Speaker 1: KLZ’s Ask the Experts proudly introduces Reverse Mortgage Radio, hosted by local reverse mortgage specialist, Bruce Simmons. For 15 years, Bruce has delivered homeowners from across the front range from costly monthly mortgage payments, relieving financial stress, while providing additional income for retirement.
Speaker 1: Bruce wants you to learn the truth about reverse mortgages, so you can make an informed decision for your retirement years. This is Reverse Mortgage Radio.
Bruce Simmons: Hello, and welcome to Reverse Mortgage Radio. … Now that the weather is getting nice, I thought it might be kind of fun to share a couple of golf facts. I know a lot of people golf out there. I’ve tried it a few times. Well, I used to golf once a year when my dad would take me to … Or when I would meet him in Reno for this stag golf thing with 60 guys. We’d golf, and drink, and gamble for three days.
Bruce Simmons: Anyways, that’s what people do in the mortgage business. I could never really hit in the fairway. I hear golf is fun if you could play in the fairway, but anyway, that’s my … That’s why I don’t golf a whole lot right now.
Bruce Simmons: A recent study found the average golfer walks about 900 miles a year. I don’t know how many rounds that consists of, and what they factor in there, but that’s what I got. I got it from the interweb, so it’s got to be true. There’s nothing wrong … No lies on the interweb.
Speaker 3: Now, are those people who don’t ride around in the golf carts?
Bruce Simmons: Yeah, that’s true. I guess the golf cart thing kind of skews it a bit.
Speaker 3: Right, that’s cheating.
Bruce Simmons: That’s right. Another study found that golfers drink, on average, 22 gallons of alcohol a year. Now, I know that you’re not one of those, I’m sure. I know that, but basically on average, golfers would get about 41 miles to the gallon, if you take that 22 gallons divided by 900 miles.
Speaker 3: Gallons of alcohol?
Bruce Simmons: Yeah.
Speaker 3: Oh dear.
Bruce Simmons: It kind of makes you proud, think of it like you’re like a hybrid. You use alcohol. You’re not using gasoline, you use alcohol. Anyways, enjoy. Hopefully you have good … We have a good long golf season without too much lightening.
Bruce Simmons: Today, I want to go back to an article that actually came out in 2016. I was thinking about what I could talk about, and I know I’ve touched on this in the past, but I wanted to go a little more deeper into how a reverse mortgage could help with your retirement. I found this article from, I think it was on Forbes, from October of 2016, ‘Five Ways a Reverse Mortgage Could Help You Retire.’
Bruce Simmons: It starts out, the old notion that a reverse mortgage should only be taken out as a last resort is simply no longer true today. This was as of 2016, and I agree. Two years later, it’s still true. It’s not meant as a last resort any longer. In fact, you’re kind of messing up if you do it that way. If you use all your retirement savings and then take the money out, it kind of … You mess … It’s a way to not use your equity as effectively as you could have.
Speaker 3: You’re not getting the most out of it.
Bruce Simmons: That’s right. Kind of like, … Yeah, I was going to try to relate it back to golf, and I couldn’t. By the way, too, again, my name is Bruce Simmons. I’m the reverse mortgage manager with American Liberty Mortgage. Call me please at 303-467-7821. If you hear me say something about any of these strategies, there’s actually six, because I’m adding one myself later, they’re about ways that a reverse mortgage could help you with retirement. Feel free to call me and say, ‘Hey, you mentioned this. How does that work in more detail?’ I’d be happy to talk with you about it.
Speaker 3: Also, if you have any good golf jokes, call Bruce.
Bruce Simmons: Yes. I do. Well, I love kinds of jokes. I’m just … I get all these things by email. It’s just fun. I like a good laugh. Anyways. The first one, think about … the author here, his name is Neil [Kersinswami 00:04:14], or something like that. I’m not …
Speaker 3: Wow, that’s quite a mouthful.
