By: Mark Schumacher, NMLS ID 519754; Mutual of Omaha Mortgage, Inc. NMLSID 1025894
Growing up I remember an advertisement on TV for cough medicine. The on-screen speaker said to the camera, “I’m not a doctor, but I play one on TV.” He then proceeds to speak on behalf of doctors assuring the consumer their product is the best fix for their cough. Well, I’m not a Financial Advisor, and not only have I not played one on TV, I’ve never even played one in a school production. So don’t take this as financial advice. This is more about practical thinking.
As I write this we are in the midst of March Madness so I’m going to use a basketball analogy. In basketball five players from each team play against each other. Basketball is a strenuous, tiring game, running back and forth, back and forth. A good team needs players that are in good physical condition. Players need to not only get up and down the court quickly but perform well while they’re doing it. It’s exhausting.
Sometimes when playing with friends we didn’t have an even number of players for each team. Because we didn’t want one of our buddies to have to sit and watch we’d have one team play a man short relative to the other team. Now, a player that tends to be a bit of a ball-hog might actually prefer being on the team that’s a player short because he will get to touch the ball more. That thinking might last about two minutes. Then the reality sets in that he’s got to work harder, run faster, jump higher to try to compensate for the missing player. It’s extremely exhausting.
When managing our finances we need our “players” to perform well. Think of our working years as training for the big game and the day we retire is the opening tip-off. We prepared as much as possible, and then it’s Game On!
Who are the players competing? Starting for the home team is a squad that’s been playing together a long time. We know these players. We’ve seen them in action. We feel good about what we can expect from them.
- Social Security is at point guard: takes care of the ball, gets it up the court.
- Pension is at shooting guard: can put it in the hoop from almost anywhere.
- Investment Portfolio is at power forward: stumbles sometimes but can really clear the lane.
- Insurance is at small forward: not to be underestimated; comes thru in the clutch.
- Home is at center: big man in the middle.
The challenging team is no slouch. They’ve been around a long time too and they aren’t going anywhere. Unpredictability may be their toughest quality. No telling what’s going to happen next. Their starters (in no particular order): Food & Clothing, Healthcare, Housing, Transportation, and Fun. Once the game starts they don’t rest. We (Home team) will need to execute well to be successful.
Not to pick a fight, but some teams use a strategy that might seem surprising. They leave their center on the bench for most of the game hoping that the Home asset won’t be needed. This can look good from Home’s perspective. He looks fresh, unencumbered and ready to go. The rest of the team – not so much. While Home is riding the pine his teammates are doing all the heavy lifting. This results in the teammates getting exhausted more quickly. By the time Home is brought into the game his teammates are spent and struggle to just run the court. Home’s impact on the game isn’t what it could have been. He wasn’t built to carry the load by himself and neither were his teammates. It takes a team effort with every player fully engaged to perform well at the highest level.
Home is the “big man” center because most of us invest more money into our housing than anywhere else. Reverse mortgage was created to be a tool that allows the house to “get in the game” and contribute to our retirement security. It’s an asset protection tool that works best along with other assets and not as a last resort. Each asset has particular strengths and weaknesses which is why it’s helpful to have the whole team working together toward the end goal.
A reverse mortgage is a home loan that doesn’t require a monthly mortgage payment. Instead of paying off the interest each month interest accrues to the loan balance for payback later. It comes due once the borrower no longer lives in the home. The homeowners are responsible for paying property taxes, homeowners insurance, HOA if applicable, and home maintenance. The FHA version has a minimum age of 62 but there’s a jumbo option that can allow down to age 55 for some. When the heirs inherit the house they decide if they want to keep it or sell it. Game On.
