Scenario Examples

John is a homeowner with no mortgage, retired, single, 65 years old and collecting $24,000 a year in Social Security. Last year John paid 0, zero, nothing, nada, not a dime, in federal income tax because he fell below the $25,000 SS income level. John also paid the lowest available rate for his Medicare. John was so happy he went out to buy a brand-new Ford F-150 Raptor. The problem was that John did not make enough money to qualify for a loan to buy the new vehicle. No problem, John withdrew $70,000 from his 401(k) and paid cash for the truck.

John’s CPA was not impressed with John’s decision. Johns withdraw moved him to an annual income of $74,000 and put him in a 25% tax bracket, which raised his Medicare premium and taxed is Social Security. Now John’s brand-new Ford F-150 has cost him over $90,000 when his accountant had to take in consideration the taxes that had to be paid.

If only had John had taken the advice of his financial planner and used a Reverse Mortgage line of credit. John would have stayed in the zero % tax bracket, left the $90,000 in his assets under management which would have grown to $161,200.00 over the next 10 years (assuming a 6% return on his assets).

Debbie is a 75-year-old widow. Her husband died and when he did, she lost his pension and almost $2,000 a month in social security income. Debbie is now below the poverty line and being forced to sell her home because she can’t afford to pay the mortgage, the taxes, the upkeep or the homeowners insurance. She had almost $500,000 in her retirement account when she and her husband retired 10 years ago, but now thanks to the ups and downs of the market she has hardly anything left. Debbie does not even qualify for a reverse mortgage because her income is so low. If only her financial advisor had understood reverse mortgages and told Debbie and her husband to get one 10 years ago. They would have been able to save 10 years’ worth of mortgage payments and she might still have had a line of credit to draw from. Now she has to sell her house, move into an apartment and if he lives another 10 years she will be out of money and have to go on Medicaid. She will have nothing left to leave her children.

Oh, but wait. Debbie’s financial advisor did advise her and her husband to take out a reverse mortgage 10 years ago. They followed his advice, and they left the $500,000 retirement portfolio alone. That retirement account is now at worth $750,000.00. Debbie’s financial advisor now is confident that Debbie can take out $1,875.00 a month (3%) from her portfolio and never run out of money. Debbie can stay in her home and will probably be able to leave her children several hundred thousand dollars.