Bruce Simmons: Yeah, exactly. Anyways, he says he does give a word of caution is, is people should exercise caution when using debt, but reverse mortgages can improve retirement spending outcomes in a sensible way. Most people are going to use a reverse mortgage money … the reverse mortgage proceeds in a sensible way. They’re not going to blow it. I know some people have, mainly by giving it to their kids too soon, or bailing their kids out of jail, or … Well, I shouldn’t say that, that’s not really blowing it because they feel like they need to help them. I just have seen too often how kids can take advantage of parents.
Speaker 3: Well, and then it’s not helping their retirement.
Bruce Simmons: That’s right, yeah. It’s not. But in their mind, they’re helping their kids. That’s a way they can continue to make ends meet on social security or what have you, but that’s not what we’re talking about here.
Bruce Simmons: Number one is talking about spending coordination with your profile … with your portfolio, excuse me. For retirees, making withdrawals from their investment portfolio is one of the biggest risks is enduring a period of negative stock market returns, especially in the early years of retirement. If you’re having to take out money when you’re in your early to mid 60s, or even late 60s, those are the early years of retirement. That money is then not there to grow for you at a later date.
Bruce Simmons: The way you could use it instead, if you’re using your retirement portfolio to fund living expenses, and you have to be forced to sell investments to create income for yourself at an inopportune time, well, that’s even worse. If the stock market has a little bit of a down … Say yesterday, or no, I’m sorry, last week, it was a … One of the days last week, the stock market dropped 450 points. If you had to sell the next day, or during that day, and you had a stock that dropped by five percent or eight percent. You had to sell that stock to get money, well that kind of messes you up there, because you didn’t get as much as you thought. You’re selling a depreciated asset, and that’s not what you want to do.
Bruce Simmons: They talk about the standby line of credit. That’s what they’re talking about here. I have had … I’ve done a number of shows on that, but basically, they talk about using the money from your home equity in times of a downturn in the market. If you have to get money out.
Speaker 3: So that way, if you’re in kind of a desperate situation, you don’t have to pull out your investments?
Bruce Simmons: Yeah, you don’t have to sell in a down market. Basically, you would tap into money from the line of credit. Then, you could even pay it back if you wanted to at a later date, when the market … the stock market is much higher. Let’s say, for example, now you’re over … You took that money out when you were 68, and now the stock market is bouncing back. You’re 70 and a half, and there’s something called required minimum distributions, which … people know about who are over 70 and a half. They have to pull out a certain amount so the government can tax you on your money. That’s … RMDs, that’s required.
Bruce Simmons: If you have to pull money out from your investments when you’re 70 and a half, once a year you have to do that. You didn’t have a use for it, you could pay down your reverse mortgage, the balance on your reverse mortgage. That money is going to get moved over into the line of credit so that now you’re … You’d have more money. You’d still have that money available, just in a more flexible form, in the form of a line of credit.
Speaker 3: You can kind of replenish your line of credit?
Bruce Simmons: Yes, that’s a good way to put it. I like that. Good job. The thing is, then that line of credit will grow at a guaranteed rate. Right now, it’s like five percent depending on the interest rates that you’re being charged. Again, I talked about this in detail over the years. You can go to my website at ReverseMortgageRadio.net and look up … I’ve got little … a brief description of each radio show below it, and you could look for things when I’m talking about lines of credit, and pull up that radio show and listen to me talk about it. It hasn’t changed. That’s what this guy’s talking about here.
Bruce Simmons: He says basically if your house is worth $500,000, you can obtain a mortgage line of credit, say even at 40%, if you’re on the younger side, of $200,000. Well, now that’s money you could tap into if you don’t own your home free and clear, you could tap into it and be able to have it available in times that are down, negative. It’s a good way to use it.
