Today, more Americans than ever recognize the need to plan for the costs associated with Healthcare In Retirement.   Unfortunately, many wait until they’re at or near retirement to address the issue and may find it difficult to comfortably fund a Long-Term Care Plan.  However, specific scenarios will allow your clients to unlock the equity in their homes and reallocate their mortgage expenditures to fund a Long-Term Care Plan.  This strategy could be extremely beneficial when research shows that most Baby Boomers never plan to sell their homes.

Furthermore, according to the Academy for Home Equity in Financial Planning at the University of Illinois at Urbana-Champaign, the "prudent use of home equity in a holistic retirement plan – where all the client’s assets are considered for their retirement security – helps advisors serve their client’s best interests and the client’s need for retirement savings to last a lifetime."  As such, a properly structured “Home Equity Conversion Mortgage” may offer a client significant benefits, including the potential to implement a Long-Term Care Plan.

Important Facts About Reverse Mortgages

Your clients may not be familiar with these solutions and may even misunderstand them, so it's important to work with a lender specializing in these solutions, but for those over age 62, here are four key facts they should recognize before moving forward:

• The bank DOES NOT own the home!
• The home DOES NOT have to be debt-free!
• The bank DOES NOT automatically sell the home when the loan comes due!
• The consumer CAN NOT end up owing more than the home is worth!

Real-Life Situation…

Let’s look at Suzy Saver, 65 years old, divorced, and approaching retirement.   Her advisor estimates that she will have sufficient retirement income when she retires to maintain her lifestyle, and those dollars will come from various sources, including social security, her 401(k), and other retirement savings.   Suzy recently had to find an Assisted Living facility for her father and now wants to begin planning for her own potential Long-Term Care needs as well.   Her advisor begins to discuss potential Long-Term Care insurance solutions.   

Unfortunately, based on her current and projected retirement income, she is concerned about whether a suitable plan will fit the budget. Since her advisor's specialty is investment management, she decided to engage a Long-Term Care strategist to find a more creative way to achieve her Long-Term Care planning goals.

Real World Solution…

Suzy’s home has a $200,000 mortgage balance, a value of $500,000, and a monthly mortgage payment of $2,250, so unlocking her home equity could be a potential funding source for her LTC plan.   According to Chris Bruser, with Mutual of Omaha Mortgage in Tampa, FL, Suzy could do a “Home Equity Conversion Mortgage” to refinance the existing mortgage and eliminate the ongoing mortgage payments.....allowing her to reallocate a portion of that $2,250/month of cash flow for a Long-Term Care Plan.

From a Long-Term Care planning perspective, it's important to consider various plan designs. While traditional Long-Term Care insurance may be the lowest-cost option, it only provides benefits if/when care is needed, it won't have residual value if care is not needed, and the premiums can, and likely will, rise in the future. Having that unknown may be unappealing as she's preparing for retirement.  

Of all the various, Suzy finds a life insurance policy with an LTC rider most appealing due to the guaranteed premium and significant Tax-Free pool of funds to cover potential Long-Term Care expenses.  Plus, if Long-Term Care is never needed, she would have a significant Tax-Free death benefit paid to her children to unencumber the home from the HECM or walk away with the cash.

While every situation is unique, this is an example of what can be done when advisors consider all of the available strategies for Long-Term Care planning and a consumer-oriented planning process......not just a product.   

   This example highlights an excellent funding alternative for Long-Term Care. 

*  Please consult a tax advisor or CPA before moving forward with a Reverse Mortgage.

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