for helping others. In short, it was swift and powerful. Fliers were distributed. Emails were sent. Facebook alerts were shared not only in our own community, but nationwide. Offers for help from across the country poured in. Friends and family flew in from distant cities. Meals were delivered. Notes of encouragement flowed in. From their close circle of friends to complete strangers, everyone rallied around them and with them to try to ease their pain and help find answers. They were overwhelmed with the love that poured in from everywhere. Gideon’s words, “sharing is caring,” had taken on a whole new meaning.

Tragically, no amount of community support could alter the reality of Blaze’s brutal death by an ex-classmate. Yet, once again, Gideon and Jeanne found a way to give to others, even as they were suffering through an immense and unimaginable loss. Within weeks, they created a memorial fund in Blaze’s name. Less than a month after Blaze disappeared, Jeanne Bernstein wrote this stunning piece, My Son, Blaze Bernstein, Was Murdered. Then Came the Outpouring of Love. At a time when these mourning parents could hardly breathe, Gideon and Jeanne became powerful activists for a vital cause.

I continue to be amazed and humbled by Gideon and Jeanne’s sheer grace over the past two months, and by their ability to see the good, even in the wake of their own personal and tragic loss. Gideon and Jeanne have been working on building community their entire lives. After Blaze disappeared, they found themselves reaping the fruits of seeds they didn’t even realize they had been sowing. The result is now a beautiful movement in memory of their son.

As I watch their whole family move forward by opening their hearts to others, I can’t help but ask myself not just what I can do to help them, but how I can learn from their example to share more, to care more, and to make the world a better place—under any circumstances. As I help my clients ease into retirement and beyond, I wonder how each of us can offer more value to our communities. I wonder if the true role of money in our lives is to help us realize our own higher purpose in life. How might we change the world if, like the Bernsteins, we embraced the concept of “Sharing is Caring” as the force that drives us toward fulfilling our own purpose?

On Sunday, February 25, the Bernsteins are hosting #BlazeItForward: A Tribute to Blaze Bernstein and a Communal Call for Kindness at Segerstrom Center for the Arts to honor Blaze’s memory and to thank the community that came together to embrace them. The event has been underwritten, so all tickets are free to the public. Blaze loved cooking, music, art, performing, and writing. He graduated from the Orange County School of the Arts (OCSA), served as the copyeditor for the student-run food magazine Penn Appétit at the University of Pennsylvania, and was an activist in his own right, focused on inclusion and equal rights. Had Blaze lived, he would have surely made a difference in our world. The theme of the event is how we can work together in community to honor his memory as we #BlazeItForward.

One place to begin that effort is to donate to the two memorial funds at the Jewish Community Foundation of Orange County: The Blaze Bernstein Memorial Fund to support organizations that Blaze would have liked to support and charities that work to protect children from violence and that foster emotional health; and the Blaze Bernstein Memorial Scholarship Endowment Fund, for worthy, service-minded college-bound high school seniors who have overcome adversity.

Of course, that’s just the beginning. To further embody the idea that “Sharing is Caring,” I urge you to ask yourself how you might leverage your talents, passions, and assets to make our world a better place. There are so many people in need and so many causes that can benefit from our support—both within our local community and beyond. Jeanne and Gideon Bernstein created positive change from the depths of personal pain and unimaginable loss. You too can make a difference. Decide what matters most to you and begin to sow your own seeds for a better tomorrow. Now is the time to #BlazeItForward.

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Wall Street has gone wild! Is it finally time to change your investment strategy?

Wall Street has gone wild! Is it finally time to change your investment strategy?

It’s a strange time for investors.

Consider this: Just last week Gerry, a 65-year-old recent retiree, asked me if she should take on more risk in her portfolio. “The market is doing so well,” she said. “I feel like I’m missing out on all that growth.” My answer was simple. “No!” I explained that her strategy had been very carefully built to support her long-term financial goals—not just to grow her invested funds. It was an important conversation, and wow, is it a good thing she has an advisor to talk her out of emotional decision-making! Just imagine if she’d decided to gamble with her assets and take on more risk just a few days ahead of Monday’s volatility.

Of course, in the face of this week’s rather wild ride in the stock market, you may be asking yourself the opposite question: “Have I taken on too much risk?” My answer to you is the same today as it was for Gerry just one week ago. No! That is, of course, if you have a well-constructed financial plan already in place.

