Reconsidering Reverse Mortgages

 I always thought of reverse mortgages as a last resort for retirees who had spent down their retirement savings and needed more income in retirement.  The reason why I felt this way, and perhaps why a lot of people had learned to dislike these products, was because of the high fees and interest embedded in the product.  However, with recent changes to various mortgage programs, it may be worth taking a closer look.

Last resort or income stream?

Let’s begin by first looking at how these products used to work and why they typically weren’t advisable except as a last resort.  For a lot of retirees, one of their largest assets is the equity in their houses.  Unfortunately, other than providing shelter, a house doesn’t have a lot of financial benefit.  You might still carry a mortgage in retirement; you pay property taxes, home owners insurance, utility bills, and the occasional home repair.  All of these are money out of your pocket, but when is the last time your house paid you?  Enter the reverse mortgage….a potential way to create an income stream (or lump sum) which can turn the house into a more meaningful asset rather than a money pit.  Everything sound good so far?  Not so fast! The problem is that, in the case of a married couple, the bank used to come knocking at the first death and demand repayment of the income stream plus interest that had been accruing the whole time.  Can’t afford to pay that back all at once? No problem…the bank will just sell the house from under you, take their money back, and give the survivor the remainder (if any) so they can go and try to find a new place to live.  All of a sudden this program doesn’t sound so good.

Reverse mortgages get a make-over

This idea of the survivor losing their house was the primary reason why I rarely recommended clients consider these products in a serious manner. However, in 2013 there were major revisions to how a lot of these products were structured. The fees still seem to be fairly high, but no longer is the bank able to sell the property out from under the survivor.  Now the repayment of the loan isn’t due until both people have died.  With these new changes, it may be worth taking a look at tapping into your home’s equity, knowing that you and your spouse won’t have to leave your house unless you want to.  Work with your financial professional to understand more fully if this type of product might make sense for your specific situation.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. This is not a solicitation or recommendation for a reverse mortgage strategy. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. There are significant costs associated with Reverse Mortgages, such as: up-front mortgage premium, annual premium, origination fee, closing costs, monthly services charge, and appraisal fees. There are significant risk associated with Reverse Mortgages. Generally, the homeowner is still obligated to pay taxes, insurance, and maintenance and if the borrower moves, the loan becomes due, and the total amount due may be larger than anticipated or planned for. Medicaid may also be affected. C14-040266


SRI: Investing in your Ideals & Values

 Socially responsible investing (SRI) is a rapidly expanding option in the investment arena.  This includes Environment, Social and Governance (ESG) criteria in the stock and bond selection process.  This approach to investing looks beyond simple financial return, allowing individuals and institutions to express their personal values and ideals with their investments.

Millennials more interested in ESG strategies

We are starting to see generational differences in investing as younger high net worth investors are more interested in expressing their values through investing.   For example, in a survey conducted by U.S. Trust Insights, 63% of Millennials (individuals born between 1980 and 2000) are interested in owning socially responsible strategies versus just 35% of the total number of responders.  These investors believe that they also don’t have to give up returns in order to do so as 60% believe it is possible to achieve market rates of returns while investing in ESG strategies.

Source: U.S. Trust Insights on Wealth and Worth Annual Survey

The Center Expands ESG Recommendations

Based on increasing demand from our clients, our investment committee and research department have expanded our recommended list to include companies that offer these types of investment strategies.  Having applied our same rigorous due diligence process to these selections, we feel we have an excellent combination of managers in a variety of asset classes that will allow our clients to express their ideals in the way they invest their assets (see our recent blog on this).  If you are looking for ways to express your values through your investments don’t hesitate to contact us!

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well as investment updates at The Center.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. Material is provided for informational purposes only and does not constitute a recommendation. C14-040265


"The Other Talk"—Expressing Your Plans for Aging

 Remember that all-important rite of passage? Having "the talk" with your kids about the birds and the bees? You thought for weeks...maybe months...about the words you would choose, how you would answer the challenging questions and handle the emotions involved. Now might be the time to experience another rite of passage, and have “the other talk" with your children about your plans for your life as you age.

A Helpful Conversation Starter

Holidays are a time when families gather together from near and far; a rare time when parents and siblings are gathered together to catch up on developments of the past year. Before your holiday gathering, take the time to think about how you might bring up the topic of your life as you get older, and how your family can help to support you. A book recently released by the AARP, titled "The Other Talk: A Guide to Talking with Your Adult Children About the Rest of Your Life," might help you to prepare you for this conversation. When you have “the other talk” you’ll want to communicate your current situation, as well as express your wishes for your future living situation and care.

Steps to Prepare for the Talk

In addition to reading the book, here are a few action steps to take to prepare for "the other talk":

Get your records in order: Click hereto use our Personal Financial Record Keeping Document to document things like your insurance policies, your investment accounts, your estate planning documents, the professionals your work with, etc. In addition, gather information about your doctors, medical conditions and medications.

Prepare the paperwork: Gather copies of your current estate planning documents, and consider providing copies to your children.

Cover the bases: Use our Future Care Checklist to determine what topics you might need to discuss and plan for that your haven't already thought of.

