• Neither owner or their children will ever owe more thanthe house is worth;
• Those considering RMs must receive counseling from anunbiased, FHA-approved third-party counselor;
• The lender evaluates borrowers’ ability to pay taxes andinsurance;
• Origination fees are regulated by the government.
How much a client is qualified for depends on multiple factors:For example, a 62-year-old with a $400,000 home couldborrow about $191,763, depending on interest rate. In this caseit was 2.32%.
Payouts can happen in four ways: monthly payments forlife, lump sums, monthly payments for a fixed period, or asa line of credit. Also, the owner will always get the originalvalue of the loan, even if the home value declines — forexample, if the neighborhood starts to go downhill due tolocation or climate change (fire or rising sea level). Further,after the loan is paid out, the owner still can live in thehome rent-free.
Blanchett noted that “Considering [RMs] as a potential assetwill obviously improve any kind of retirement scenario (freemoney!), but many retirees view the home as an asset of lastresort (e.g., for health care expenses) and a bequest to passdown to heirs, so effectively ‘selling it’ isn’t something manyare interested in considering.”
Ginger Szala is managing editor of Investment Advisor Group. She canbe reached at firstname.lastname@example.org.
Kotlikoff to Biden: Scrap Social Security, Start New System
Economist and retirement expert Larry Kotlikoff isn’t optimistic about the United States’ fiscal direction, and it seemslike he wants to change everything: the tax system, SocialSecurity, health care, education.
This is what he explained when we asked: What would youtell the Biden administration to do if you could?
“We’ve had a massive increase in the official debt … and ifyou look at Social Security’s unfunded liability equation, that’s$53 trillion — that was from last year’s Trustees Report,”says Kotlikoff, who has been a consultant to multiple Cabinetdepartments and has written several books on Social Security.
“If you put into one balance sheet all the projected outlays
valued to present, and compare that with the present value of
all the receipts, and then add in the liability side, the net debt
of the country … you have a fiscal gap that’s roughly eight
years of GDP,” he says. “No one’s looking at [the] long-term
picture and what bills we’re leaving for future generations.”
Here’s how he would change Social Security and the tax
“I would retire the existing Social Security system the waycorporate America has retired, since the mid-1980s, thedefined benefit pension plans. You freeze the existing system,start a new system at the margin and pay off accrued liabilities … pay what you owe under the existing system,” he says.
To do that, he recommends freezing accounts of those, forexample, currently at age 40. When these workers retire,they would get Social Security benefits based on their earnings up to age 40.
He would maintain the payroll tax — “we need the rev-
enue” — but recommends that people put 10% of their pay
into a personal retirement account. The government would
make matching contributions on behalf of the poor, he says.
These accounts would be government-invested “by a com-
puter in a global index fund of stocks, bonds and real estate
investment trusts” of major markets.
Everyone would get the same rate of return, “so the govern-
ment would guarantee your return on contributions,” provid-
ing a floor for retirement. However, each person could aug-
ment their account accordingly with added contributions.
“Investing in the global markets over a 40-year spanpretty much ensures a positive average return,” he says.Then, between age 57 and 67, the person’s account would begradually sold off at market prices and invested in inflation-indexed government bonds. After five years, that age groupwould start getting annuities paid from those governmentbonds. Those with twice as big an account would get twicethe benefits.
Spouses and ex-spouses would also be protected, he says,
but the point would be a retirement system that is risk-free to
future generations. “Each generation is on its own tub, so to
speak,” he says. “That’s what it means to be fully funded, not
requiring some other generation to bail it out.”
Some might say this idea is a bigger burden to those in
their 30s and younger, who will not only have payroll taxes
but also put in a 10% contribution, and still won’t have the
security system of their parents and grandparents. He agrees,
but “they also are not going to get hit with a fiscal system
that’s going to fall apart, and horrendously high taxes.”