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If anyone does not provide for his own, and especially for those of this program. But Harlan has another feather in his cap. He's also the author of Home Equity and Reverse Mortgages, the Cinderella of the Baby Boomer Retirement. Harlan, great to have you with us. Awesome to be here. Thank you. Absolutely. Harlan, why are reverse mortgages the Cinderella of retirement planning?
Let's start there. Well, when I was writing my book, I was looking for a title that would make sense and came upon Cinderella because I read a definition of Cinderella. She was not expected to be the star of the ball. And the definition said she's defined as one who unexpectedly achieves recognition or success after a period of obscurity and neglect. And that really resonated with me because this safe government insured reverse mortgage actually didn't come out until Reagan's term in 1988.
And it's really been something that has been maligned and kind of pushed to the side and been obscure. And yet it has the potential to help so many, and especially widows. And that's one of the reasons that I got into the business 20 years ago to be of help to those who are living longer and be aware of the financial tools that can help them live a productive and happy retirement.
Yeah, I appreciate that, Harlan. And I think you take a really thoughtful approach to reverse mortgages. Let me just say, you've probably heard me talk about the fact that we want to get out of debt, that there are clear warnings and scripture around debt. And so we should try to be out of debt completely. And certainly if that's our conviction, we need to live a debt free life.
But I think the opportunity here that we'll talk about today is in light of that, seeing a reverse mortgage as a legitimate planning tool in some situations. And I think today's topic talking about widows is certainly one of those. Harlan, give us a sense of the typical financial condition of many widows.
Well, it shocked me when I saw these statistics, and I'll just kind of reel off several of them. Many widows end up in poverty, and most of them have never been there before. At age 85 and older, 71 percent are women. About 20 percent of women over 65, single women over 65 are in poverty.
And that number is increasing. Half of women over 65 are single, and most live only in Social Security. And, you know, 50 percent of women live into their 90s. Well, only about 30 percent of men make it into their 90s. And women are four times more likely to outlive their spouses. And 85 percent of people over 85 are widows. And I think the biggest thing as it relates to money is after a spouse's death, income usually decreases by more than 40 percent because only one Social Security check continues for the surviving spouse, which is usually the widow.
So when I read these, I was I was just very concerned and feeling so bad. And especially as I have been in this business, seeing and sitting at the kitchen table with many of these women, it just amazes me that there isn't more of a concern because a lot of times they're just quiet about it. Yeah, we certainly hear from many of them on this program. And just around the corner, Harlan, I know you'll give us some examples, even tell us some stories of a couple of widows that might apply here. Also, we'll talk about the Social Security implications. What about long term care and the need for insurance? What about how this might affect our giving? We'll talk about all of that and more. But the bottom line, Harlan, is peace of mind.
Let me just ask quickly before we hit this break. Have you seen peace of mind grow when you've used a tool like this in the case of a widow? Without question, it's dramatic. Not only does their peace of mind increase, so does their giving because they found this additional amount of money that's actually sitting right there in their living room.
Yeah, no question about it. We're sitting on this major asset. If income is needed, you know, perhaps this is a tool. We're talking today with Harlan Akula. He's with Movement Mortgage, an underwriter of this program. Today, our topic, widows and possibly reverse mortgages as a planning tool financially. We're going to take a quick break when we come back. Much more on this topic is just ahead than your calls at 800-525-7000.
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Joining me today, Harlan Akala. He's with Movement Mortgage, an underwriter of this program. He's also the author of the book Home Equity and Reverse Mortgages, the Cinderella of the Baby Boomer Retirement.
Just before the break, Harlan was giving us some stats around the financial condition of many widows, often in a difficult financial spot. And we're talking today about reverse mortgages, a tool that is often misunderstood. In fact, I would often say we should see reverse mortgages as really something that we look to only when we run out of other options, because so often we want to get debt free. And if so, that's great.