Bruce Simmons: The second one that they talk about in this article is bridging income for delaying social security benefits. They talk about this, because now, this is kind of a … controversial strategy, I should say. It’s not really controversial, but it is because the consumer finance protection bureau, which is a bureaucracy that I’m not really a big fan of. I don’t think they do a whole lot of protection for people, but they have oversight of everything financial, from pawn shops to investment banks on Wall Street. They have a say on just about everything we do. Part of the wonderful Dodd Frank Act back from 2010.
Bruce Simmons: Anyways, they came out and said the costs really don’t make it worthwhile. In fact, there was another article written about does it make sense to delay your social security? It might not in your case, but it might in another case. They have here, delaying your social security benefit claim offers one of the best routes to higher retirement income. Annual benefits for your social security increase by eight percent for every 12 months that you delay receiving your social security from age 62 to 70.
Bruce Simmons: In other words, you get eight percent more if you wait until you’re 63 to draw it out, instead of doing it at 62, and on, and on, and on. But the strategy often comes with a challenge. How do you meet your living expenses while you wait? Maybe you borrow against your house, okay?
Speaker 3: So get a reverse mortgage first, and then wait to get your social security.
Bruce Simmons: That’s right. You use the reverse mortgage to supplement your income while you’re waiting to draw out the social security.
Speaker 3: I gotcha.
Bruce Simmons: It works great for somebody who might, let’s say all your relatives live to age 90. You know you’re going to be getting that higher payment for a long time period. You’ve got a good shot at beating the actuarial odds in that situation.
Bruce Simmons: They also go on to point out the social security strategy is drawing sharp criticism from the federal Consumer Financial Protection Bureau, CFPB, whose recently issued a study of this strategy and found that the loan costs exceed the potential higher social security benefits. They found that using a reverse mortgage loan to delay social security was likely to diminish the amount of home equity available to borrowers in their later lives, which can limit their options to move to new homes or handle financial shock.
Speaker 3: So the Protection Bureau says reverse mortgages are a bad idea.
Bruce Simmons: For this situation, they would not recommend it is what they’re saying.
Speaker 3: Okay.
Bruce Simmons: However, it’s kind of a complicated strategy. There is a financial advisor who teaches at what’s called the American College. That’s the school for financial advisors. He’s incredibly smart and he’s very, very well versed in how reverse mortgages work, and as far as crunching the numbers, and doing the costs and benefits. His name’s Jamie Hopkins. He’s actually written a book on reverse mortgage. I think I gave it out. I think I gave copies of it out.
Bruce Simmons: He talks about how a lot of the formula was flawed, the Consumer Finance Protection Bureau, was actually using. It’s kind of a controversial in that way. But you know what? I’ve got a story about a customer that did this in a different way, because she … This lady, and she’s just such a neat lady. I closed her loan last year for her. She used this strategy. She’s 63 years old, self employed. She owed about $75,000 on her mortgage and about $7,000 I think on a car loan.
Bruce Simmons: She worried about using her retirement funds. She didn’t have a whole lot. All she had was about $50,000 or something, I think, in set aside. What she did is she used the reverse mortgage to pay off her existing mortgage, and so then what she was able to do is save that monthly payment and with her self employment income. I think she had a small pension from a past employer. She would do some part-time work here and there, but she could make ends meet without that mortgage and car payment.
Bruce Simmons: She didn’t have to touch her social security. We could loan her, I think it worked out to be like $170,000 or $160,000 was what was available. Her loan balance started … She was about 50/50. She owed about 80, 85, I think. On the reverse mortgage, she had about 80 or 85 in her line of credit. She’s got that line of credit as a backup if she has a really bad month with her business, or she goes through a period of unemployment, because she had just started … She was looking for work, too, for part-time work while she could still do this business; because the business is mostly on the weekends, and help teaching kids stuff.
Bruce Simmons: Anyway, she was a very neat lady. She was able to use this strategy to delay social security, because she looked at the statement that social security said; that it says if you took out your social security today, she would get … I don’t know what the numbers were, 2300 or something; but if she waited until she was 70, she could get something like 2900. A fair amount of money more. I don’t remember the numbers exactly, but it was substantial. When you compound that over the next 15 to 20 years, that would work out to be a lot more money for her.
