A ‘Rebuilding American Retirement’ Call To Arms For Financial Advisors – Financial Advisor Magazine

Retirement in America represents a complex equation fraught with many diverse and hidden challenges that require thoughtful, proactive, forward-looking planning. Many quantitative empirical studies of retirement preparedness find that a substantial number of US households face a potential financial crisis at some point in the future. The CFA Institute Research Foundation provides a critical survey of the most important and best known of these studies in their recent monograph “Is There a Retirement Crisis?”:

The most sophisticated models imply that anywhere from 25% to 50% of US households preparing for retirement will end up short of the savings they will need…. The surveys of retirement readiness we have summarized support this conclusion on the whole, although these surveys are not always easy to interpret. The one finding that really stands out is the apparent unpreparedness of older Americans for the unexpected.”

The recent May 2021 Rebuilding Retirement in America Summit hosted by Fairway Independent Mortgage Corporation provided a deep dive into some of these retirement challenges and offered creative solutions to address them. Many sessions at the Summit provided very different perspectives and an opposite way of thinking from many prevalent retirement solutions, but they were always squarely based on the best interest of clients.

The goal of the Fairway Summit was clearly to change the way retirement planning is done in this country. The Summit highlighted the strength behind many unique financial, tax, and risk management strategies, and a rethinking on a breadth of investment tools that may be applied to address the growing retirement crisis in this country, including effectively managing the $8 trillion in home equity. The key message or challenge offered in the Summit was how advisors can be the crucial missing piece of a client’s financial retirement puzzle by strategically partnering with other financial experts to mix these financially advanced approaches early and thoroughly to provide a truly comprehensive retirement plan for their clients.

Highlights With Key Takeaways:

Harlan Accola, National Reverse Mortgage Director, Fairway Independent MortgageHarlan outlined how there is a growing retirement crisis in America that the government, AARP, or corporations are not going to be able to fix. There is no one group or entity that can fix this growing retirement crisis but everyone on their call can—financial advisors, loan officers, accountants, lawyers—if they work together as a team.

Is there really a crisis? – Harlan reported that in 2020 for the first time ever in history, the number of people over 65 exceeded the number under 5. The next 20 years we are going to double the number of people over 65 to over 72 million. Most people alive today that are 65 years old are going to live into their 90’s. A United Nations and NYTimes recent article estimates that by year 2100, only 80 years from today, 25 million people will be over the age of 100. While this is going on today, 1/3 of the baby boomers have less than $25,000 set aside for retirement. Another third has severely under saved at around $100k-$150k.

Accola: “Why is Fairway doing this? We are not financial advisors. We do not allow any of our 3,000 loan officers to sell any insurance, annuities, investments—so we know we need to partner. We realized that we have to talk to each other. If three different doctors are providing care for a client and they do not speak to each other, that can be called malpractice. The bottom line is this. In the financial world, the attorneys, the financial advisors, CPAs, loan officers, do not usually talk to each other. By all of us working together, as a single unit or team, we will be able to change the way retirement is done in this country. We are sitting on $8 trillion dollars of misallocated funds in home equity that should not all be in home equity, especially at the expense of not having LTC insurance, specialized life insurance, proper retirement assets under management to be able to provide for themselves, unforeseen contingencies, and their families particular needs going forward. This is a critical juncture that we are in—a key corner of history. If we continue to put a lot of our money into our homes, money that should be in investments and strategic financial tools, we will be in deep trouble.”

Wade Pfau, Professor of Retirement Income, The American Collegein his presentation “The Four Approaches to Managing Retirement Income Risk”, Wade talked about some of the best approaches to managing volatility and longevity in retirement. Wade emphasized how sequence-of-returns risk is a fascinating concept in that minor tweaks to spending can have major implications for portfolio sustainability. When understood in this context, financial tools and strategies that are not always viewed positively by investment-focused advisors and their clients, can create net positives for the financial plan to support spending, liquidity, and legacy. Examples of such tools and strategies include delaying Social Security, using annuities with lifetime spending protections, employing a rising equity glidepath in retirement, using a time segmentation or bucketing strategy, and creating a “buffer asset” with a reverse mortgage or whole life insurance.