I think that's a very appropriate goal. And yet, I think reverse mortgages are often overlooked as a possible tool in this season of life, if your needs line up with possibly using one of these tools. So Harlan, as we dive back in, perhaps you could tell us a story or two, maybe a tale of two widows that would give us a sense of how this can be used. Yeah, the third chapter of my book, Rob, was about Diane and Bob and Linda and David, the tale of two widows. And Linda and David had planned ahead as far as when they were going to draw Social Security, how they were going to spend their money, how they were going to do their giving. And instead of waiting for a reverse mortgage as a loan of last resort, which most people do, they put it into their stewardship plan right from the beginning.
And at the end, when both of them are the fictional characters here that are based on real stories. When both of the husbands passed away at 85, Linda, the one that had the reverse mortgage was in a position to be more generous, she was in the position to still have plenty of cash flow. Whereas because of the situation with Diane's husband, Bob, she was in a very difficult situation and all of her assets were tied up into her house. So I sat with a widow in Arizona, a number of years ago, and they were millionaires before they retired. And yet he burned up a lot of the money with health care before he passed. And it was very unfortunate because she had nothing left but her house.
She couldn't even go out to a pair of bread for a Bible study with her friends, because she had nothing except for her house. Whereas if there would have been planning done in advance, she would have had more than enough left. Yeah, really interesting.
And I think a stark comparison of the opportunity here. Are there social security implications Harlan when getting a reverse mortgage? Yes, in the mortgage industry, we're always careful not to give tax advice or social security advice or financial planning advice. But we have found with the research that's been done, that those that delay social security, and take it later in the time period of 67 to 70, instead of that 62 to 65 time period where most people take it, it puts the widow into a lot better situation.
Because when the husband dies, usually, then she is getting the larger amount I plan on delaying mine, so my wife will get a larger check when it's likely that I pass first. So it's a big issue and probably one of the biggest planning decisions that people make. And once it's made, it's irreversible. Yeah, and so you've seen where this tool or reverse mortgage can actually be used in order to delay social security and get those guaranteed increases. Is that right?
Well, that's so true. And you know, what most people don't realize is 40% of the people that reach 62 are still making a mortgage payment, and they're trying to get debt free by paying it off and getting to a zero payment. Well, if they do a reverse mortgage earlier, like I did personally, then that eliminates your payment, because you no longer have to write a check every month for that. And that allows you to also delay the social security or your pension, or other things that are being pulled out of your 401ks and IRAs that even helps from a tax perspective. Yeah, that's helpful. All right, what about the impact of a reverse mortgage on long term care and the need for insurance?
Well, that was a very personal thing for me. My father had a stroke, my mom had dementia, and they actually used the mortgage specifically to take care of long term care so they didn't have to pull a lot of money out of the IRA and pay lots of taxes. There's so many people that are not prepared for this. And they either don't have long term care insurance over 90% of people don't. And sometimes they can use the extra money that they're not paying toward their mortgage to get the long term care insurance or if they can no longer qualify, they can use the money in the reverse mortgage to care for the unhealthy spouse. So all of the money is not burned up and used for the person that eventually is a survivor. That was the problem with the lady in Arizona where she lost all of the investments they had taking care of her husband in the long term care specific costs. Yeah, and we know those can be substantial in this season of life. Now, you mentioned giving and how a reverse mortgage could actually create capacity for even more generosity.
Share that with us. Well, you know, I hear so often I'm on a fixed income with fixed expenses, and there's more days left than money at the end of the month. Well, when you can supplement your fixed income with distributions from your home equity account and reduce the amount that you're taking from your IRAs that cause taxes, that allows you to actually give with a lower amount of taxation and just simply some extra.
Because when we have a little bit more, it's easier to give a little bit more. And the good thing is, is that can be done without endangering your ability to stay in the house or to safely be able to live in the house, yet still use some of the funds inside of the house. And there's no question when you have to pay the absolute necessities of food and gas and and the things that just come every single month, you have no choice but to get that taken care of first, which often eliminates the the generous giving that was done when they were actually working and and having extra money. Well, I can understand that many people love the idea of paying off their mortgage, Harlan, and owning the property outright. But there really are circumstances, as you're pointing out, where a reverse mortgage can make life so much easier for widows in particular. So why do you think that's difficult for people to understand? Well, it's really cultural, Rob, it's been a maligned product, because people think that home equity should not be used because of the aversion to debt, but it is the only debt that requires no payment, which has a lot more safety and whatever money is left over goes to the children.
