FINANCIALconnection
Reverse to
go forward?
Also:
N Sharing the
wealth
N Survivor tips
AskSuze
Orman
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By Suze Orman
KEI TH LATHROP
I’m 86; my wife is 80. We bring in $1,200
a month in Social Security, have an
investment portfolio of $20,000 and a
line of credit on which we owe $70,000.
The only other debt we have is insurance
(life/medical/home/auto). Our home is worth
$450,000 to $500,000. Are we a candidate
for a reverse mortgage?
—Floyd K., Anacortes, WA
YOU DEFINITELY are a candidate. Anyone over the
age of 62 is eligible for a reverse mortgage. The way
it would work for you is that the first $70,000 of
proceeds from your reverse would have to be used to
pay off your home equity line of credit. That could
still leave you with plenty of money from the reverse,
given the value of your home. But there’s another
catch: The fees for reverse mortgages can be quite
steep: more than 5 percent or so of the loan amount.
So you want to be careful making this decision; it’s
important to understand what will end up in your
pocket after all the fees are paid. You can learn more
about how reverse mortgages work at the AARP
Web site, www.aarp.org/money/revmort.
I’m 70 and retired. My remaining mortgage
is $65,000. Car payment is $285. My house
is worth $240,000. Social Security income is
$1,024 per month. IRA worth $48,000. Money
market and CDs worth $28,000. My accountant suggests a reverse mortgage. What do
you think?
—Sheila F., Tucson, AZ
AS ALLURING as a reverse mortgage may look to
you, I wonder if it is going to solve anything. You
need to remember that even if you get the mortgage
paid off, you will still be responsible for property tax
on the home, the utilities and the usual repairs and
maintenance. I am making an educated guess that
after paying off the mortgage the income you would
receive from the reverse might not cover all those
costs, to say nothing about providing you with extra
income for your other living expenses.
Another option might be to sell your home
and move into a smaller home or retirement community. The goal is that you would pocket enough
money after selling the home (and paying for your
new place) to earn some income off it to help make
ends meet. One other possibility is to rent out a
room or two in your home and create a source of
income for yourself and a home for someone else
who needs one.
I’m 50 years old. My husband and I own a
bar, a janitorial company, and we run and
own all the dart leagues in the metro Detroit
area. We own a house, which he plans on
paying off this year. The problem is that my
name is not on the house, checking or savings accounts or the businesses. Is this going to be a problem down the road if he
passes away or divorces me?
—Kathy C., Detroit, MI
IT’S NOT JUST a potential problem down the road,
it’s a real problem for you right now.
Let me be clear: There are no good reasons for
keeping everything in his name. So I want you to
start the conversation about adding your name as a
co-owner of every asset.
I am not painting your hubby as a bad guy. The
truth is you have been a willing party to this financial
imbalance; you showed no interest, so he just handled everything on his own. So there’s no need to
attack or be confrontational. I want you to start by
explaining that for your sense of financial and emotional security you want to be listed as a co-owner of
all your assets. If he’s a stand-up guy he should want
to do that for you, and for the marriage.
My husband retired after 37 years with the
Teamsters Union. We took $50,000 in outright options, which reduced the pension
from $4,200 to $3,850 per month. People are
scaring me now by saying that if something
were to happen to my husband, I wouldn’t
get anything but Social Security. Do you recommend taking a life insurance policy on my
husband, or an annuity or something else?
—Mary Lou B., West Haven, CT
IT ALL DEPENDS on the type of payout your husband agreed to. You need to review the document
or call up the human resources department and ask
for some help to find out if his pension includes a
survivor benefit. If it does, you want to know what
the actual benefit will be. The best-case scenario is
that you, as his survivor, would be eligible for 100
percent of the current pension. More typical is a
reduced benefit of, say, 50 percent.
If you do not get a payout on his death, or if
it is a reduced payout, then you both need to assess
whether you would be in financial straits if your
husband were to die before you. If you need more
money and your husband is in relatively good
health, by all means look into a whole-life insurance policy. I usually do not recommend a whole-life policy, but this is a need you are going to
have for your whole life. A whole-life policy is not
going to be cheap. But if there is no way to go back
and choose a survivor benefit payout on the pension, a life insurance policy may be a good way to
protect you. C
