A 'reverse' mortgage is a loan against your home that you d

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OTHER CRITICAL ASSUMPTIONSIN DEVELOPING A
FINANCIAL PLAN
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CRITICAL ASSUMPTIONS (Continued) Pre-tax rate of
return Tax rate Social security Company
retirement plans Other assets
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INVESTMENT RATE OF RETURN Historical
Returns (1932-2006) Small cap
stocks 13 Large cap stocks 10 Fixed
income securities 6 Treasury securities
5.5
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HISTORY OF FEDERAL INDIVIDUAL INCOME TAX
RATES Bottom and Top Bracket Rates Bottom
Bracket Top Bracket Rate Income Rate Income YE
AR () up to () over 1913-15 1 20,000 7 500,0
00 1916 2 20,000 15 2,000,000 1917 2 2,000 67
2,000,000 1918 6 4,000 77 1,000,000 1919-20 4 4
,000 73 1,000,000 1921 4 4,000 73 1,000,000 192
2 4 4,000 56 200,000 1923 3 4,000 56
200,000 1924 1.5 4,000 46 500,000 1925-28 1 4
,000 25 100,000 1929 4 4,000 24 100,000
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Bottom Bracket Top Bracket Rate
Income Rate Income YEAR () up
to () over 1930-31 1 4,000 25 100,000 1932-33 4
4,000 63 1,000,000 1934-35 4 4,000 63
1,000,000 1936-39 4 4,000 79
5,000,000 1940 4.4 4,000 81
5,000,000 1941 10 2,000 81
5,000,000 1942-43 19 2,000 88 200,000 1944-45
23 2,000 94 200,000 1946-47 19 2,000 86 200,000
1948-49 17 4,000 82 400,000 1950 17 4,000 91
400,000 1951 20 4,000 91 400,000 1952-53 22 4,00
0 92 400,000 1954-63 20 4,000 91 400,000 1964
16 1,000 77 400,000 1965-67 14 1,000 70 200,0
00 1968 14 1,000 75 200,000
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Bottom Bracket Top Bracket Rate
Income Rate Income YEAR () up
to () over 1969 14 1,000 77 200,000 1970 14
1,000 72 200,000 1971 14 1,000 70 200,000 1972-
78 14 1,000 70 200,000 1979-80 14 2,100 70 212,
000 1981 14 2,100 69 212,000 1982 12 2,100 50
106,000 1983 11 2,100 50 106,000 1984 11 2,100
50 159,000 1985 11 2,180 50 165,480 1986 11 2,
270 50 171,580 1987 11 3,000 38
90,000 1988 15 29,750 28 29,750 1989 15 30,95
0 28 30,950 1990 15 32,450 28 32,450
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Bottom Bracket Top Bracket Rate
Income Rate Income YEAR () up
to () over 1991 15 34,000 31 82,150 1992 15 3
5,800 31 86,500 1993 15 36,900 40 250,000 1994
15 38,000 40 250,000 1995 15 39,000 40 256,500
1996 15 40,100 40 263,750 1997 15 41,200 40 2
71,050 1998 15 42,350 40 278,450 1999 15 43,050
40 283,150 2000 15 43,850 40 288,350 2006
38 ???
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INGREDIENTS OF A GOOD FINANCIAL PLAN
1. Financial goal 2. Income projection
3. Inflation 4. Assumed retirement
age 5. Mortality assumption
6. Pre-tax rate of return 7. Tax rate
8. Social security 9. Company
retirement plans 10. Other assets
11. General types of investments (at
beginning) 12. Types and amounts of
insurance (at beginning) 13. Revision
plans
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• What is a balanced plan?
• Possible adjustments to make a plan balance
• Less expensive home
• Lower income expectations
• Work longer
• Sell assets
• Obtain reverse mortgage
• Pension maximization

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REVERSE MORTGAGES A "reverse" mortgage is a loan
against your home that you do not have to pay
back for as long as you live there. With a
reverse mortgage, you can turn the value of your
home into cash without having to move or to
repay the loan each month. The cash you get
from a reverse mortgage can be paid to you in
several ways 1. all at once, in a single
lump sum of cash 2. as a regular monthly
cash advance 3. as a "creditline"
account that lets you decide when and how
much of your available cash is paid to you
or 4. as a combination of these payment
methods. No matter how this loan is paid out to
you, you typically don't have to pay anything
back until you die, sell your home, or
permanently move out of your home. To be
eligible for most reverse mortgages, you must
own your home and be 62 years of age or older.
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If you currently owe any debt on your home, and
do not pay it off before getting a reverse
mortgage, you must take at least that amount as
a lump sum advance at closing, and use it to pay
off your debt at that time. This would reduce
the amount of cash available to you in a single
lump sum, creditline or monthly advance. If you
do not qualify for enough cash to pay off any
debt on your home at closing, you cannot get a
reverse mortgage.For example, if you still owe
20,000 on a mortgage or home equity loan and do
not pay it off before closing a reverse mortgage,
you would have to qualify for at least 20,000
in a lump sum from a reverse mortgage, and then
use it to pay off your debt at closing. If you
qualify for more than 20,000, you could take the
rest in cash at closing, leave it in a
creditline, or take it as monthly advances.
