A Reverse Mortgage Scenario

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The good news is that a Reverse Mortgage can be the only way to save some “elderly” folk (62+) ??? from financial distress.

The “bad”? news is that it reduces the inheritance of the kid’s.

Here’s an example from life.

John and Jean had been married 48 years when his physical health began to fail, along with an increasing level of dementia. He was consoled by knowing that his pension would allow Jean to stay in their home as long as she wished. He was a long serving pilot with United Airlines and had a decent pension with good survivor benefits. Jean was in good health and could expect to long outlive him.

One day a letter arrived from John’s pension administrators informing him that as a result of a settlement in his ex employers bankruptcy proceedins the survivor benefit was no longer covered. This was disastrous. It would mean that upon his death the house would have to be sold to provide the money for Jean to live the rest of her life on. She desperately wanted to stay in the house with her lovely gardens, and surrounded by all the friends from their many happy years there.

I was asked for suggestions which would keep her in the house, and in the financial comfort needed to enjoy it.

In truth there was only one real option.We did a reverse mortgage which gave us $319,000. On the advice of my Financial Planner colleague the bulk of this was invested in an Index Linked Annuity with a Capital Preservation guarantee clause, and a 15 year average annual return of 8.75%. This would provide the additional income required.

The 2 adult children were delighted with this result as neither of them had the ability to have their mother live with them. They fully understood that when she died or moved out of the house the mortgage would have to be paid off, either by selling or refinancing, but until then she had no payments to make.

As with all tools the reverse mortgage can be abused. However, there are many occasions where it is the means for older folks to enjoy their later life in the comfort they deserve.

There was a final twist to this story. About a month after this was all completed another letter arrived from the Pension Administrator announcing that John could take a one- time lump sum payoff from his pension. The amount was $969,000. Needless to say this was immediately accepted and invested wisely.

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