by Daniel J Turner NMLS#1016716; Geneva Financial LLC NMLS#

Copyright 2020 All rights reserved. Use by written authorization only.

H&HS has announced they anticipate running out of money for retirement checks around 2033, and this will necessitate a significant reduction of income for ALL retirees. The estimated cut in benefits is 25%. SO. We have 13 yrs to prepare for “Retirement Income Armageddon”. Social Security Solution…

Let’s isolate the problem for clarity.

Due to a substantial reduction in tax income and COLA increases and higher administration costs along with expanding benefits to those who would not normally be eligible to receive SSI or SSDI benefits, there is enough funding to continue the present demand from Pensioners until 2033. (Of course) this is only a guesstimation as there are no equitable or cash reserves kept in a pension plan based upon the absurd notion of “Pay-as-you-go” (as quoted by FDR). Cash-in, cash-out, IOU’s as Congress has been rerouting all revenue from SSI to the general ledger and then spent on a myriad of “other” programs.

Imagine interviewing a pre-retirement couple who is trying to prepare for living without earned income, and the planner calculates a shortfall that requires an additional $25,000/year starting today, and continued through age 66. Tough way to go, right?
But now, let’s add the complication this provides and realize that to make up for the shortage, AND add a structure to protect the funds from inflation? they must calculate an additional deposit each month to compensate for that shortage.

Let’s assume their projected SSI monthly at 66 will be $3,200/month; $38,400/year x 25%=$8,600 SSI benefit reduction.
To calculate how much must become available to meet this shortage, we would use the “Rule of 25” (which suggests that to calculate the principal sum needed to achieve an annual benefit for life, We would multiply $8,600 x 25 yrs= and an ADDITIONAL $215,000.00 to compensate for the shortfall of the SSI benefit reduction. Since we have 10 good years (these people are MUCH luckier than most) we are suggesting the Clients must set aside their original shortage PLUS an additional $21,000/ year ($1,700/month+ $3,000.00/month=$4,700/mo x 12 =$56,400.00/yr for the next 10 years.)

Forget about age 66. Most People would quit, lose hope, or greatly alter their retirement goals and objectives. Most Planners would hold their hand and commiserate with them. But, WE are RICP’s! We don’t quit! WE THINK!

Their MORTGAGE payment is about $2,400/ month! They make a great income, but the mortgage payment is approximately 1/3rd of their after tax income.

What if…

Let’s use a FHA HECM HELOC to eliminate the requirement for a mortgage payment. That $2400 can be redirected to their savings.
By adjusting their W-4 form to correctly adjust their withholding taxes and eliminate their tax refund, we now gain an additional $600.00/month. So by adjusting their payroll taxes AND waiving their need to make a mortgage payment each month? WE HAVE FOUND the $3,000.00 and now what was daunting to do at $3,000/month becomes DOABLE at only $1,700.00 per month! In fact, several options now come into play because of the reverse mortgage HELOC:

1. Nose to the grind stone, and we round the $1,700 up to $2,000/month and go for broke until age 70. Remember-“saving money” is nothing but “deferred spending”. Maybe the $3,000 original sum is doable!
2. Save more, reduce the number of years of savings. Retire at or before 66 with adequate savings/security.
3. Use the HELOC credit line to supplement income by periodic conversions of the equity line into “tenure” income streams that are guaranteed for the entire time they live in the home. If they BOTH need L/T institutional care? Income STOPS and equity may be preserved for Heirs vs. continuing to be captured by Medicaid spend down rules.
4. Use the HELOC credit line to stand in for investment account buffering By using the HELOC, dedicating the emergency fund to investment yields is now another option to improve yields and enhance/protect portfolio results.

NONE of these scenarios could be possible without using home equity through the FHA HECM HELOC program. Without it? The Planner had no otions but hardship choices. WITH the HECM HELOC? Everything became an option, and THAT is our job…to produce OPTIONS for our Clients.

 

-For Retirement/Financial Planners and Retiree’s living in Hawaii Kai, Kaneohe, Waikiki, Ewa Beach, Honolulu, Wapahu, Pearl City, Kailua, Mililani, Manoa, Hilo, Kapole’i, Waikoloa Village, Kailua-Kona, Kamuela, Honoka’a, Mountain View