![]() ![]() Whenever investment wealth rises above 80% of the glidepath value, any balance Remaining portfolio balance is less than 80% of the required wealth glidepath. Spending is taken from the line of credit when possible, whenever the ![]() Portfolio wealth required to sustain the spending strategy over a 41-year time ![]() This strategy performs a capital needs analysis for the remaining Strategy described in Pfeiffer, Salter, and Evensky (2012) to remove the cash Texas Tech Coordination Strategy: This strategy is modified from the original No efforts are made to repay the loan balance until the loan becomes The start of retirement, and spending is taken from the line of credit, when available,įollowing any years in which the investment portfolio experienced a negative Sacks and Sacks Coordination Strategy: This strategy opens the line of credit at Used for withdrawals after the line of credit is depleted. This allows more time for the investment portfolio to grow before being Retirement, and retirement spending is covered from the line of credit first until it isįully used. Use Home Equity First: This strategy opens the line of credit at the start of Simulated interest rate value at the future date, assuming the same underlying 3% The PLF is calculated using the current PLF table for the updated age and Mortgage and spending needs are then met with the line of credit until it is fully If and when the portfolio is depleted, a line of credit is opened with the reverse Opening a line of credit with a reverse mortgage. It is the only home equity strategy which delays Home Equity as Last Resort: This strategy represents the conventional wisdom The strategy is only used to indicate aīaseline probability of plan success when home equity is not used. Others, as it makes no use of the home equity. Ignore Home Equity: This is the only strategy which is not comparable with the Seven total retirement income strategies will be considered, six of which involve spending A key theme is that there is great value for clients to open a reverse mortgage line of credit at the earliest possible age. Use of tenure payments or one of the coordinated spending strategies can also be justified as providing a middle ground which balances the upside potential of using home equity first and the downside protection of using home equity last. ![]() This strategy allows the line of credit to grow longer, perhaps surpassing the home’s value before it is used, providing a bigger base to continue retirement spending after the portfolio is depleted. Meanwhile, opening the line of credit and that start of retirement and then delaying its use until the portfolio is depleted creates the most downside protection for the retirement income plan. More upside potential is generated by delaying the need to take distributions from investments, but more downside risk is created because the home equity is used quickly without necessarily being compensated by sufficiently high market returns. Generally, strategies which spend the home equity more quickly increase the overall risk for the retirement plan. This article explores six different methods for incorporating home equity into a retirement income plan through the use of a reverse mortgage. The benefits are non-linear in nature, as they relate to the synergies created by reducing sequence risk for portfolio withdrawals and to the non-recourse aspects of reverse mortgages that can potentially allow a client to spend more than the value of their home. Strategic use of a reverse mortgage can improve retirement outcomes. ![]()
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