Stock markets rise and fall. Many recent reports are warning of an imminent stock market tumble. We are certainly seeing wild volatility these past few weeks with predictions of more to follow. What is there you can do to protect your client’s portfolio in retirement?.
It is now well known in the financial planning world that drawing on a portfolio that suffers down stock markets within 5 years of and the first 5 years of retirement will exhaust funds at such a rate that it will often not recover. Instead, drawing income from non-stock market or buffer assets allows the portfolio to recover before drawing on it. The most commonly used buffer assets are cash and money from cash value life insurance. Unfortunately many people do not have sufficient funds to help avoid this common risk over the course of a retirement.
There is a new strategy being employed by cutting edge advisors. They are putting in a place a Reverse Mortgage loan as close to age 62 as possible and using funds from the line of credit as the buffer asset and to continue the cash flow for their clients without unnecessarily shortening the life of the portfolio.* Two other benefits from using this strategy are:
- Funds from the Reverse Mortgage line of credit come out tax free*, so you will need to draw less than from a standard IRA.
- There is no mandatory payment as a result of that withdrawal as the (HECM) Home Equity Conversion Mortgage, the most popular Reverse Mortgage loan, gives borrowers the option of making principal and interest payments. Homeowners are required to pay all property related charges like property taxes, homeowners insurance, hoa fees etc.
I have attached a graph with a portfolio starting with one million dollars. It illustrates the impact of skipping a withdrawal either 1,2,3 or 4 times over the retirement period from 1966 to 1995. Not employing this strategy leaves the portfolio with $0 by 1995. Skipping the four distributions and drawing from the buffer asset leaves the client with $4 million.
Contact me to discover how skipping might work for you.
*This advertisement does not constitute tax and/or financial advice from Fairway.
Copyright©2022 Fairway Independent Mortgage Corporation. NMLS#2289. 4750 S. Biltmore Lane, Madison, WI 53718, 1-866-912-4800. Distribution to general public is prohibited. All rights reserved. Equal Housing Opportunity