Dave Ramsey has his opinion. Suze Orman has her opinion. Maybe you have an opinion on the reverse mortgage as well.
I know that before I began to do research on the subject of reverse mortgages, I was fairly well indoctrinated that they were a bad idea. And trying to find out more about the pros and cons of reverse mortgages through Google searches or media articles didn’t really help. It seems like, similar to annuities, people love to hate reverse mortgages.
Whenever there seems to be gridlock between two opposing sides on an investment product or strategy, I always like to go to a third party source that does not have a dog in the fight… academia. I can usually count on academic research articles to help point me in the right direction since they are generally researched and written by individuals who don’t manufacture any projects or earn their living from the outcome.
That was certainly the case when I spent more time researching the benefits of lifetime income annuities. It seemed as if the endless debate from the investment camp versus the insurance camp could never be resolved. Insurance companies love the idea of annuities. And why wouldn’t they? They are the ones that manufacture the product! And there was never a good word about annuities from the investment company side of the ledger. And why would there be? Every dollar that went into an annuity was usually taken out of an investment account.
It surprised me, then, when more and more academic research came out on the side of lifetime income annuities. And I certainly listened since I realized that these academics were not being paid to say positive things from insurance companies.
I figured that the academic community would pooh-pooh reverse mortgages. I was also surprised as more and more recent academic research has come out on the side of the positive benefits of using or incorporating reverse mortgages in the suite of alternatives in retirement income planning. With the caveat that they be used wisely.
Mind you that academic research doesn’t frame the use of the reverse mortgage in the same way that most of us view it through our preconceived ideas. They don’t picture the elderly widow with no funds to live on whose last hope to provide for herself is to take out a reverse mortgage in exchange for giving up title to the bank.
Instead, recent academic research has shown that instead of being best utilized as an option of last resort, that the reverse mortgage structure can effectively be used in conjunction with other investment strategies to improve retirement outcomes for those in retirement with all types of financial conditions. From those that are already well off, so those who could benefit from a small boost.
My favorite author and academic on the subject is Dr. Wade Pfau, professor at the American College. For a thorough academic review of the use of Reverse Mortgages to improve retirement outcomes, I recommend his book Reverse Mortgages: How to Secure Your Retirement.
If you have questions related to reverse mortgages, contact me.