Dan Hultquist, National Reverse Training Specialist, Fairway Independent Mortgageis the author of Simplifying the Reverse Mortgage, a Certified Reverse Mortgage Professional (CRMP), and an active member of the National Reverse Mortgage Lenders Association (NRMLA). Dan presented on “Who Is Today’s Reverse Mortgage Applicant?” where he shared data to explain why the reverse mortgage loan is being used by all types of people today and is no longer the “loan of last resort”; becoming more of a lifestyle enhancement and a retirement planning tool as part of a comprehensive retirement plan. It is the emergence of research coming from the academic world—not the mortgage industry—that has started to increase the reappraisal of the strategic uses of reverse mortgages with wealth managers now discussing ways to incorporate housing wealth into retirement planning. Some of the notable research includes:

• Barry H. Sacks – Reversing the Conventional Wisdom

• Wade Pfau – Incorporating Home Equity into a Retirement Income Strategy

• John Salter – Standby Reverse Mortgages

But many advisors still do not realize that reverse mortgages are a very efficient solution to the retirement crisis. Dan pointed out that homeowners aged 62 and older saw their housing wealth grow $234 billion in the fourth quarter of 2020 to a record $8.05 trillion per the RiskSpan Reverse Mortgage Market Index. That is a lot of wealth that can be strategically managed to fund long-term care, mitigating longevity risk or sequence of returns risk, using tax free draws from to manage their adjusted gross income, to name a few applications. That makes today’s ideal reverse mortgage client not someone who is house rich and cash poor who needs money right now, but someone maybe closer to age 62 giving the line of credit more time to grow; they may still be working and making periodic draws and prepayments whenever needed; and ultimately, they may never need the funds but can sleep well knowing they have a stand-by reserve if they need it.

Rao Garuda, President, Associated Concepts AgencyRao founded Associated Concepts Agency to serve his clients’ planning needs and co-founded the American Tax Planning Institute, which is an advanced financial training and mentoring program for financial advisors across the nation. On speaking about “What Financial Planning Opportunities Could You Be Missing?”, Rao illustrated some the opportunities that Financial Advisors may be missing in retirement planning by not properly integrating IRA strategies (Roth conversion) + home equity (HECM) + insurance (Life & LTC) + charitable strategies (Pooled Income Fund).

Roger Roemmich, Founder and CEO, Retirement Cash Flow Education GroupRoger as an author, CPA, and Retirement Cash Flow Specialist spoke about implementing various strategies using home equity for increased retirement cash flow and ultimately more net worth. Roger illustrated examples of using reverse mortgages to minimize taxation of capital gains, help avoiding social security taxation, increasing cash flow without causing taxes, and providing the cash flow necessary to maximize retirement contribution opportunities, especially benefitting teachers and others with 457(b) or 403(b) plans in later years.

Edward Slott, Ed Slott and Companya leading IRA Expert and author of The New Retirement Savings Time Bomb: How to Take Financial Control, Avoid Unnecessary Taxes and Combat the Latest Threats to Your Retirement Savings, Ed discussed in his presentation “Planning for the End of the Stretch IRA” the critical issues and specific steps that must be addressed to protect the largest IRAs from changing legislation. He illustrated how to turn advanced tax strategies into understandable and actionable advice for advisors to help their clients get the most out of their retirement savings and take control of their financial future in retirement. He discussed, among other strategies, Charitable Remainder Trusts (CRTs) and reverse mortgages, coupled with Life Insurance. Ed emphasized how Life insurance moves to the top of the list as an estate and tax-planning vehicle for the largest IRAs and can replace the benefits of the stretch IRA and IRA trusts.