Why The Reverse Mortgage Business Is Here To Stay!
Saturday, 01 August 2009 15:56
Articles - Sales and Marketing
THE FUTURE*
65 AND OLDER POPULATION TO TRIPLE BY 2050
The world’s 65-and-older population will triple by mid-century to 1 in 6 people, leaving the U.S. and other nations struggling to support the elderly. The number of senior citizens has already jumped 23 percent since 2000 to 516 million, according to census estimates released June 23. That’s more than double the growth rate for the general population.
As the fastest-growing age group, seniors account for just fewer than 8 percent of the world’s 6.8 billion people. However, demographers warn the biggest shift is yet to come. They cite a coming wave of retirements from baby boomers and China’s Red Guard generation. In the U.S. residents 65-and-older make up 13 percent of the population, but that will double to 88.5 million by mid-century.
THE PRESENT
At present there is a large population of older seniors, with approximately 40 million persons age 62 + in 22 million households.
Collectively, these older Americans comprise nearly 13% of the total population of our country. They also represent a disproportionate share of the total wealth of the country. People age 50+ comprise 33% of the total net worth, 50% of discretionary spending, and 77% of all financial assets.
Good News / Bad News
The good news is that we’re living longer. The bad news is that we can’t afford it.
Scientists have determined that the average life expectancy of
The world’s 65-and-older population will triple by mid-century to 1 in 6 people, leaving the U.S. and other nations struggling to support the elderly. The number of senior citizens has already jumped 23 percent since 2000 to 516 million, according to census estimates released June 23. That’s more than double the growth rate for the general population.
As the fastest-growing age group, seniors account for just fewer than 8 percent of the world’s 6.8 billion people. However, demographers warn the biggest shift is yet to come. They cite a coming wave of retirements from baby boomers and China’s Red Guard generation. In the U.S. residents 65-and-older make up 13 percent of the population, but that will double to 88.5 million by mid-century.
THE PRESENT
At present there is a large population of older seniors, with approximately 40 million persons age 62 + in 22 million households.
Collectively, these older Americans comprise nearly 13% of the total population of our country. They also represent a disproportionate share of the total wealth of the country. People age 50+ comprise 33% of the total net worth, 50% of discretionary spending, and 77% of all financial assets.
Good News / Bad News
The good news is that we’re living longer. The bad news is that we can’t afford it.
Scientists have determined that the average life expectancy of
humans at the end of the Stone Age was 25 years. Life expectancy increased to 47 years in 1900, then to 77 years in 2000. Thus, general health and medical advances have increased average life expectancy more in the last century than in the previous 10,000 years.
A word from The Center for Retirement Research at Boston College
The National Retirement Risk Index (NRRI) measures the percentage of working-age households that are at risk of being unable to maintain their pre-retirement standard of living in retirement. It
addresses one of the most compelling challenges facing the nation today — ensuring retirement security for an aging population.
A word from The Center for Retirement Research at Boston College
The National Retirement Risk Index (NRRI) measures the percentage of working-age households that are at risk of being unable to maintain their pre-retirement standard of living in retirement. It
addresses one of the most compelling challenges facing the nation today — ensuring retirement security for an aging population.
Key findings in the National Retirement Risk Index show that:
The retirement landscape is shifting dramatically, making the outlook for retiring Baby Boomers and Generation X-ers far less sanguine than for current retirees.
The retirement landscape is shifting dramatically, making the outlook for retiring Baby Boomers and Generation X-ers far less sanguine than for current retirees.
- Nearly 45 percent of households are “at risk” of not having enough to maintain their living standards in retirement.
- Explicitly including health care in the Index drives up the share of households ‘at risk’ to 61 percent.
- Incorporating long-term care costs further increases the Index to 65%
- Saving more and working longer may substantially improve the outlook.
- Social Security will replace less pre-retirement income in the future.
- 4.5 million persons over the age of 65 are still employed, and probably wish they weren’t.
- 10% of non-retired persons have saved more than $100,000 for retirement, but they need a million dollars.
The Challenges of Aging
People must find a way to pay for longevity, even as they strive to enjoy the best possible quality of life.
The financial challenge of aging revolves around both retirement income and medical care costs, which increase due to age-related illness or chronic disease. There are no public solutions to these problems as they are and will remain under-funded mandates. Social Security is woefully inadequate to meet the retirement income needs of more people living longer, and private pension plans offer little additional help. Medicare and Medicaid are likewise unable to fund the medical costs that naturally occur as the price of longevity increases.
The lifestyle challenge of longevity is created by the expectation of not just living longer, but of living better as well. The retirement horizon viewed through the “lifestyle lens” looks something like this:
Survival…how to preserve assets and income to cover the basics during longer years of retirement
Security…how to make the fewest personal sacrifices possible during those longer years of retirement
Independence…how to finance longevity in order to live even better than during employment years
Creative aging…how to productively celebrate the “second half of life”
Any solution to the financial challenges of longevity will require maturing Americans to self-fund a major portion of their longer lives. Many of these Americans will be forced to continue to work. Some have wealth. However, statistically most of the wealth that these Americans possess is in the form of home equity; more than 80% of
those aged 65+ own their homes, and those homes are usually their major asset.
