Financial Survival in Retirement – Annuities and Reverse Mortgages and Bonds… Oh My!

Financial options in retirement can be really overwhelming – especially if you haven’t had to deal with money before. Join us in discussion with financial expert Pam Krueger who has some great advice when it comes to reverse mortgages, annuities and taking back control of your finances. Enjoy the show!

Margaret Manning:

Today we are going to be inspired by my guest Pam Krueger. Pam is a financial and investing expert as well as an author and TV personality.

She is a co-host of the PBS series MoneyTrack and has developed a very interesting online tool called WealthRamp which connects consumers with fiduciary financial advisors. It’s great to have you here Pam.

Pam Krueger:

Thanks, Margaret.

Margaret:

Pam, you know we have a large community of women over 60 who are retiring or have retired. Besides their health, they are also thinking about money and financial security. Some have got no partner, no job, no money. Many have a house, still, but they are in transition.

They are looking at all these sometimes conflicting options about living the rest of their lives with enough money. What can you tell us about the landscape in which we often find ourselves?

Pam:

When the time comes for us to decide to either stop working altogether or perhaps transition in some way to a different kind of job, we should realize that the next 20 – 30 years will look very different in terms of earning money and working. This is the time to focus on the things that you have.

If you have good health but you don’t have adequate savings, so what? You know that you have the power to continue to earn money. Except, now instead of working for someone you didn’t even like, you can go do something that you enjoy even if it doesn’t pay as much.

It’s true, you are going to live on less. However, you can be happier living on less when you have the power to get up every morning and choose where you put your time and how you get paid and enjoy that experience.

At the same time, you are supplementing your income while whatever savings you do have, is not getting touched. For every year you put off stopping to work, you are not touching the money that you have already saved. Additionally, working makes it more possible for you to add to those savings.

If you’re house rich, cash poor then you have some options. No matter the amount of your savings, your marital situation or other factors, before you retire – or before you quit your day job – is the time to consider those options.

Are you going to continue working, albeit at a lesser amount? Do you really want to keep this house? You may love the house, and it may mean the world to you, but is it killing you to own it?  \

When you thoroughly look at your situation, then you can consider the kinds of financial options that are out there for you. These options are your tools that you can reach for when you need them, like reverse mortgages and annuities.

If you own your house (or a big chunk of the equity), you can sell it as reverse mortgage to a financial institution. Of course, that will come with a cost. The basic idea is this: by taking out a reverse mortgage, you are getting the institution to pay you monthly, while you get to stay in your house.

The key point in this scenario is that you’re locking yourself to stay in the house for the rest of your life. So it’s only going to work for people who know they won’t be going to assisted living, who know they will stay in their house until they die and their heirs are okay with the equity being sold back to the bank.

This is a tool for people who have a very specific situation. However, there are a lot of other ways that people can accomplish what they are trying to do with a reverse mortgage without having to completely limit themselves to the restrictions that the reverse mortgages put upon you.

Margaret:

I think a very important part of it is taking back control over your decisions. Whatever option you choose, whether it’s reverse mortgage or a different product that a financial institution is trying to sell to you, you must realize that this is your decision to make.

It’s okay to go for a reverse mortgage as long as you know that it puts you in control of your money. But always remember that there are two sides to any financial decision.

Pam:

Yes, you have the power to make an educated decision about your financial situation. So, let’s just say you have a little bit of savings and you also own a house to which you are emotionally attached. This is the typical scenario in which many women find themselves.

Your greatest enemy in this scenario is yourself, when you willingly give up your power to make a decision and instead buy into what you want to hear and what you’re being told is best for you. This kind of thinking, along with the little amount of savings in your account, puts you in a position of weakness.

However, when you need to make financial decisions, you need to come from a point of strength. You don’t want to settle for a financial decision that may not be the best for you. The worst thing you could do to yourself is to think, “I don’t have any other options. That’s all that’s left for me.”

