How Reverse Mortgages Can Benefit Older Divorcing Women

Divorcing later in life is not a new phenomenon, but it is becoming more and more common. Indeed, the increased occurrence of “grey divorce,” as it’s called, has been identified as a significant 21^st century divorce trend:  Even though the overall divorce rate is actually declining, it’s on the rise among older generations.

Those of us in the business of helping people plan for secure financial futures have long known that grey divorce presents a unique set of challenges to our clients. Sure, there is overlap, but women divorcing after long marriages (or brief marriages that began later in their lives) typically face different financial concerns –and may have access to different financial products –than their younger counterparts.
For example, a recent article in The Wall Street Journal (written by Kelly Greene) explains how a loan called a “reverse mortgage” can be a useful financial tool for retirees. This type of loan is becoming increasingly popular because instead of making payments to a lender, the homeowner actually receives monthly payments, increasing the amount she owes. Or, she might opt to receive a lump sum, or maintain a ready line of credit.
The loan (and interest) come due when the homeowner dies, moves out, sells the home, or if property taxes or insurance premiums go unpaid. Typically, the home is sold to repay the loan.

As explained in the article, a reverse mortgage provides a mechanism for homeowners at least 62 years old to borrow against the equity in their home. While there’s no restriction on the purpose of the loan, the funds are commonly used to pay for home repairs or modifications, home health care or medical expenses. However, now that the financial services industry has developed new government-insured products, borrowing costs for reverse mortgages have come down, and these types of loans are becoming basic financial management tools, rather than just last-resort methods to increase cash flow.
So, what does all this mean for the divorcing woman?
Well, for those who are close to 62 years old, the possibility of taking a reverse mortgage loan could represent a new factor to consider when deciding whether or not to keep the house. There are many angles to that decision, including:

• equity and potential resale value on one side,
• maintenance and repair costs,
• property taxes,
• insurance premiums,
• and more!

Even so, the potential utility of a reverse mortgage in your financial plan might tip the balance toward keeping the house. Discuss it with your divorce financial planner.
For women whose divorces are behind them, a reverse mortgage might represent a new strategy for making their settlements last as long as possible. For example, using a reverse mortgage to provide cash income during retirement could save you from having to sell temporarily depressed investments. In the event of a drop in the market, payments from a reverse mortgage can be used to cover expenses until the value of your investments sufficiently rebounds.
The Wall Street Journal reports that taking a reverse mortgage can also have implications for your tax bill, and for configuring your potential Social Security income. You may be able to limit your income tax exposure by using cash flow from a reverse mortgage, rather than taxable withdrawals from a 401(k) or other retirement investment, to pay off a traditional mortgage or other debts. If you can delay taking Social Security by using a reverse mortgage as a source of income, you can increase the monthly payment you will eventually receive.
Used judiciously, a reverse mortgage can be a very useful part of the divorcing or divorced woman’s financial strategy, and as a Divorce Financial Strategist™ , I recommend you see how this financial tool might best serve you. The Consumer Financial Protection Bureau is an excellent place to get more information before you look for a lender. If you decide to pursue such a loan, be especially wary of “advisors” who try to steer your reverse mortgage payments into expensive or risky investments. As always, it’s best to be well-informed, and well-advise.
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Six Things you should know about Social Security

by Jennifer Grey, HousingForSeniors.com Columnist | July 19, 2012 | 

If you’re like many people in the US who are close to retirement age, chances are you’ve been spending the past few years worrying about your 401(k), IRA, and other invested retirement accounts—and using them to plan for retirement. But Social Security is likely to make up a large part of your post-retirement income—approximately 50% of married retired couples receive about half their income from Social Security, and high-earners receive about 20% of their retirement income from it. Here are a few key things you should know about Social Security.

Social security is stable—but hard to plan around

Planning for retirement isn’t easy. But you can count on Social Security. Bear in mind that you will get a bigger payment if you can wait to withdraw, and don’t let worries over a reduced payment stop you from working.

