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Reverse Mortgages, SPIAs and Retirement Income: Tomlinson

Joe Tomlinson published research combining reverse mortgage and Single Premium Immediate Annuities (SPIAs) in retirement income planning: Tomlinson 20150414 Advisors Perspectives. He says “Retirees need longevity protection and additional funds. Annuities and reverse mortgages can meet those needs. While annuities have been researched extensively, reverse mortgages haven’t received as much attention. We need research on how to fit these two products together in overall retirement plans. I’ll launch that effort here.”

Joe analysed two ways to use reverse mortgage payouts along with investment portfolio withdrawals: a line of credit or monthly tenure payments starting at inception. He used these two payouts either alone or together with a single premium immediate annuity funded from the portfolio. In his first study he concludes: “For an individual who wants to generate as much income as possible and is not concerned with leaving a bequest, the reverse mortgage options are clearly superior to the SPIA. If the individual has a bequest motivation, the decision comes down to evaluating the tradeoff between bequest and income.” He builds on these results in various ways to round out this paper.

Note: when reading the article, please also read the comments attached at the end – the reverse mortgage fees mentioned in the article are far higher than found in actual loans in the marketplace.

Joseph A. Tomlinson is a co-editor of the Journal of Personal Finance, and is both an actuary and a financial planner. For more background, see http://www.josephtomlinson.com

The study and comments are presented here by gracious permission from Joe and Robert Huebscher of Advisor Perspectives.

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