Even at this time of year, people watch the movie It's a Wonderful Life. And that's something that is regarded as dangerous. And yet, when reverse mortgages are properly used from a stewardship standpoint, things just make a big difference when it is properly used in wisdom. biblical wisdom is applied.
Yeah, that's really helpful. All right, Harlan, we're gonna get short on time here in just a moment. So sum this up for us. Well, there's three things. First of all, with respect to widows, the word widow is mentioned 102 times in the NIV.
God's always been concerned about the vulnerability of a lonely widow. I want to make sure I'm doing whatever I can in our business to be of help to those folks. And number two, this is something that is the safest form of borrowing in this country. There's always danger to any debt, but we have to look at what is safe and what is an obligation and what isn't. And then thirdly, this is all about stewardship. We have to properly use our 401ks, our IRAs, our social security money, anything that God has entrusted with us.
He's entrusted the largest windfall in history $12 trillion saved in homes of people over 62. We should just use wisdom and proper stewardship in anything, but especially with the home that we have been entrusted that we leave to our wives, if we go first. Well said, we're going to have to leave it there. Harlan, really appreciate our partnership with Movement Mortgage. Thanks for stopping by today. Thank you.
Appreciate being here. Folks, if you want to learn more, go to movement.com slash faith, and they'll put you in touch with Harlan and his team, movement.com slash faith. Your calls are next 800-525-7000. This is faith and finance biblical wisdom for your financial decisions.
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That's eventideinvestments.com. We're back. I'm Rob West and this is Faith and Finance. Thanks for listening today. Thanks for taking the time. As we head into our calls and questions, I want to take a moment to ask you if you've downloaded the FaithFi app.
You can use it on your desktop or your mobile device. All right, let's head to the phones. By the way, if you have a question, just call 800-525-7000. That's 800-525-7000. Let's head to Florida.
Hi, Rick. Thanks for calling, sir. Go ahead. I purchased the property about three or four months ago and I sold it.
I got proceeds from the property and I'm wondering if it's best for me to pay off another investment property that I own so I can just pay it off completely or invest it as mutual funds or something like that. Sure. Well, you know, this is a good question and it's one that really relates to your goals and objectives that should be informed really by your values.
What are you trying to accomplish? So this was a short-term capital gain. Is that right? Did you have a profit on it? Yes, correct. Okay, so it'll be taxed, that profit will be taxed at, likely, at the same rate as your ordinary income, so just make sure you plan for that.
You don't want that to catch you by surprise. So now, give me a rundown of what you have. You've got the proceeds of this property, which is approximately how much? About $290,000. And I owe, on my other property, I owe about $280,000. Okay, and is that a rental property? Yes, I have a residual income of about $2,900 a month.
Okay, yeah, great. And what other assets do you have? What other investable assets do you have? Just 401k, I have a 401k. Okay, and how much is in there, roughly?
About $200,000. Alright, and are you actively contributing to that? Yes, 15%. Okay, great.
Yeah, that's excellent. And then is your primary residence, do you have a mortgage on that? Yes, I have another primary mortgage, correct, yes. Okay, and so what are the interest rates on your primary mortgage and then the one on this second rental property? The interest rate on my primary is 2.8, the second rental property is 5.5.
Okay, got it. And then with the rental income, obviously you're servicing the debt, do you have something left over, typically, in a typical month from the rental property? Yes, about $400.
Okay, but obviously if you paid off the mortgage, you'd have more than that because now you'd have that property. Yeah, and you plan on keeping this for a good while? Yes, yes, I'm a retirement there. Okay, cool. Yeah, and then do you have some extra liquid savings beyond the proceeds of this property sale that you would consider your emergency fund? Yes, I have about $40,000 in savings.
