Under a relatively new concept in Planning called “Utility”, the Reverse mortgage HELOC comes in as a crowd-pleaser.

“Utility” is best described as “how much pleasure/happiness is achieved by providing additional spending AND how much dissatisfaction/concern is created if things go wrong and cutting back on spending becomes necessary.” Conceptually, a utility function takes into consideration a client’s views on the relative importance between a reduction in income versus the possibility of increase in income.

(Too) many times, Planners will rely on “hope” and “patience” as strategies of working through the “whoops’es” of retirement. Hope and Patience are virtues; they are not strategies.

Establishing the Reverse mortgage (HECM HELOC) early on (age 62) accomplishes several values to a retirement income strategy:

1. Establishes and FUNDS the “plan” that will be implemented when bad things happen (particularly) bad market things, and eliminates the “I “HOPE” the market returns soon; we must have “PATIENCE” until it does”.

2. Early use of the HECM HELOC allows a mortgage to be restructured, and the payment required is able to be suspended, or repurposed to savings or emergency funds or all the above.

3. It allows a Client to live with confidence through troubling market circumstances like we endured over the past 6-7 months.

The HELOC will allow random and substantial payments at any time. This means the Client may begin adding funds to their emergency account for non-discretionary spending during the good times, and realize their access to a federally insured tax free access to equity that grows daily by the annual mortgage rate. Transferring their income needs from the portfolio to the HELOC account also allows them to continue making contributions to the portfolio from payments previously made to the HELOC and do extremely profitable dollar cost averaging.

Another idea is to re-purpose the low interest rate bank savings accounts to the portfolio as the HELOC has now effectively substituted the existence of the savings into a better federally insured and regulated account.

“Utility” in this plan means the Client may make decisions about income v legacy more thoughtfully instead of assuming a defensive posture against reducing income to offset lost principal. Increasing income after the market recovers becomes an alternative. Dedicating funds to legacy ideas becomes more plausible.

There is nothing more damaging to a portfolio than a long term market correction; the FHA HECM HELOC is an incredibly capable tool for helping both the Planner AND the Client to manage that eventuality.