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Retirement Income Redesigned: Master Plans for Distribution: An Adviser's Guide for Funding Boomers' Best Years by Deena B. Katz, Harold Evensky

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Chapter 16. Reverse Mortgages in Distribution Planning

roxanne alexander and michael j. anderson

Mark and Ann Davenport are one of the many baby boomer couples approaching retirement. He's 50, she's 53, and they have moderate savings. They're planning to retire soon and are visiting their financial planner for consultation on their retirement goals. They wish to determine whether their current assets can sustain them for their entire retirement. Jane Smith, their financial planner, reviews with the Davenports their current goals, assets, income, liabilities, and projected asset depletion and constructs a Monte Carlo analysis. Using moderate assumptions, she determines that their assets are likely to be able to sustain them throughout their retirement.

Smith does have some concerns, however, and she shares them with the Davenports: What if there are significant unforeseen expenditures that deplete the Davenports' funds? What if the market's doldrums extend even beyond the odds shown in the Monte Carlo analysis? What if ... ? What if ... ? Given these concerns, Smith wishes to model other options for the Davenports to consider.

The Davenports have mentioned to Smith that they want to live in their house throughout retirement. It is an asset of significant value. She wonders about the possibility of tapping into the equity in the house without taking out a home equity loan for which the Davenports would be required to make current payments. One way to do that, Smith realizes, is a reverse ...

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