Okay, great. Yeah, I mean, I like this a lot, Rick, because it really, you know, the return on that money when you pay off that rental property mortgage is a guaranteed 5.5%, and although you could get that in a CD today, you're not going to get that probably for too much longer. So, you know, for the next year or so you could get a one year CD at five and a half. But even today, if you tried to get a five year CD, you'd have to, you know, you'd be down at 4.6. Now you could invest this money, it's taxable money.
So as you had profits on it, you'd pay capital gains, just like you did with the other property on the sale. But you'd have to make after taxes a guaranteed, you know, five and a half percent in order to at least be even. And that's not gonna be easy to do, especially with us probably heading into a recession.
You know, we think that a lot of economists think the market, you know, is not going to generate the year over your returns, at least in the next decade that we've seen in the last 20 years before this bear bear market. So I would say, you know, you being debt free, you, you know, having a property that's still appreciating you freeing up more capital every month that you could, you know, do other things with increase your giving increase your savings, whatever it is, because now you're not servicing that debt. That makes a lot of sense to me, especially since you're fully funding that 401k at 15% of your paycheck every month, which means now you've got these two asset classes working for you got stocks in your 401k, and you got real estate, you know, and I like the fact that you're diversified there. So I think you getting, you know, out of debt, except for your primary residence is a great idea.
And you know, if you wanted to, then you could take some of that surplus and start accelerating the payoff of your, your primary residence, or you could do other things with it. But I think at the end of the day, again, there's not a right or wrong answer here. But I kind of like the sound of the direction you're headed. Sounds good. That's the way I was gonna go.
So I was looking for some advice, making sure I was making the right decision. Awesome. Yeah, great, Rick. Well, thanks for calling today. We appreciate you being on the program. May the Lord bless you. Let's see.
We'll go to San Marcos, Texas. Hi, Nate, go ahead. Hey, thanks for checking my call. Appreciate you. Sure. Thank you. Quick question.
All right. Have a little bit of extra money each month and wondering if we should put those funds toward paying off, trying to pay off our mortgage sooner, or if maybe that would be better suited for 401k or something else. Yeah, it's a great question. You know, both things are good. Paying down your mortgage is great. Saving for the future is great. The question is, how do we balance the two and on top of other priorities like giving or anything else you're trying to do.
Let's talk about this. In terms of your 401k, do you know roughly what percentage you're putting of your income toward retirement savings right now? Right now at the moment we've ceased. My wife and I both have new jobs and we haven't started contributing yet, but we do have a portfolio.
Probably have about $300,000 in that right now. All right. How far off is retirement, Nate, do you think? That's probably about a good 10 to 15 years away. Okay.
10 to 15 years. If you were to put, let's say 10 to 15% of your income toward retirement as you start into your new plan, would that eat up all of your excess or would you still have some surplus at the end of the month? I think it would eat up a lot of it. The surplus right now is about $1,500 a month. Got it. And then do your new employers offer any matching in the 401k?
Only one does up to 3%. Got it. Okay. Well, you certainly want to take advantage of that.
No question. I would say we want to balance this idea that you've got enough growing on a tax deferred basis for the future with the fact that you want to get this mortgage paid off. Given that the interest rate is higher, I can see why you'd want to get it paid off sooner rather than later. I think I'd probably establish maybe try to get a goal of 10% going to retirement. And then as long as you've got an emergency fund of three to six months expenses, then let's put the balance toward the house. I think the key is if you spend the next 15 years trying to accelerate that mortgage payoff, that's great, but you're missing some key years for you to get money in for compounded growth, especially while this market's down.
So I'd say let's hit that 10% target toward the 401k and then at least try to get one extra payment a year, if not more to the house. Thanks for your call, Nate. Well, that does it for us today. I'm Rob West. Thanks to our amazing production team and to you for listening. I hope you'll join us again next time right here on Faith and Finance. Faith and Finance is provided by Faith Buy and listeners like you.