Bruce Simmons: She hemmed and hawed about it. She wasn’t sure what to do. We went back and forth. We had trouble qualifying her for income, all this stuff. I was able to get her approved with another lender, told her they couldn’t help her at all. All this stuff.
Bruce Simmons: Anyways, the bottom line is, she is so happy now. I went back a month or two after the loan, because she had questions. She didn’t understand something. I went back out and sat down with her. We talked. She’s very animated. She has a theater … She was a theater major in college. She teaches kids, and she loves it.
Bruce Simmons: She just visualized that she would … She got up real quick, said, ‘Well, now I’ve just … I’m going from room to room,’ and she left the room. She walked back in, she had this quizzical look on her face. She looks around. She’s quiet. She said, … then suddenly she takes a big breath, says, … You could see the tension from her face leave. She’s a very good actress.
Bruce Simmons: She says, “I don’t have a mortgage payment.” She’s just the neatest lady. She’s like, “This is such a relief for me. I know now that I can make it.”
Bruce Simmons: This strategy, for her, worked beautifully.
Speaker 3: Well, and she had two great benefits, because she delayed social security and she got rid of the mortgage payment.
Bruce Simmons: That’s right. Yes. Yeah, and by getting rid of the mortgage payment is how she delayed social security, because she didn’t have to worry about paying that debt. Yeah, and so it can work, but you need to evaluate it. You need to look at the cost versus the benefits, and all of these things, and what … How it’s going to work out for your specific situation. If you’ve got a financial advisor, ask your financial advisor about it.
Bruce Simmons: Now, a couple of weeks ago, a month ago or whatever, I did talk about how some financial advisors cannot recommend reverse mortgages. They could get fined, excuse me, if they do. Keep that in mind when you’re talking to your reverse mortgage … or your financial advisor about a reverse mortgage, make sure you let him know, or ask him, ‘Can you talk about this?’
Because maybe they don’t … want to talk about it, or they haven’t invested the time to learn themselves, or they’re worried that they could get fined. Just keep that in mind when you’re talking to them about that.
Bruce Simmons: That’s a potential strategy that could be very beneficial. Other people might receive a monthly payment for eight years from 62 to 70, where we … In other words, we send them a monthly payment for $1,000 a month, say. Then, you have that money, or $500 a month, whatever you think you need. That’s another way to do it to delay that social security withdrawal.
Bruce Simmons: Number three, funding to pay taxes for a ROTH IRA conversion. A lot of people have IRAs, but they’re taxed when you take the money out. You might have only put in … I don’t know, when you were like … When you were working, you were putting in eight, 10, $12,000 a year, or whatever it works out to be, $18,000 a year I think is the cap. You might have not paid taxes on that. You probably didn’t if it went into a standard IRA.
Bruce Simmons: Well, what happens, that money grows and now you’ve got $400,000 in this IRA over the years. You’ve got it now. Now it’s time to draw it out. Well, now you’re drawing it out and you’re having to pay taxes on the entire money you’re pulling out; instead of just paying taxes on the money you put in. If you have a ROTH IRA, with the way it works is you put that money in after tax. You’ve already paid taxes on this $1,000 you’re putting in there this month. That money grows and the tax … You’re not going to have to pay taxes when you draw it out.
Bruce Simmons: Now, I’m not a financial advisor, okay? Don’t mistake me for one. If you ever met me, I’m sure you wouldn’t. You would not mistake me for one. Talk to your financial advisor about that. But, what some people will do is they’ll say, ‘Well, you know what? I’m not going to retire for a few more years, or I’m not going to have to draw that money out for another 10 years. I don’t want to have 10 more years of growth on that money that I’m going to pay taxes on. What if I converted that money, say I have $400,000 in, and I convert it into a ROTH IRA?’