If you feel that it might be easier or more productive to hold a family meeting with a facilitator, contact your financial planner to schedule this meeting. Having "the other talk," whether on your own at holiday time or facilitated by your financial planner, will help you address the important issues about your aging in advance of a crisis, allowing you the time and the space to enjoy your life and your family.

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012-2014 Sandy has been named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served. C14-040146


Benchmarking in Investing: Tools to track relative performance

 Ever wonder how to know whether your portfolio is performing well?  Some people will simply look at the overall return, and if it’s higher than their neighbor’s, they figure they are doing well!  However, simply looking at the bottom line rate of return doesn’t tell the whole story because returns are directly related to how much underlying risk you have taken in the portfolio. To an amateur investor an annual rate of return of 7-8% might feel good, but a professional looks at how much risk you had to take to achieve such a result.  One method everyone should use to better understand the relative performance of an individual portfolio is referred to as “benchmarking”. 

Performance tracking methods

A few commonly used benchmarks for large U.S. stocks are the Dow Jones Industrial Average and the Standard & Poor’s 500 index (more commonly known as the S&P 500).  You will hear these two indexes referred to constantly in the news. If you hear the Dow was up 100 points, you may find yourself checking how your portfolio’s performance compares.  The problem with this is that you might not own anything in your portfolio that looks anything like the Dow Jones Index. This is why you need to understand what makes up your portfolio and what indexes to track to understand relative performance. 

Benchmarking Best Practices

Hypothetically, let’s say you have a portfolio that looks like this:

30% Large International Stocks

30% Large U.S. Stocks

40% highly rated U.S. corporate bonds   

You look at the annual return for the Dow Jones, see that this particular index was up 9% at the end of the year, and then check your portfolio’s overall return to see that it was only up 4%.  Before you rush to the phone to fire your financial advisor, first get the full picture!  Your portfolio only has 30% of the money invested in Large U.S. companies and 70% of the money invested elsewhere. To expect 100% of the money to perform the same as the Dow Jones is highly unrealistic.  Instead, you should look at a few other “benchmarks” that are commonly used in financial circles to track different types of stocks and bonds.

Here is a list of benchmarks to track different asset classes to help you make a fair comparison about your portfolio’s performance compared to the types of risk you took:

S&P 500-  Large U.S. Stocks

Russell 2000- Small U.S. Stocks

MSCI EAFE- International Stocks

Barclays Aggregate U.S. Bond Index- U.S. Bonds

Back to the example, our hypothetical investor decides to look up the returns for the Barclays Aggregate Index and MSCI EAFE since he has money invested in those types of asset classes as well as Large U.S. Stocks.  Our investor sees that bonds actually had a negative 2% rate of return for the same time frame, and that the MSCI EAFE was essentially flat.  So 30% of his money he expects to be up somewhere near 9%, 30% of his money he expects to be right around 0%, and 40% of his money he expects to be down 2%. 

Putting Performance Benchmarking to Work

If our investor had $100,000 at the beginning of the year invested in our hypothetical portfolio here’s how it breaks down:

Add it up and the ending portfolio balance is $101,900 or a rate of return of 1.9%.  When you understand the whole picture, you might be more satisfied with a 4% return knowing that a portfolio with very similar holdings should only be up about 1.9% according to the benchmarks.

Talk to your financial advisor to find out what makes up your portfolio and what benchmarks to use for your particular situation.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. The Dow Jones Industrial Average is an unmanaged index of 30 widely held securities. It is not possible to invest directly in an index. C14-038979


Capital Gains: Minimizing Your Tax Drag


The difference between the tax man and the taxidermist is the taxidermist leaves the skin."  Mark Twain

As the bull market marches on, many investors find the capital losses they have carried over since 2008 are gone.  Likewise, many investment companies that have earned 5 years of steadily positive returns are finding themselves in the same situation. While these positive returns have had meaningful impact on achieving our financial goals, we are going to start feeling them in the checks we have to write to the government. 

According to a Morningstar and Lipper study, the average annual tax drag on returns for investors is .92% for owners of U.S. equities.  This means that if you average 10% a year returns in your equities, the amount you put in your pocket is 9.08% after you pay the government its share.  From 1996 to 2000, during the extreme run up of the tech bubble, the average tax drag per year was 2.53%1.  This can happen when there has been no bear market or correction for many years.  We would argue it is happening again now.

4 Tips for Managing Taxes

Perhaps the key at this stage of the game is not to avoid taxes but to take many small steps to manage them.  There are several key steps that we utilize in managing portfolios to also minimize taxes.

1. Asset Location:  Place your least-tax-efficient, highest returning investments in your IRA or 401(k).

2. Loss Harvesting: Continually monitor your taxable accounts for losses to harvest rather than only looking in the last quarter of the year. 

3. Maximize contributions to tax-deferred retirement accounts:  This directly lowers your taxable income when maximizing your contributions to 401(k) plans at work.

4. Harvest gains:  In the long run, taking gains during years your income is lower than normal can potentially reduce the amount of taxes paid to the government over a lifetime.

While paying attention to expenses always seems to top the headlines, taxes are just as big of a drag to long-term investor returns. Consult a tax advisor about your particular tax situation.

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.


This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Raymond James does not provide tax advice. C14-036848