Reverse Mortgage Strategies: IRA Spend-Down Comparison (part 1)

Should members allow higher-yielding assets to grow and access home equity to support early retirement?


Credit union members have their own retirement aspirations, but all of them face the financial risk of outliving their assets. A lack of careful planning can prove disastrous. Any successful retirement spend-down strategy should address how to avoid outliving assets, and a reverse mortgage, which provides tax-free cash flow options, can be an integral part of that strategy.

The question then becomes: Will using a reverse mortgage to avoid spending historically higher-yielding investments or will spending the higher-yielding asset first and maintaining the home as a last resort give members more assets on which to live?

In this illustration, your member — John — is a 62-year-old man facing retirement. He has an IRA valued at $200,000 and a home valued at $450,000. There is no mortgage on the home, and he needs approximately $20,000 per year in additional income to meet his lifestyle.

John knows he can go one of two routes. He can spend the IRA first — the income from which is 100% taxable — and then take out a reverse mortgage, or he can use the proceeds from a tax-free reverse mortgage to produce cash flow until he reaches age 70. At that time, he can tap into his IRA with Required Minimum Distributions (RMDs).

Scenario One: Spend the IRA First
John starts spending his IRA upon retirement at age 62, withdrawing $20,000 per year to meet his lifestyle needs. As shown in the two charts below, his IRA is fully depleted at age 77. He then takes a reverse mortgage loan on his home, now valued at $605,640 (based on an annual 2% home price appreciation rate over the 15 year period), and continues to withdraw $20,000 per year from the loan until he reaches his life expectancy age of 88.

Retirement Analysis - Scenario One

IRA Spend-Down Table

When John passes away, the net equity of his estate is $464,680. This includes the value of the home minus the reverse mortgage loan balance of $288,357, which includes $3,298 of Mortgage Insurance Premium and $7,945 in interest. (Home value calculations in this illustration assume an annual 2% home price appreciation. IRA appreciation is calculated at a 0% rate of inflation and a 6% annual rate of return.  Total net asset value at death of borrower reflects full repayment of the reverse mortgage loan at time of death.)

To learn more about strategic financial partnerships, contact Robert Scott, National Director of Affinity & Correspondent Relations at (916)384-1902 or or contact Tom Werder, National Director, Strategic Partnerships, at (916)384-1874 or

Click here to read Reverse Mortgage Strategies: IRA Spend-Down Comparison (part 2).

FOR ADVISOR USE ONLY. NOT INTENDED FOR DISTRIBUTION TO THE PUBLIC. The preceding example and any calculations are hypothetical and for illustrative purposes only. We do not guarantee the applicability or accuracy in regard to a customer’s individual situation or circumstance. Information contained within this strategy is not intended to replace qualified, professional investment and/or tax advice. Reverse mortgages may not be appropriate for certain individuals and some restrictions may prevent a homeowner from obtaining a reverse mortgage loan. All reverse mortgage borrowers are required by the federal government to meet with HUD-approved counselors to determine loan suitability. Failure to pay property taxes, hazard insurance, or maintain the residential property can result in a loan default requiring immediate repayment of the loan balance or foreclosure. Interest, mortgage insurance and other fees will accrue annually until full loan repayment. ©2011 Genworth Financial, Inc. All rights reserved. Genworth Financial Home Equity Access, Inc. 10951 White Rock Road, Suite 200, Rancho Cordova, CA 95670. NMLS ID #3313, (800)218-1415 or (916)636-0183. For a complete list of licenses, please visit



This sponsored content article is provided to the credit union community for shared insights and knowledge from a recognized solutions provider in the industry. Please note that the views and opinions offered here do not reflect those of Callahan & Associates, and Callahan does not endorse vendors or the solutions they offer.

If you are interested in contributing an article on, please contact our Callahan Media team at or 1-800-446-7453.