Unlike your 401(k) and IRA, your Social Security income is guaranteed to last for the rest of your life—and stay abreast of inflation. It won’t be hurt by fluctuations in the market, and you aren’t likely to suffer a huge income loss based on an economic downturn. Those are the good points.

However, determining how much you’ll get—and how to get the most possible—can be tricky. The amount you get per month depends on the age you retired, how much you and your spouse earned over your working lifetime, and whether you still work even though you’re retired. It’s a complicated equation for everybody.

Social Security will be there when you retire

Despite what politicians often say about the system hemorrhaging money, it’s highly unlikely Social Security will go away anytime soon. Money coming in from payroll taxes will cover all benefits until 2016, even if the current system isn’t changed. The Social Security Trust Fund is there to support the system as well, and if no more money comes in, the fund’s Treasury bonds would cover payments until about 2037. Even if that runs out, payroll tax income could conceivably cover about 75% of what you shofuld get in benefits for decades to come after that.

So even if the government does nothing to support Social Security, it’s not very unlikely your benefits will disappear. However, the Obama Administration has shown signs of interest in strengthening the system in the future—by leveraging Social Security taxes on people who earn over $200,000, for example.

You can get some of your spouse’s payment

There are situations where you can qualify to receive Social Security payments for your spouse. If your spouse dies, you can receive up to 100% of his or her Social Security benefits, as long as they’re higher than your own payments. You may also be eligible for these benefits if you’re divorced.

It can be better to wait

You can start drawing your Social Security benefits at age 62. However, the longer you wait to collect Social Security, the bigger your monthly check will be. That said, most people begin collecting before retirement age, which is currently at 66. If you can wait, you’ll have a bigger monthly check as your other retirement savings are starting to diminish—which can be a big help.

If you’re married, however, it gets more complicated. Some spouses qualify for spousal benefits, and it can be more effective for the higher-earning spouse to wait as long as possible while the lower-earning spouse should take out their benefits earlier.

You can actually raise your payments by working while retired

But only up until full retirement age. Before you hit that age, the federal government will reduce your payments by $1 for every $2 you earn over a specific annual limit—which is currently set at $14,160. However, you don’t lose that money permanently. Social Security will compensate you once you hit full retirement age for the money withheld before then. And that higher payment will go on for the rest of your life, no matter how long you worked.

You can also raise your Social Security earnings if you earn a higher wage while you’re drawing Social Security. That’s because the amount you receive is calculated based on the 35 highest wage-earning years you had. Potentially, you could earn a higher wage in retirement than you did in one of the other 35 years, boosting your payments again.

Your Social Security benefits may be taxed

Approximately a third of people who receive Social Security pay income taxes on their benefits—and it’s projected that as much as 42% will by 2018. You are less likely to pay taxes—or can reduce your taxes—by waiting until full retirement age to claim your benefits.

Planning for retirement isn’t easy. But you can count on Social Security. Bear in mind that you will get a bigger payment if you can wait to withdraw, and don’t let worries over a reduced payment stop you from working. Talk to a financial advisor about how Social Security should be factored into your retirement plans, and hopefully you’ll be able to get the most from your benefits.
 

No more Social Security at 62?

By Jennie L. Phipps · Bankrate.com

Sunday, June 2, 2013

Posted: 7 am ET

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The Social Security Board of Trustees released its annual report Friday on the financial health of both the retirement and the disability trust funds.
The report projected that the retirement trust fund will be depleted in 2033 -- unchanged from last year's projection. It said that unless Congress acts, at that point the program will be able to pay only 77 percent of promised benefits from ongoing contributions. The disability trust fund will be depleted much sooner -- in 2016 -- when the program will be able to pay only 80 percent of promised benefits.
Other statistics from the report that you might find interesting include:

• More than 57 million people were receiving Social Security by the end of 2012.
• In 2012, approximately 161 million people paid payroll taxes on earnings covered by Social Security.
• The total money held in reserve by the program rose by $54 billion in 2012 to $2.73 trillion.
• The cost to administer the program in 2012 was 0.8 percent of total expenditures, a total of $6.3 billion.

