May 11, 2012 5:00 PM, By Mark Miller

We’ve all seen the studies – one seems to land on my desk once or twice a week. “Americans are living longer.” “Fewer have defined benefit pensions.” “The value of Social Security is shrinking.” “Boomers don’t have enough money to retire comfortably.” “A retirement crisis is looming.”

Just a couple recent data points:

–Working American households may experience a potential income drop of 28 percent in retirement, and nearly four-in-ten (38 percent) retiree households won’t have sufficient income to cover their monthly expenses, according to a Fidelity Investments survey of more than 2,800 adults. 

–Americans’ confidence that they’ll be able to retire comfortably is at historically low levels, due to worries about jobs and debt, according to the 2012 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI). More than half (56 percent) haven’t tried to calculate how much money they will need for retirement.

–Even among the affluent, 66 percent of women and 54 percent of men are worried that they won’t have sufficient assets to last through their lifetime, according to the most recent Merrill Lynch Affluent Insights Survey.

You may have clients who share these worries. Yet there are ways to change the retirement math, even for people close to retirement. This is true especially for those who may not be on track for retirement success but are “within striking distance,” as Steve Utkus of the Vanguard Center for Retirement Research put it in a recent blog post.

If you have clients who fit that description, consider the following ways to get them on track. These aren’t easy, magic-bullet solutions, but basic blocking-and-tackling ideas that can have very dramatic impact on retirement success.

1: Scrub the Expense Assumptions

Many financial services companies and planners adhere to the rule of thumb that retirees should plan to replace 80 percent of working income in retirement. Many baby boomers will fall short of that. For instance, The Urban Institute calculates that about 40 percent of late boomers (born between 1956 and 1965) won’t have enough income at age 70 to replace even 75 percent of what they earned between age 50 and 54.

Just as important, the 80 percent rule-of-thumb is no more than a rough estimate. For example, it doesn’t take into account unforeseen spending needs such as higher health care expenses or a long-term care insurance policy. At the same time, the rule doesn’t recognize that some expenses might shrink or disappear entirely, such as commuting or maintaining a business wardrobe.

It also sidesteps some key questions people should be asking themselves in tough economic times: What is the lifestyle I want? How much will I need to spend on basics? What can I afford to spend?

A recent EBRI analysis concluded that the median retired household spends about 80 percent of what working households spend. But that’s just the median – many spent more or less.

Just as important, EBRI found that overall spending in retirement falls with age — which means that a retiree won’t need a constant replacement rate of pre-retirement income.

A better approach is to create a careful zero-based budget for projected expenditures over time based on the client’s lifestyle expectations, and discuss alternatives that could reduce costs in key areas, such as housing (see retirement math suggestion No. 2, below).

2: Tap Home Equity

Real estate is a key asset for most older Americans – even in the wake of the housing crash. Eighty percent of Americans over age 65 are homeowners, according to the Joint Center for Housing Studies at Harvard University. And Census Bureau data reveals that 65 percent own their homes free and clear. So, there’s plenty of home equity out there waiting to be tapped.

Downsizing is the best way to do it. Most homeowners will need to sell at a lower price than they would have expected a few years ago — but they’ll be able to buy at lower prices, too. What’s more, an improving economy should unleash a great deal of pent-up demand among young buyers who have been forced to hold off on home purchases over the next few years as employment and incomes rise.

Most downsizing moves occur close to home. In 2010, just 1.6 percent of retirees between age 55 and 65 moved across state lines, according to an analysis of U.S. Census Bureau data by The Urban Institute. Moving from an expensive inner-ring suburb to a less costly exurban location can help your client extract equity that can be saved, invested and drawn upon in retirement.

Reverse mortgages offer a second option – with caveats. I’m not a fan of adding debt in retirement, and traditional reverse loans carry heavy fees. But a relatively new lower-cost option introduced last year could make sense in some cases.

The Saver HECM (Home Equity Conversion Mortgage) is administered by the federal government, just like a standard reverse loan. But the amount that can be borrowed is smaller, and Saver HECMs can be used as a flexible line of credit. Saver HECMs also have far lower costs: an upfront premium of only 0.01 percent of the property’s value, or HUD’s loan limit, whichever is less, versus the standard loan’s 2 percent.

Some planning experts – including Harold Evensky of Evensky & Katz Wealth Management – see these loans as a useful way to help clients who may face a short-term cash shortfall to avoid unwanted portfolio sales; others have suggested using Saver HECMs as an alternative to early filing for Social Security. (See retirement math suggestion Number 3.)