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DIFFERENCES FROM OTHER HOME LOANS To qualify for
most loans, the lender checks your income to see
how much you can afford to pay back each month.
But with a reverse mortgage, you don't have to
make monthly repayments. So you don't need a
minimum amount of income to qualify for a reverse
mortgage. You could have no income and still be
able to get a reverse mortgage. With most home
loans, you could lose your home if you don't make
your monthly payments. But with a reverse
mortgage, there aren't any monthly repayments to
make. Therefore, you can't lose your home by not
making them. Most reverse mortgages require no
repayment for as long as you or any
co-owner(s) live in the home. With a reverse
mortgage, you are taking the equity out in cash.
With a reverse mortgage your debt increases
and your home equity decreases. The reverse
mortgagee can never owe more than the value of
the house. It is a non-recourse loan.
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Eligibility Repayment The Home Equity
Conversion Mortgage (HECM) is the only reverse
mortgage insured by the federal government. HECM
loans are insured by the Federal Housing
Administration (FHA), which is part of the U.S.
Department of Housing and Urban Development
(HUD). The FHA tells HECM lenders how much
they can lend you, based on age and the home's
value. The HECM program limits the loan costs,
and the FHA guarantees that lenders will meet
their obligations.
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HECMs Versus Other Reverse Mortgages HECM loans
generally provide the largest loan advances of
any reverse mortgage. Often they provide a lot
more cash than any other program. HECMs also
give you the most choices in how you can have
the cash paid to you. The money from a HECM can
be used for any purpose. Although they are not
cheap, HECM loans can be much less costly than
the other reverse mortgages that can be used for
any purpose. Generally, the only reverse
mortgages that cost less than HECMs are ones
offered by state or local governments. These
loans typically must be used for one specific
purpose only, for example, to repair your home,
or pay your property taxes. They also generally
are available only to homeowners with low to
moderate incomes.
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Who is Eligible HECM loans are available in all
50 states, the District of Columbia, and Puerto
Rico. To be eligible for a HECM loan 1.
The owner, and any other current owners of the
home, must be aged 62 or over, and live in your
home as a principal residence 2. The
home must be a single-family residence in a 1- to
4-unit dwelling, a condominium, or part of a
planned unit development (PUD). Some
manufactured housing is eligible, but
cooperatives and most mobile homes are not
3. The home must be at least one year old and
meet HUD's minimum property standards, but you
can use the HECM to pay for repairs that may be
required and 4. The owner must discuss
the program with a counselor from a
HUD-approved counseling agency.
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Repaying a HECM As with most reverse mortgages,
the owner must repay a HECM loan in full when
the last surviving borrower dies or sells the
home. The loan balance, including any fees and
accrued interest, must be repaid. Normally this
is done by selling the home, but there are
other options, such as a conventional mortgage or
refinancing. It also may become due if 1.
the property to deteriorates, except for
reasonable wear and tear, and the problems or
not corrected or 2. all borrowers
permanently move to a new principal residence
3. the last surviving borrower fails to
live in the home for 12 months in a
row because of physical or mental illness
4. the owner fails to pay property taxes or
hazard insurance, or violate any other borrower
obligation.
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HOW MUCH CAN A PERSON GET FROM A REVERSE
MORTGAGE? The amount that can be received
depends on 1. The client (or clients)
age(s). 2. The amount of equity in the
home. 3. The interest rate and fees that are
involved. 4. The type of mortgage program
selected.  
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EXAMPLE Male, single owner, aged 73 with a
home worth 200,000 would receive A
single lump sum advance at loan closing of
106,428 OR a creditline account of 106,428
that lets you withdraw cash at any time, (that
grows larger each year by 7.52 so, if unused,
available credit in 5 years would be152,914 or
219,703 in 10 years) OR a monthly loan
advance of 743 for as long as you live in your
home, OR any combination of a lump sum
advance, creditline account, and monthly loan
advance.
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BENEFITS FOR THE POOR Long-term care
expenses Supplement retirement income
Home repairs/modifications Pay off debt
Prevent foreclosure BENEFITS FOR THE WEALTHY
(in addition to above) Layoffs/pension
defaults Estate planning Charitable
giving
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COMPARE TO SELLING THE HOUSE Many homeowners
become interested in reverse mortgages so they
can stay in their own homes. Selling their homes
and moving elsewhere are generally not very
appealing to most older people. The single
best way to evaluate a reverse mortgage is to
compare it to what may be the only real option
selling your home and using the proceeds to buy
or rent a new home.
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PENSION MAXIMIZATION The normal form of
benefit in a retirement plan is a Joint and ½
Annuity. Client can select a less expensive
form of payment (e.g., life annuity with no
guarantees). This will increase retirement
income significantly. Both spouses must
sign. EXAMPLE Bob and Sue can take 3,000 per
month from the plan as a J ½ annuity. If
they change to a life annuity, their monthly
income can increase 700 per month. However, if
Bob dies Sues income will be zero. Therefore,
buy life insurance on Bob that will provide
1,500 per month for Sue. If the life insurance
costs less than 700 per month they will be
ahead.