Bruce Simmons: Well, you can do that. You just have to pay taxes on the money now. Then, it’s growing tax free going forward. You could use the proceeds from a reverse mortgage to pay some of that tax. Let’s say you pull out … Or not pull out, but you convert $100,000 from your IRA into a ROTH IRA. You have to pay taxes on that $100,000, and I don’t know what your tax rate, if it’s 18% or whatever. Now you’ve got to come up with this money upfront to pay it, come tax time. Well, you draw the money out from your line of credit with a reverse mortgage and you do that. Then next year, you pull out another $100,000, and you do it again. Over the years, you can convert that money that’s in your standard IRA into a ROTH IRA. Then, when you’re older, you pull out the money and you don’t have to pay taxes on it.
Speaker 3: The benefit of that is that you don’t have to pay taxes on the reverse mortgage proceeds.
Bruce Simmons: That’s true, yes. That’s correct.
Speaker 3: Okay, I’m following you. I didn’t realize there were two different kinds of IRA. That’s my ignorance there. One of them you don’t have to pay taxes on is the ROTH one?
Bruce Simmons: That’s right.
Speaker 3: Okay, I gotcha.
Bruce Simmons: Yup. Yeah, and so you don’t have to pay taxes on the growth of that money going forward. At least, that’s my understanding. Now, if you’re a financial advisor and you’re listening to me and I’m giving out bad advice, please let me know; because I’ll correct. I’ll make a correction next week on the radio, because I’m … That’s what I’m reading in this article. That’s the way they … That’s the way I understand it.
Bruce Simmons: I did graduate high school, but that’s about it.
Speaker 3: But you do know that you don’t have to pay taxes on reverse mortgage proceeds.
Bruce Simmons: Yes, that is correct. The money from a reverse mortgage is considered loan proceeds. It’s not income, so you don’t have to pay taxes on it. In fact, another way to do it, and this is a customer of mine told me about this.
Bruce Simmons: He said, “You know, he’s got this $400,000 home out in Wheat Ridge area, real nice.” Actually, probably worth more than that. He says, “I’m keeping … I’m using this line of credit money, and I’m doing things that I wouldn’t do, and I’m trying to keep my equity in my house at $250,000 and no more,” because when he plans on selling his house, and moving to assisted living, or whatever at some day, and there’s an initial …
Bruce Simmons: He’s a single man. He gets a $250,000 tax deduction on the sale of the proceeds from his house. His house is going to be … He’s going to have $250,000 in capital gains that he would have to pay taxes on, but he gets that initial $250,000 break. I can’t remember what they call it, but basically when you sell your house and you don’t put the proceeds into another home, you get a $250,000 one time exemption. He doesn’t have to pay taxes on that money.
Bruce Simmons: If he didn’t have a reverse mortgage and he owned his $450,000 home free and clear, then he wouldn’t have to … He would have to pay taxes on all but $250,000 of it. Now he doesn’t have to do that. His focus is keeping only $250,000 in equity in his home, and spending the other money himself for tax purposes.
Speaker 3: I see why you call reverse mortgages a planning tool.
Bruce Simmons: Yes, it … I thought that was really interesting, because I had never heard anybody … Any other financial advisors talk about that.
Bruce Simmons: Okay, number four here. That was just a side bar, I guess. Number four is providing a larger inheritance for your heirs. What this guy in the article talks about, he says you might think the upfront cost and compounding interest in a reverse mortgage would significantly reduce the inheritance you hope to leave your heirs. It could be true, but not necessarily so. Upfront costs, closing costs, and mortgage insurance, and origination, all that stuff, could cost from around 10 to $15,000. It doesn’t have to cost that much, just depends on your situation.
Bruce Simmons: He talks about the grow … The interest you’re being charged and all that, and he says while this costs seem high, consider that the home is a single un-diversified investment. Using the home to create a retirement income instead of a diversified investment portfolio of stocks could lead to a higher overall inheritance.
