Curmudgeon. That is what a colleague said I sounded like when we were discussing the increasing coverage given to reverse mortgages. A simple definition of “curmudgeon” from the Merriam-Webster website is “a person (especially an old man) who is easily annoyed or angered and who often complains.”
I feel older every day, but I am a fairly laid back kind of guy. Not much bothers me and I do not complain often, but in this case I see his point. I was getting a bit cranky. One thing that often triggers a slip into annoyance and complaint is too much positive coverage about a financial product.
I think it started back in the early days of my career. The company I was with frequently had “training sessions” about variable universal life. The VUL was supposedly good for just about everything: asset protection, retirement savings, tax-free income, college savings and even an emergency fund. Presenters often called it the “Swiss Army knife of financial products.”
It was off-putting, and it didn’t take long for me to develop a high level of skepticism whenever the “new great thing” is presented. Normally, I don’t think well, or poorly, of a particular product until it’s put into a working context. Sure, some products are heavily laden with negative attributes and some possess predominately positive ones, but in the right context a less-than-desirable product can be quite useful while a wonderfully designed product can be misused.
My opinion of reverse mortgages has gone through three phases. The first phase was definitely negative. The products were costly and complex, to be considered only as a last resort.
My outlook softened in the second phase as the product saw a number of reforms over the years. The costs became much more reasonable, so the product fit in more contexts.
The academic community certainly seems to have tuned in to the ways reverse mortgages can be used other than as last ditch efforts to provide cash flow to seniors. A number of studies have come out illustrating various integrations of the product with retirement portfolios. These studies have received a lot of attention from the press, particularly the financial planning press. You’ll be hard-pressed to attend a conference that does not have a session on the wonders of a reverse mortgage.
This coverage of the products triggered my current curmudgeonly stage. I see advisors moving too quickly to use them, and I have flashbacks to the Swiss Army knives.
There is no doubt reverse mortgages today are more attractive than they were, but there are several aspects that bother me.
First, I believe people are improperly interpreting the academic studies about the products’ usefulness for retirement cash flow. I do not dispute the findings (of course the cash flow picture can be helped by those tapping home equity). But the reverse mortgage is treated like a free ride—something for nothing. It ain’t. It must be paid back.