Margaret:

Our generation and the ones that follow are very consumer focused. We’ve lived all our lives thinking that buying stuff will solve a problem. We’ve trusted salespeople thinking they gave us good advice, and so forth. Now that we’re in our 60s, we know that no one is working in our best interest.

What about annuities? There are people who think annuities may be a good option for them.

Pam:

An annuity, just like a reverse mortgage, is a very specifically engineered and manipulated tool. People often think annuities are the same as investments. They are not. With investments, your money works for you in a way that generates more money.

Annuities, just like reverse mortgages, are good for a very small percentage of the population. They are like a loan that is fraught with limitations and restrictions, and it’s got all sorts of fees. An annuity is a contract with an insurance company, it’s not an investment.

Here’s an example: You go to an insurance company and take out an annuity with them, that is, you give them your savings to manage. In return, in 20 years down the road they are going to give you back your money in a stream of payments.

They were supposed to invest that money and make it grow – and they might – but you will take a huge cut along the way.

Margaret:

Yes, in commission.

Pam:

No, not only in commission. Every single year, 2 – 3 percent will be due in fees which will knock off a huge chunk of your money. Sure, you thought it was a good decision because it guaranteed you a string of income, but all those years you couldn’t touch your money, or you got penalized if you did.

Most people go into these engineered manipulated packaged types of products because they are sold as investments. They are not investments. They are a tool to use only under certain circumstances. Only under certain conditions do you use a reverse mortgage or annuity.

Honestly, you can get the same kind of benefit on your own, when you let go of the guilt of not being able to save up enough for retirement. So what? Who cares? Stuff happens along the way; it’s not like you didn’t think about it. You probably had kids, you had to pay for college tuition, etc.

You did what you had to do at the time, right? Now you are here with a healthy mind and body. You can choose to continue to work as long as you can at something you love and supplement your income.

Sit down with a real fiduciary financial advisor and look at all of your options. You can consider selling your house, investing some of what you’ve saved, etc. Focus on what you have, not on what you don’t have.

Margaret:

It might be useful to mention that there is a big difference between a financial advisor and a fiduciary advisor. Pam’s web tool, WealthRamp, is the place to go to find the fiduciary advisor that is a perfect match for you.

WealthRamp is a tool that matches you and your specific needs with someone who is a fiduciary advisor. They are required by law to put your interests first and not to sell stuff to you to benefit them.

Pam:

Thank you. Here’s why this is so important. When you sit down with someone who’s from a brokers’ firm or insurance company, they will tell you exactly what you want to hear. They will tell you they have the magic solution tool – the reverse mortgage or the annuity – that can solve all of your problems, when in fact, they are selling you a product.

Instead, you want to go to an impartial agnostic financial advisor who is a fiduciary, that is, legally bound to put your best interest first. When you sit down with them, they’ll give you your options – be it reverse mortgage, annuity, investment, bonds, or whatever – along with the conditions, fees and the entire math of it.

That’s how you know you’re having an actual consultation with a real advisor. You’re paying them, sure, but you know exactly how much, and you’re getting valuable advice for your money.

I think the best time to have that consultation is at the gateway of retirement, so you will know your options and you won’t get sucked into all those products that may not be good for you. That’s when you’re in control and you will make your decisions out of strength not out of weakness.

We only feel like we are strong when we have a lot of money in the bank. That’s not true. You are strong right now. You can choose the right options for you, so find the time and sit down with somebody who’s on your side. They will give you all your options to help you make an educated financial decision.

Margaret:

Thank you for the advice, Pam. This is the best discussion I’ve had about finances. You’ve made it all real and down to earth.

I think it’s so important to not let money get to you and control your decisions. You are in control, you get to decide whether to invest or to use those other options like annuities and reverse mortgages and such. Do what’s right for you.

Thank you, Pam. You’ve done a wonderful job with all of this.

Do you feel strong enough to make your own financial decisions? Do you have a house you’re emotionally attached to but is bringing you down? What do you think you should do to take back control over your own finances? Please share your thoughts with the community.