A few days prior to this announcement, Donald Fuerst, senior pension fellow at the American Academy of Actuaries, testified before the U.S. Congress about Social Security's pending shortfalls. He said that in 1940, when the new Social Security Administration began paying monthly retired-worker benefits, the retirement age was 65. At that time, workers who survived to age 65 had a remaining life expectancy of 12.7 years for men and 14.7 years for women. By 2011, life expectancy at age 65 was 18.7 years for men and 20.7 years for women, an increase of six full years for both.
In 20 more years, life expectancy at age 65 for men is expected to be more than 20 years and more than 22 years for women, Fuerst pointed out.
The bottom line: If something doesn't change, we won't have enough money to pay the Social Security that is promised, a retirement planning disaster.
Fuerst offered Congress several suggestions for fixing this problem. His most controversial idea is probably raising the minimum age for collecting Social Security from 62 to at least 64.
Here's what he'd also do to make an increase in retirement ages less painful for workers:

• Gradually phase in any change over an extended period of years, even decades, to allow for more time for society to adapt to the new work-life reality. "Give people time to plan and prepare. You wouldn't want to change it for someone who was planning to retire the next year. None of us would consider that fair," Fuerst says.
• Reduce benefits for higher-paid workers. "Wealthier socioeconomic groups recently show more longevity improvements than poorer socioeconomic groups," Fuerst points out.
• Revise the Social Security disability program. Make the requirements more lenient for people between ages 62 and full retirement age, so those in occupations that involve physical labor wouldn't have to continue to work at jobs they couldn't physically do.
• Cut or eliminate the wage tax for both employers and employees for people between ages 62 and full retirement age. It would give an incentive to both groups to keep older workers on the job.

Will a plan this complex and drastic ever wend its way through Congress? Fuerst thinks it should, but he isn't optimistic. "It isn't going to be easy; there are too many competing interests," he says.

Read more: http://www.bankrate.com/financing/retirement/no-more-social-security-at-62/#ixzz2dHKSeKs5
Follow us: @Bankrate on Twitter | Bankrate on Facebook

Current Outlook for Boomer Retirees

Have Boomers set aside enough funds for retirement?  Researchers are suggesting their savings are not sufficient.  Relying on Social Security is not a good idea because of its impending insolvency.  The overall outlook for aging baby boomers appears grim.

Millions of Americans are still facing a dismal outlook when it comes to their own ability to retire.

Statistics to support current retirement conditions:

1.  The expected retirement age is now up to 67 from a previous 63

2.  According to AARP 40% of baby boomers consider working until they die

3.  The Employment Benefit Research Institute notes 46% of Americans have less than $10,000

     saved for retirement.

4.  Lifehappens.org reports a dismal 87% of adults feel they will not have a comfortable

    retirement.

5.  CNBS recorded 36% of Americans state they don't contribute anything to their 

     savings by an average of $117,000

6.  Ameriprise surveyed 50 - 70 year olds about their cash savings and found that

    90% had experienced a significant economic life event that negatively impacted

    their retirement savings by an average of $117,000.

7.  The Great recession created low interest rates which impaired the growth

    of retirement assets

8.  The market has declined by 55% and home equity 33% while 23% reported having

     to support grown children or grandchildren

Why has American retirement dreams been depleted?

Most respondents to the surveys point to increasing cost of living expenses preventing them from saving.  Included in the saving problem is rising healthcare and long-term care expenses.

In addition to the rising expenses it the fact that the dollar doesn't go as far as it once did because of practices by the Federal Reserve.

Putting money in the bank is probably the largest retirement mistake.  Inflation destroys 50% if you let it stay there for 22 years.  Your money has to work for you, not the bank.

The traditional forms of investment like CDs, bonds and money markets pay less than 85% less than they did just six years ago.

Tax increases implemented by the Obama Administration further complicates matters.

The United States retirement system has earned a "C" rating from the consulting firm Mercer, as compared to the "A" grade Denmark received and the Netherlands' retirement system's B+ rating.  The study further shows that other countries are willing to make unpleasant steps by workers and employers to fund a stable system.