Whether the market is flying high or taunting your emotions with new lows and some bumpy volatility, here are four things every investor should keep in mind:

  1. Investing is not a stand-alone activity.  When the stock market is in the news (which it almost always is), it’s easy to forget that investing is just one piece of your overall financial life. A good financial advisor will work with you to look at that and everything else. What are your goals? What does your personal balance sheet look like? If you haven’t already, how soon do you plan to retire? How long can your existing portfolio provide a reasonable income? How much debt do you have? Do you have a sufficient emergency fund? The answers to these questions determine how much risk you can afford to take when investing. When a new client tells me she only wants to talk about investments and not the rest of her financial life, I know we have some important work to do! (Learn more about focusing on your financial big picture in my blog, Cold, hard cash! (Are you paying attention?).
     
  2. A balanced portfolio will rarely perform as well as the DJIA—or as poorly.  The Dow Jones Industrial Average (DJIA) is an average comprised of just 30 stocks out of a universe of thousands. In contrast, your portfolio includes a diverse menu of different asset types that each play a particular role within your portfolio. Stocks address your need for growth. Bonds address your need for stable income. Cash addresses your need for liquidity. How those assets are balanced—or allocated—in your portfolio depends on how long it will have to serve as your retirement paycheck, how much you’ll have to draw each month to sustain your lifestyle, how many years your assets have to grow, your legacy goals, and more. If your IRA goes down as stocks go up, don’t despair. Rest assured that your portfolio is balanced and diversified to meet your needs.
     
  3. Your best investment in any market is to pay off debt.  Debt is a huge problem in the US. According to this study by WalletHub, the average indebted household held $8,600 in outstanding credit card debt in 2017, and total household debt broke a new record of just under $13 Trillion.[1] If your portfolio is what makes your financial life secure, debt is what does the opposite. While “good debt” such as a home mortgage, student loans, and business loans generate benefits over time, “bad debt” poses serious risk to your financial health. Credit cards, auto loans, and other revolving debt reduce your income, add no value to your wealth, and force you to pay more every month for an item that is losing value. If you are carrying bad debt, use a debtsnowball to reduce and eliminate the debt you have today and avoid taking on more debt in the future. (For more on how debt can impact your future, read my blog There’s no such thing as an unexpected expense.)
     
  4. Your goal is to make work optional and sleep peacefully at night—not make as much money as possible.  It’s so easy to forget the endgame. We see the stock market hitting record highs or taking record dives, and it distracts us from the real goal of financial planning. Ultimately, everyone wants to have enough assets to support themselves and their family comfortably for the rest of their lives. While the definition of “enough” varies widely (check out John C. Bogle’s fantastic book, Enough: True Measures of Money, Business, and Life, for more on that important topic), a comprehensive financial/life plan can remove money stress by giving you the confidence that work will be optional someday and you can sleep peacefully knowing that your finances are secure today and tomorrow—independent of market volatility.

I have a colleague who likes to joke that he has the gift of “20/20 hindsight.” Don’t we all? It’s so easy to say, “I knew it all along!” Knew that the market was overvalued. Knew that you should have held on to Apple stock. Knew that your friend’s new boyfriend was a creep. The truth is you didn’t know it all along; you only feel as though you did now that the outcome is in plain sight.

No one—not even Warren Buffett—knows which way the stock market will go tomorrow. One thing we can anticipate is that we may have returned to more “normal” volatility. After years of historically low volatility and record highs, it may feel a bit unfamiliar, but with a solid plan in place, you can trust that you are safe. If you’re not certain you have a smart plan that’s working toward your long-term goals, let’s chat. As always, we’re here to help.



[1]The Center for Center for Microeconomic Data, Q3 2017

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Life happens. Plan today to make every transition easier.

Life happens. Plan today to make every transition easier.

Change. For some of us, the word alone can send a wave of panic. And it’s no wonder. Any change means transition, and any transition—whether happy or sad—begins with an ending. In all cases, something or someone fundamental in your life is gone. Marriage brings the end of complete independence. Retirement brings the end of decades of camaraderie, achievement, and a steady paycheck. Divorce brings the end of a relationship, and often years of hopes and dreams. Death of a loved one brings the end of companionship and a huge shift in how you live each day moving forward. Sending a child to school brings the end of one phase of parenting. While every stage of life has its own of transitions, for many women, it’s the 40s that seem to bring on the perfect storm.

