I’ve really enjoyed the feedback from Financial Advisor readers on a couple of my recent columns, Three Strategies Overhyped To Consumers and Four More Strategies Overhyped To Consumers. It is nice to know I am not alone in my frustrations about some of these items and it is wonderful to receive suggestions of other strategies to include.

Before I get to the new additions to the list, I want to state once again that I do not think every item in these columns is universally worthless. In the right situation, some of these overhyped items will fit the bill. For the purpose of these columns, “overhyped” means the strategy is not likely to have a big impact, can’t or won’t be employed by many clients, or is likely to have a negative impact.

Reverse Mortgages

It seems nearly impossible to watch TV normally and not see an ad for a reverse mortgage.

To be sure, reverse mortgages today are much improved. There are a variety of structures and therefore a variety of potential uses but they make my list because there are few clients that are keen on the idea once they understand how reverse mortgages work. When clients are open to the idea, there are usually ways to address the problems reverse mortgages are touted to fix that are more palatable to clients.

Despite the vibe of some of the commercials, the crux of the issue is that a reverse mortgage is in fact a loan that must be repaid.

Payments do not have to be made and if the balance of the loan exceeds the value of the home when the property is sold, the borrower does not have to make up the difference. Both those features can be quite useful and make reverse mortgages very interesting.

The price for that payment flexibility is spending home equity at a faster rate than a lower interest alternative with servicing payments.

A number of studies show how tapping reverse mortgages can help maintain a retiree’s cash flow. I highly recommend Wade Pfau’s book, Reverse Mortgages: How to use Reverse Mortgages to Secure Your Retirement. It is the go-to resource on how various reverse mortgages can be utilized effectively.

Financial planners have a responsibility to present viable options and reverse mortgages deserve consideration but be prepared. When you bring up the topic of reverse mortgages, many clients are not going to react favorably. After a lifetime of working to have a paid-off home, they don’t want to borrow against their equity, especially at the higher costs reverse mortgages incur. Many will prefer looking at other ways to address whatever cash flow issue the reverse mortgage might help address. At least with our clientele, there is almost always an alternative to borrowing against the client’s home to address those issues.

Equity Index Annuities

The first factor that should curtail the use of equity indexed annuities (EIA) is the same factor that can limit employment of any type of annuity used for accumulation—taxes are only deferred, not avoided. 

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