Federal Reserve Bank statistics from mid-2007 revealed $21 trillion in home value, less $10 trillion in related debt, for net home equity on a national basis of $11 trillion. Seniors aged 62+ accounted for $4.3 trillion of that total, and the much larger Boomer cohort even more. The inescapable conclusion is that maturing Americans must monetize home equity in order to self-fund longevity.
People must find a way to pay for longevity, even as they strive to enjoy the best possible quality of life.
The financial challenge of aging revolves around both retirement income and medical care costs, which increase due to age-related illness or chronic disease. There are no public solutions to these problems as they are and will remain under-funded mandates. Social Security is woefully inadequate to meet the retirement income needs of more people living longer, and private pension plans offer little additional help. Medicare and Medicaid are likewise unable to fund the medical costs that naturally occur as the price of longevity increases.
The lifestyle challenge of longevity is created by the expectation of not just living longer, but of living better as well. The retirement horizon viewed through the “lifestyle lens” looks something like this:
Survival…how to preserve assets and income to cover the basics during longer years of retirement
Security…how to make the fewest personal sacrifices possible during those longer years of retirement
Independence…how to finance longevity in order to live even better than during employment years
Creative aging…how to productively celebrate the “second half of life”
Any solution to the financial challenges of longevity will require maturing Americans to self-fund a major portion of their longer lives. Many of these Americans will be forced to continue to work. Some have wealth. However, statistically most of the wealth that these Americans possess is in the form of home equity; more than 80% of
those aged 65+ own their homes, and those homes are usually their major asset.
Federal Reserve Bank statistics from mid-2007 revealed $21 trillion in home value, less $10 trillion in related debt, for net home equity on a national basis of $11 trillion. Seniors aged 62+ accounted for $4.3 trillion of that total, and the much larger Boomer cohort even more. The inescapable conclusion is that maturing Americans must monetize home equity in order to self-fund longevity.
Monetizing options
Seniors have 4 choices.
Seniors have 4 choices.
- Sell…They could sell their homes and downsize or relocate, but then they would experience dimensions of displacement and discomfort.
- Refinance…They could refinance their traditional “first” mortgages, or take a “second” mortgage (HELOC), but in either case they would owe monthly payments that many could not afford.
- Share Appreciation…They could utilize “contract for sale” programs, pledging to sell and share appreciation, which can create huge windfalls to providers.
- Reverse Mortgage...For most senior Americans a reverse mortgage is the best, and often the only, financial product with which to finance longevity.
What’s good about reverse?
It’s safe.
A number of consumer safeguards are imbedded in a reverse mortgage transaction. Third party counseling, disclosure paperwork from multiple perspectives, transparent fee structure, the benefit is federally insured, and secure residency rights.
It’s flexible.
A reverse mortgage contains four flavors of flexibility. First, the manner in which a borrower may receive their benefit varies. Second, they may alter their benefit selection during the life of the loan. Third, the borrower may select from a rate menu that includes both adjustable and fixed rate options. Fourth, the repayment of the loan can be made at any time the borrower chooses in advance of a maturity event. Additionally, you may make periodic payments any time you wish. Yet, there is no payment mandate (short of a maturity event). This gives the borrower the option of treating this as they would a normally amortizable conventional loan with the obvious advantage being…the ease of obtaining a reverse mortgage.
It’s beneficial.
At its core, a reverse mortgage is a “cash flow” or liquidity tool. It transforms a fixed asset, the home, into cash…sort of a “bricks to bucks” transformation.
OK, the business is here to stay, but what about me?
suggestions:
It’s safe.
A number of consumer safeguards are imbedded in a reverse mortgage transaction. Third party counseling, disclosure paperwork from multiple perspectives, transparent fee structure, the benefit is federally insured, and secure residency rights.
It’s flexible.
A reverse mortgage contains four flavors of flexibility. First, the manner in which a borrower may receive their benefit varies. Second, they may alter their benefit selection during the life of the loan. Third, the borrower may select from a rate menu that includes both adjustable and fixed rate options. Fourth, the repayment of the loan can be made at any time the borrower chooses in advance of a maturity event. Additionally, you may make periodic payments any time you wish. Yet, there is no payment mandate (short of a maturity event). This gives the borrower the option of treating this as they would a normally amortizable conventional loan with the obvious advantage being…the ease of obtaining a reverse mortgage.
It’s beneficial.
At its core, a reverse mortgage is a “cash flow” or liquidity tool. It transforms a fixed asset, the home, into cash…sort of a “bricks to bucks” transformation.
OK, the business is here to stay, but what about me?
suggestions:
1. Don’t allow what’s going on in the market to paralyze you.1.
2. Adjust your game.
2. Adjust your game.
- a. Fix your fundamental flaws.
- b. Find your “true north” (individual or corporate).
3. Get to Work
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