In my own life, my 40s were an utter whirlwind. Jamie and Adam both graduated from high school and moved out of the house. Both of my parents died. My husband had a major stroke. And I lost my job. All in a tiny, 5-year window of my life. And like anyone facing such transitions, I didn’t know which way was up. In his seminal book Transitions: Making Sense of Life's Changes, Bill Bridges talks about the period following a significant life change as our “time in the wilderness.” I was the perfect example. As Bridges explains it, it’s a time when we’re forced to separate ourselves from the everyday and digest and respond to the immense change within us. And all of this must happen before we can return to the world, transformed.

While you’re in the wilderness, it’s normal to feel off-balance and uncertain. It can feel like survival is impossible, and the unending stream of questions won’t stop flooding every thought. How will I live? How will I pay the bills? How can I move on? While it may seem impossible at the time, it’s important to recognize that you will find your way. But even as you’re struggling, you must make sure the rest of the pieces of your life don’t fall apart.

I often say that when it comes to your money, there’s no such thing as an unexpected expense. The same is all too true when it comes to “unexpected” changes. Once you reach your 40s, 50s, and beyond, big changes come flying at you, fast and furious. Your children grow up. Your parents get elderly. Your aging body begins to throw you curve balls. You get sick. Your spouse gets sick. Life happens! The good news is that because you know all these things are going to happen, you can prepare for what’s to come—long before you’re thrown into the wilderness. Here’s how to start planning for tomorrow’s changes today:

  • Identify your “person.” In times of crisis, it’s vital to have someone who can give you an outside perspective and help guide your way. It may be an adult child, a colleague, a neighbor, a family member, or a best friend. Whoever you choose, your person is the one you know you can trust to be there when you need help and is the one who makes you feel safe—even when you’re in the wilderness.
     
  • Create a solid financial plan. All transitions create an imbalance in your life. By working with a trusted advisor now to create a solid financial plan that is stress tested for change, money will be one thing you don’t need to worry about when life happens. Even more, you won’t be starting from scratch after the storm. Instead, you’ll know precisely what your resources are moving forward. That alone can help breathe easier throughout the transition process.
     
  • Prepare for the inevitable. Like it or not, change is going to happen and your life will be filled with a series of transitions. The kids grow up, move out, get married, and have babies of their own. Parents get old and pass on. Jobs come and go. Marriages shift. Be honest with yourself about what changes you’ll face in the next decade… and the next… and prepare yourself emotionally and practically for what’s to come.
     
  • Create a community of friends. Emotionally you may feel isolated in the wilderness between the end of one thing and an eventual new beginning. Isolation leaves you vulnerable, so prepare now to engage in community by being a friend, a volunteer, or a member of a church, book club, or card group. The circle of friends you build will be your emotional life raft in the future.

Of course, you cannot anticipate every transition. The worst day of my life was when my first husband left me. My kids were three and five years old. I was a recent West Coast transplant and a stay-at-home mom. I had no job. I had no future. I couldn’t breathe. I couldn’t swallow. I had been thrown into the wilderness and trapped inside a bell jar. When my attorney Sheila Sonenshine told me to breathe, I listened. I inhaled. I exhaled. Again and again. She told me to get a haircut and get a job, and I did that too. Before I even realized it, I was putting one foot in front of the other and moving forward. With her guidance, I found my way out of my wilderness.

When the big changes hit—whether you’ve prepared for them or not—remember to make these your top three priorities:  

  1. Breathe. You’ll feel stuck. You’ll feel blinded. You’ll feel off-balance. But if you can remember to keep breathing, you can (and will) keep moving forward.
     
  2. Identify what’s urgent. Pay your bills. Be realistic about your finances. Take care of the necessities and put everything else on hold. And wait to make any irrevocable decisions until you’re able to see straight again.
     
  3. Get “up on the balcony. ”Count on “your person” to help you scan the environment, see the realities of your situation more clearly, and keep you rooted in what’s real. Don’t forget about your financial advisor. She can help you circle back to your plan so you can rise above your emotions and make rational decisions.

No matter what life throws at you—and no matter how unexpected the expected can feel—you too will find your way through the wilderness. The best thing you can do until you get to that next fork in the road is to put plans in place that help make even the toughest transitions easier. And when life happens and you need a guide to help find your way, we’re always here to help. 

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All written content on this site is for information purposes only. Opinions expressed herein are solely those of Lauren S. Klein, President, Klein Financial Advisors, Inc. Material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. Read More >