There is concern in the world now about rates of returns, portfolio performance and for those in or near retirement cash flow combined with outliving your money in retirement.
My guess is you have had more of these conversations in the first half of 2022 than maybe the year or years before, possibly even a decade.
So what is the plan? How will you create a road map that they can follow and still enjoy their Golden Years?
This is a discussion I have been having with my clients as well and of course I deliver advice for the other side of the balance sheet but the message is still similar. How can we create that safety net and help our clients with the concern of running out of money in retirement?
I start with this question that I shared with you last month: Is a mortgage getting in the way of someone retiring or putting them behind schedule for this magical date? How does Real Estate planning fit into Retirement planning?
In my last newsletter I shared with you the December 2021 article in the FPA magazine written by Phillip Walker, Barry Sacks and Stephen Sacks on the subject of including Home Equity as a Non-Correlated Asset in a Portfolio.
Here is the chart of portfolio’s described in the article and the performance with the use of a Reverse Mortgage Line of Credit during down cycles. IT IS ASTOUNDING! Sequence of returns risk is real and we are all dealing with it right now and this chart shows what is possible with a proper plan.
You can clearly see how different the value of the portfolio looks like when using home equity during a downturn in the market. Which leads me to this quote from the article:
Another essential tool for risk reduction, but one not adequately recognized by financial planners, is the inclusion of home equity in the retirement portfolio, as an asset along with, and similar to, investment securities. An essential aspect of the inclusion of home equity in the portfolio is a withdrawal strategy that, in a disciplined way, uses that asset.
This example shows what happens with the client uses the reverse line of credit twice during the past 30 years. One line is using it early during two down cycles another shows using it late during the 30 year period. Both much better than no use at all.
This is a key takeaway and I highlighted it last month and wanted to share it again:
The adverse effects of regularly distributing from a volatile portfolio can be substantially diminished by distributions from the home equity instead of the other portfolio assets whenever determined by the algorithm described.
That solution is the inclusion in the portfolio of another asset, one whose value is not correlated with the volatility of the securities’ values.
Thank you for taking the time to read this newsletter and I am here to help you and your practice in any way that I can. Let’s set up 15 minutes to discuss this newsletter and concept to see if there is a way to help your clients.