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Reverse mortgages now almost a must?
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dumbstruck
Apr 10, 2016, 4:10:03 PM4/10/16
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Marketwatch has an article about new rules making reverse mortgages more attractive: "The new math on reverse mortgages" http://www.marketwatch.com/story/the-new-math-on-reverse-mortgages-2016-04-10 . If so, I wonder at what age and conditions it almost becomes a must?
They have some boring coverage of how abuse (of the nature no reader of this newsgroup would attempt) is being reduced by new rules. But they say using it as a line of credit seems almost a must, even if you don't seem to need it at the time.
The value of it rises and the feds may insure against drops in value of your house. You can use it's tax free proceeds to avoid tapping into taxable IRA withdrawals, with all it's side effects of raising medicare premiums, etc. You can avoid locking in capital losses on stocks, and have income to wait for return of a bull market.
So I am curious whether someone who has no specific need for such a line of credit should get one, and when. It now almost sounds like a gov't giveaway program that leaves you behind if you don't join, but maybe there are some pitfalls for even the most modest involvement?
They have some boring coverage of how abuse (of the nature no reader of this newsgroup would attempt) is being reduced by new rules. But they say using it as a line of credit seems almost a must, even if you don't seem to need it at the time.
The value of it rises and the feds may insure against drops in value of your house. You can use it's tax free proceeds to avoid tapping into taxable IRA withdrawals, with all it's side effects of raising medicare premiums, etc. You can avoid locking in capital losses on stocks, and have income to wait for return of a bull market.
So I am curious whether someone who has no specific need for such a line of credit should get one, and when. It now almost sounds like a gov't giveaway program that leaves you behind if you don't join, but maybe there are some pitfalls for even the most modest involvement?
JoeTaxpayer
Apr 12, 2016, 9:50:04 AM4/12/16
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by Wade Pfau "Incorporating Home Equity into a Retirement Income
Strategy" http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2685816
The paper has a lot of math and simulations. But, as I often find with
such papers, the author makes the oddest of assumptions - a flat 25%
rate on retirement withdrawals. He suggests that one needs to withdraw
$53,333 to net $40,000. Really? A quick check at
https://turbotax.intuit.com/tax-tools/calculators/taxcaster/
and a couple taking $40,000/yr has a tax bill of $1991. Not even 5%. Add
$20,000 in SS, and the tax bill goes up to $3656, still, not even 10%. I
like this author's work, in general. My issue is starting with a premise
which, in effect takes the 4% rule, and in illustrating it, bumps right
to 5.33%, and projects from there. 30 years of that bad math, and the
results skew the wrong way.
( I realize, I didn't actually address your question. But I did look at
the paper I cited, and suggest you analyze the process yourself, never
just relying on someone else's math, including my own)
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