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• Neither owner or their children will ever owe more than Payouts can happen in four ways: monthly payments for
the house is worth; life, lump sums, monthly payments for a fixed period, or as
• Those considering RMs must receive counseling from an a line of credit. Also, the owner will always get the original
unbiased, FHA-approved third-party counselor; value of the loan, even if the home value declines — for
• The lender evaluates borrowers’ ability to pay taxes and example, if the neighborhood starts to go downhill due to
insurance; location or climate change (fire or rising sea level). Further,
• Origination fees are regulated by the government. after the loan is paid out, the owner still can live in the
How much a client is qualified for depends on multiple factors: home rent-free.
Appraised value of the home (the FHA lending limit varies Blanchett noted that “Considering [RMs] as a potential asset
by county but tops out at $822,375), multiplied by the principal will obviously improve any kind of retirement scenario (free
limit factor (derived from the age of the youngest borrower) money!), but many retirees view the home as an asset of last
multiplied by interest rate (determined by margin plus CMT, resort (e.g., for health care expenses) and a bequest to pass
or constant maturity Treasury, index). Owners should get at down to heirs, so effectively ‘selling it’ isn’t something many
least three interest rate estimates. are interested in considering.”
For example, a 62-year-old with a $400,000 home could
borrow about $191,763, depending on interest rate. In this case Ginger Szala is managing editor of Investment Advisor Group. She can
it was 2.32%. be reached at [email protected].

Kotlikoff to Biden: Scrap Social Security, Start New System
Economist and retirement expert Larry Kotlikoff isn’t opti- enue” — but recommends that people put 10% of their pay
mistic about the United States’ fiscal direction, and it seems into a personal retirement account. The government would
like he wants to change everything: the tax system, Social make matching contributions on behalf of the poor, he says.
Security, health care, education. These accounts would be government-invested “by a com-
This is what he explained when we asked: What would you puter in a global index fund of stocks, bonds and real estate
tell the Biden administration to do if you could? investment trusts” of major markets.
“We’ve had a massive increase in the official debt … and if Everyone would get the same rate of return, “so the govern-
you look at Social Security’s unfunded liability equation, that’s ment would guarantee your return on contributions,” provid-
$53 trillion — that was from last year’s Trustees Report,” ing a floor for retirement. However, each person could aug-
says Kotlikoff, who has been a consultant to multiple Cabinet ment their account accordingly with added contributions.
departments and has written several books on Social Security. “Investing in the global markets over a 40-year span
“If you put into one balance sheet all the projected outlays pretty much ensures a positive average return,” he says.
valued to present, and compare that with the present value of Then, between age 57 and 67, the person’s account would be
all the receipts, and then add in the liability side, the net debt gradually sold off at market prices and invested in inflation-
of the country … you have a fiscal gap that’s roughly eight indexed government bonds. After five years, that age group
years of GDP,” he says. “No one’s looking at [the] long-term would start getting annuities paid from those government
picture and what bills we’re leaving for future generations.” bonds. Those with twice as big an account would get twice
Here’s how he would change Social Security and the tax the benefits.
system. Spouses and ex-spouses would also be protected, he says,
“I would retire the existing Social Security system the way but the point would be a retirement system that is risk-free to
corporate America has retired, since the mid-1980s, the future generations. “Each generation is on its own tub, so to
defined benefit pension plans. You freeze the existing system, speak,” he says. “That’s what it means to be fully funded, not
start a new system at the margin and pay off accrued liabili- requiring some other generation to bail it out.”
ties … pay what you owe under the existing system,” he says. Some might say this idea is a bigger burden to those in
To do that, he recommends freezing accounts of those, for their 30s and younger, who will not only have payroll taxes
example, currently at age 40. When these workers retire, but also put in a 10% contribution, and still won’t have the
they would get Social Security benefits based on their earn- security system of their parents and grandparents. He agrees,
ings up to age 40. but “they also are not going to get hit with a fiscal system
He would maintain the payroll tax — “we need the rev- that’s going to fall apart, and horrendously high taxes.”

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