Bruce Simmons: One of the overlooked benefits of reverse mortgages is that it’s a protective hedge against the value of your home. In other words, if your borrowing capacity capability grows larger, … If your borrowing capacity grows larger over the price of the home, as the price of the home increases, your line of credit grows, too. If the value drops, you still got that money available. It’s protecting your equity as well, because you’ve got that money you could tap into no matter what the value of the home is.
Bruce Simmons: In essence in that respect, you’re kind of protecting some of the assets that you could leave to your heirs, and also, too, you could help your heirs out while they’re alive, like bailing them out of jail or whatever, too, like we talked about before.
Bruce Simmons: If you have questions about this, too, I’m going to touch real quick on the last one or two, number five and six. Actually, I guess that’s a total of seven is what we’re talking about, because we started off … Well, let me finish here.
Bruce Simmons: Contingency fund for unexpected emergency needs. They call it spending, I can’t remember exactly the term, but it’s a spending shock that you might have. In retirement, you could run into expected expenses, your health, for example, furnace, things like that. When you’re on a fixed social security income, or you’re fixed drawing money from your line of credit, or from an IRA, and you don’t want to take any more money, or it’s going to cause you to go into a higher tax bracket, or any of things like that, it could be a good benefit to have this money available to help see you through these spending shocks that happen all the time to people.
Bruce Simmons: The other thing, too, is using the home equity for purchase. That was number five. Number six would be use the home equity for purchase to downsize and reduce your expenses. If you’re in a big home and let’s say you can’t care for the yard anymore, it’s difficult to get up and down the stairs, whatever the case may be. You have to pay people to help you come in and care for the home, or to care for the yard, and the utility bills are a lot higher. I might have old windows, things of that nature. You could move into a newer home, a condo, a town home, patio home. You do have an HOA, but they take care of everything. It’s a fixed amount. You’re not going to get these spending shocks.
Bruce Simmons: Also, too, you can budget it. It’s much more efficient, the utilities are going to be more efficient. You could find something cheaper where the taxes are lower, the insurance is lower. All these things, you could cut a lot of expenses by doing a home equity for purchase. Again, I’ve talked about that in the past, too. Keep all that in mind.
Bruce Simmons: Let me recap real quick. They talk about five ways. We touched on seven that a reverse mortgage can help you in retirement. Number one, spending coordinating with your portfolio. In other words, setting up that standby line of credit. Number two, bridging income for delaying social security benefits so you can receive more money from social security in the long run.
Bruce Simmons: Funding to pay taxes on a ROTH IRA conversion, converting that standard IRA into a ROTH IRA that can grow tax free. Providing a larger inheritance for your heirs is another way. Then, contingency fund for unexpected spending needs, and using the home equity for a purchase program to downsize and cut your costs.
Bruce Simmons: Those are the ways that you could use a reverse mortgage to help your retirement. Keep in mind, too, that you can always call me with questions about any of these. If there’s a financial planner out there, and I did give some bad information, I’m not a financial planner, okay? You can educate me on this. I’d love to talk with you. I like networking with financial advisors for the benefit of your clients and mine both. We can help them out by making sure they understand how all this works.
Bruce Simmons: Call me directly at 303-467-7821. Again, my name is Bruce Simmons and my number is 303-467-7821. Or feel free to visit me online, too, at ReverseMortgageRadio.net, ReverseMortgageRadio.net. Thank you for joining me today. Hopefully this has been informative for you, and I look forward to talking with you at some point in the future, and definitely next week. Have a great day.
Speaker 1: Call reverse mortgage specialist Bruce Simmons of American Liberty Mortgage directly at 303-467-7821 to begin drawing equity from your home. Bruce will come to you anywhere in the front range for an in person, no obligation consultation. Learn more about reverse mortgages and watch testimonial videos on ReverseMortgageRadio.net. NMLS number 409914, regulated by the division of real estate.