The United States Social Security trust fund is expected to become insolvent in 2033.

As Social Security dwindles, retirees will need to look at other resources like home equity to fund their retirement.

For the first time in history less money will be available and alternative sources of income will need to be established.

Despite a drop in home values since the recession 21% of Americans expect to rely on the equity built up in their homes as a source of income.

Attempting to retire without social security requires a lot of planning, saving and investing.  It's important to plan well to create a successful retirement plan.

How to use Home Equity for retirement

Frequently Asked Questions about HUD's Reverse Mortgages

Frequently Asked Questions about HUD's Reverse Mortgages

The Home Equity Conversion Mortgage (HECM) is FHA's reverse mortgage program, which enables you to withdraw some of the equity in your home.  The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement Social Security, meet unexpected medical expenses, make home improvements and more.  You can receive additional free information about reverse mortgages in general by contacting the National Council on Aging at (800) 510-0301 or downloading their free booklet, "Use Your Home to Stay at Home," a guide for older homeowners who need help now. It is smart to know more about reverse mortgages, and decide if one is right for you!
1. What is a reverse mortgage?
A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you.  However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage.  You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.
2. Can I qualify for FHA's HECM reverse mortgage?
To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan. You can find a HECM counselor online or by phoning (800) 569-4287.
3. Can I apply for a HECM even if I did not buy my present house with FHA mortgage insurance?
Yes.  You may apply for a HECM regardless of whether or not you purchased your home with an FHA-insured mortgage.
4. What types of homes are eligible?
To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.
5. What are the differences between a reverse mortgage and a home equity loan?
With a second mortgage, or a home equity line of credit, borrowers must have adequate   income to qualify for the loan, and they make monthly payments on the principal and interest.  A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments.  With a reverse mortgage, you are required to pay real estate taxes, utilities, and hazard and flood insurance premiums.
6. Will we have an estate that we can leave to heirs?
When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid.  All proceeds beyond the amount owed belong to your spouse or estate.  This means any remaining equity can be transferred to heirs.  No debt is passed along to the estate or heirs.
7. How much money can I get from my home?
The amount you may borrower will depend on:

• Age of the youngest borrower
• Current interest rate
• Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price; and
• Initial Mortgage Insurance Premium--your choices are HECM Standard or HECM SAVER

In addition, the more valuable your home is, the older you are, and the lower the interest rate, the more you can borrow.  If there is more than one borrower, the age of the youngest borrower is used to determine the amount you can borrow.  For an estimate of HECM cash benefits, select the online calculator from the HECM Home Page. Many online reverse mortgage calculators can provide you with an estimate of the amount of funds you can borrow.
8. Should I use an estate planning service to find a reverse mortgage lender?
FHA does NOT recommend using any service that charges a fee for referring a borrower to an FHA-approved lender.  You can locate a FHA-approved lender by searching online at www.hud.gov or by contacting a HECM counselor for a listing.   Services rendered by HECM counselors are free or at a low cost.  To locate a HECM counselor Search online or call (800) 569-4287 toll-free, for the name and location of a HUD-approved housing counseling agency near you
9. How do I receive my payments?
You can select from five payment plans:

• Tenure- equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
• Term- equal monthly payments for a fixed period of months selected.
• Line of Credit- unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
• Modified Tenure- combination of line of credit and scheduled monthly payments for as long as you remain in the home.
• Modified Term- combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.

 10. What if I change my mind and no longer want the loan after I go to closing?  How do I do this?

By law, you have three calendar days to change your mind and cancel the loan.  This is called a three day right of rescission.  The process of canceling the loan should be explained at loan closing.  Be sure to ask the lender for instructions on this process.  Mortgage lenders differ in the process of canceling a loan.  You should ask for the names of the appropriate people, phone numbers, fax numbers, addresses, or written instructions on whatever process the company has in place.  In most cases, the right of rescission will not be applicable to HECM for purchase transactions.