Wade Pfau & Reverse Mortgages

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macav933
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Wade Pfau & Reverse Mortgages

Post by macav933 » Wed Apr 17, 2019 9:29 am

Interested in everyone’s thoughts on using a Reverse Mortgage as an way to delay SS to 70. As far as my situation it would lower my WIthdraw Rate to 1.5% ....down from4.5% during the important early years in retirement. 8 years of not touching your portfolio is intriguing as a way to dampen Sequence of Returns. Wade Pfau just updated his book on the subject and I plan on reading it.
Tom

michaeljc70
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Re: Wade Pfau & Reverse Mortgages

Post by michaeljc70 » Wed Apr 17, 2019 9:45 am

I wouldn't unless absolutely necessary due to the fees. A 4.5% withdraw, assuming a balanced AA, is pretty reasonable especially if over a short period.

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David Jay
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Re: Wade Pfau & Reverse Mortgages

Post by David Jay » Wed Apr 17, 2019 9:46 am

The problem with this plan is the decades of accrued interest (interest continues to accrue until you leave the home) from the reverse mortgage borrowing. A 4.5% withdrawal rate for 8 years before start of SS is perfectly acceptable. I have an 7% withdrawal rate for the next 5 years.

There is confusion about sustainable withdrawal rate with delayed claiming of SS benefits. I prefer to calculate the SWR starting at age 70 and then just “expense” the years between retirement and age 70 (i.e. set aside a pool of money to fund those years). I call this the “stages” approach. I did a webinar on this in February, it will be posted soon (I hope) on Virtual Bogleheads.
Last edited by David Jay on Wed Apr 17, 2019 9:58 am, edited 1 time in total.
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Dandy
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Re: Wade Pfau & Reverse Mortgages

Post by Dandy » Wed Apr 17, 2019 9:49 am

I would read Wade's book - he seems to have great analyses of these type of topics.

I am uneasy about the product for most people - think there is a lot of room for over selling this product and making lots of money for the sellers.

I have no specifics just get that feeling when a complex product is being pushed for mostly retirees. The pitch is money so you can stay in your home - sounds great. You still have to keep it up - if not then what? If you have to leave whether for health reasons or just want to move to a place closer to children - how much of the original value are you likely to get? e.g. who sets the selling price -the bank? If so they want to get their money and move on vs maximizing the selling price. It just seem rip for rip off. Though in some cases might be a good deal.

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White Coat Investor
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Re: Wade Pfau & Reverse Mortgages

Post by White Coat Investor » Wed Apr 17, 2019 10:09 am

I think that's a bad idea. Wade has had some interesting ideas about whole life insurance and reverse mortgages lately, but I'm not sold on them, especially when he takes insurance company money to write them.
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willthrill81
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Re: Wade Pfau & Reverse Mortgages

Post by willthrill81 » Wed Apr 17, 2019 10:52 am

Wade Pfau's emphasis on reverse mortgages and SPIAs seems to be far more relevant to and appropriate for those with small portfolios who hold most of their assets as home equity. But for typical Bogleheads who have accumulated sizable portfolios, this type of advice seems only appropriate as 'plan C'.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

ThrustVectoring
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Re: Wade Pfau & Reverse Mortgages

Post by ThrustVectoring » Wed Apr 17, 2019 12:15 pm

Reverse mortgages and SPIAs are definitely a thing for when you'd otherwise not have enough money for your retirement. If you can afford it, it's far better to hold a standard portfolio sized for post-SS spending and then do liability matching for the gap between retirement date and social security date.

Worked example for clarity about what I'm saying:

Annual real expenses: $40k
SS real income after age 70: $20k
Retirement Age: 65 (so 5 gap years)
Portfolio Size: $600k

Strategy: set aside $500k (post-SS annual withdrawal * 25 = 4% withdrawal rate) in a standard 3-fund portfolio. Buy $100k of short-term TIPS to cover the extra $20k/yr of withdrawals you need between ages 65 and 70 due to delaying social security.
Current portfolio: 60% VTI / 40% VXUS

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