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Solving Retirement Needs

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Solving Retirement Needs

  1. 1. Solving Retirement Needs Through Home Equity Access
  2. 2. Retirees Have Misconceptions About Solving Retirement Funding Problems 30% Work past age 65 39% 33% Reduce spending Move or downsize Home equity loan or reverse mortgage 40% of seniors are forced out of work early Most underestimate expenses during retirement 95% don’t move Additional 25% are considering using home equity 10% Expectation Reality 9% 12% 5% 11% 25% McKinsey & Company 2008 / Boston College 2007 2
  3. 3. A Real Opportunity … Home Equity <ul><li>70% of senior’s net worth </li></ul><ul><li>3 times their next largest asset </li></ul><ul><li>$4 trillion in aggregate value </li></ul><ul><li>Limited savings to maintain independence </li></ul><ul><li>2/3 are willing to use home equity to pay for needs </li></ul>Survey of Consumer Finances, Net Worth and Asset Ownership of Households (1995 to 2000) 74% 68% 71% 2 Age Age Age Total Net Worth (thousands)
  4. 4. Multiple Home Equity Options Exist <ul><li>Move down </li></ul><ul><li>Home equity loan </li></ul><ul><li>Equity Access / Reverse Mortgage </li></ul>Options <ul><li>Few want to move or sell </li></ul><ul><li>Monthly payments </li></ul><ul><li>Income and credit qualifications </li></ul><ul><li>Entry costs are high </li></ul><ul><li>Not a short-term loan </li></ul>Disadvantages <ul><li>Access to equity </li></ul><ul><li>Low entry costs </li></ul><ul><li>No scheduled repayments </li></ul><ul><li>Flexible benefit options </li></ul><ul><li>No negative equity guarantee </li></ul>Advantages 2
  5. 5. Benefits Of A Reverse Mortgage <ul><li>Flexible benefit options </li></ul><ul><li>Eliminates mortgage payment </li></ul><ul><li>Asset based lending </li></ul><ul><li>Protects against losing home </li></ul><ul><li>FHA Insured / Non-recourse </li></ul><ul><li>Tailor benefits to meet consumers’ needs </li></ul><ul><li>Increases monthly cash flow </li></ul><ul><li>No income or credit qualifications </li></ul><ul><li>Risk reduction … peace of mind </li></ul><ul><li>Home equity & estate protection </li></ul>Feature Benefit 3
  6. 6. Reverse Mortgages Are Misunderstood Lender owns home Myths Retiree continues to own the home Truths Must have significant equity Prepay at any time with no penalty Loan Balance is limited to home value Must own home free & clear Lender can force a move You can outlive the equity Difficult to reverse Owe more than home value 3 Not if retiree maintains home as principal residence, keeps current property taxes and home insurance Tenure options provide monthly payment through loan life
  7. 7. Comprehensive Retirement Planning Should Include Home Equity Asset Allocation Quality of Life Protection “ Financial firms that choose to ignore the home in the retirement planning equation will be doing so at their own peril.” McKinsey 8/2006 4 Cash Flow <ul><ul><li>“ Stay in home” option </li></ul></ul><ul><ul><li>Control & independence </li></ul></ul><ul><ul><li>Remove fear of losing home </li></ul></ul><ul><ul><li>Convert illiquid asset to cash flow </li></ul></ul><ul><ul><li>Extra cash improves daily living </li></ul></ul><ul><ul><li>Retire high cost consumer debt </li></ul></ul><ul><ul><li>Preserve assets under management </li></ul></ul><ul><ul><li>Less volatile asset class </li></ul></ul><ul><ul><li>Family member support </li></ul></ul><ul><ul><li>Mitigate spend down risk </li></ul></ul><ul><ul><li>Protect the home / estate </li></ul></ul><ul><ul><li>Manage longevity risk </li></ul></ul>                                                                                                                                 
  8. 8. <ul><li>Established relationship & trust </li></ul><ul><li>Knowledge of financial matters </li></ul><ul><li>Experience with retirees </li></ul><ul><li>Include home equity in a comprehensive retirement plan </li></ul><ul><li>Only 3% said their financial planner discussed home equity </li></ul>Professional Financial Advisors Preferred <ul><ul><li>L.E.K. / McKinsey </li></ul></ul>4 44% 3% Financial planners cited as most valued advisor Received advice from financial planner                                                                                                                                    

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