3: Work Longer

It’s easier said than done in a tough economy, but working longer can have a nearly magical effect on retirement success. Working longer means fewer years relying on nest eggs to fund retirement, more years of contributions to retirement accounts and higher monthly Social Security income through delayed filing.

The Social Security numbers alone are dramatic. Benefits are calculated using a formula called the primary insurance amount, or PIA. Seniors who wait to start receiving Social Security until their full retirement age (currently 66) receive 100 of PIA; taking benefits at 62, the first year of eligibility, gets them only 75 percent of PIA. By waiting until age 70, they’ll receive 132 percent of the PIA – nearly double the monthly income for the rest of their lives. Those benefits are enhanced by an annual cost-of-living adjustment, which is added in for any years of delayed filing.

David Blanchett, a research consultant with Morningstar Investment Management, ran Monte Carlo simulations that show delaying retirement even one year improves the probability of successful retirement by 18 percent; waiting two years boosts the odds by 37 percent and a three-year delay improves the outlook by a whopping 55 percent (Success is defined as achieving the income goal for the target retirement period.).

4: Annuitize
Income annuities offer another path to mitigating longevity risk. The single premium income annuity (SPIA) offers a simple proposition: turn over a chunk of cash to an insurance company, which then sends your client a monthly check for life. The latest twist – and one that bears watching – is the longevity policy - essentially a deferred annuity that can be bought well ahead of retirement with payouts delayed to an advanced age.

It’s a very specific hedge against longevity risk; the downside, of course, is that clients might never see a dime of it if they don’t make it to advanced age. Nonetheless, longevity policies are far less expensive than SPIAs. For example, Metlife says that for $43,000, a 65-year-old man could purchase a longevity policy paying $2,000 monthly starting at age 85, compared with $398,000 for a policy generating the same payout immediately.

SPIA critics point out important downsides, including lack of flexibility and liquidity and inadequate diversification that comes from relying on a single insurance carrier. Moreover, current ultra-low interest rates makes all types of income annuities more expensive.

5: Boost Savings

At the risk of stating the obvious, encourage your clients – especially younger ones – to sock it away. Vanguard research shows that getting an early start in life on retirement saving, and the rate of contribution, have a far larger impact on retirement success than market returns or asset allocation. For example, Vanguard found that saving 9 percent starting at age 25 in a moderate allocation resulted in a higher median ending balance than saving 6 percent in a more aggressive allocation.

That’s an important consideration in light of the growth of auto-enrollment programs in workplace retirement plans, where most default contribution rates are set at 3 percent. As the saying goes – control what you can control, and the rest will take care of itself.

Mark Miller is a journalist and author who writes about trends in retirement and aging. Mark edits and publishesRetirementRevised.com, featured as one of the best retirement planning sites on the web in the May 2010 issue of Money Magazine. He is a columnist for Reuters and also contributes to Morningstar and the AARP Magazine.Mark is the author of The Hard Times Guide to Retirement Security: Practical Strategies for Money, Work and Living (John Wiley & Sons, 2010).

APR 30, 2012, 10:34 AM

BY TOM KELLY, WEDNESDAY, APRIL 18, 2012.

Inman News®

Money image via Shutterstock.

The number of Americans 65 and older who continue to work has risen in the past decade. The unexpected rise can be traced to a variety of factors, including shell-shocked retirement accounts, falling interest rates on savings tools, fewer company pension plans, and the inability to save.

Many of these people have raced to take part-time employment, and baseball spring-training facilities are a prime example. There were seniors selling tickets, programs, hot dogs and popcorn, plus acting as ushers and parking lot directors in nearly all of the recently completed Cactus and Grapefruit League games.

The goal of this age cohort is to supplement their Social Security payments and portfolio securities (such as 401(k) and individual retirement accounts) so that they won’t run out of money before they die. What other sources might be available?

Barry H. Sachs, a real estate tax attorney in San Francisco, and Stephen R. Sachs, professor emeritus in economics at the University of Connecticut, researched ways to further enhance a senior’s finances by adding home equity via a reverse mortgage. In a recently published study, the authors found that a reverse mortgage can be powerful tool when used within a coordinated strategy rather than a “last resort” after exhausting the securities portfolio.

The model shows that the retiree’s residual net worth (portfolio plus home equity) after 30 years is about twice as likely to be greater when an active strategy is used than when a conventional strategy is used.

“It’s so important that financial planners have begun to ask the question about what’s possible with reverse mortgages,” said Martin J. Taylor, president of Bellevue, Wash.-based Stay In-Home, a reverse mortgage lender. “While they have often been known for solving desperate situations, they have a variety of uses in long-term financial planning.”

What Sachs and Sachs have done is to compare three strategies for the use of home equity via a reverse mortgage to increase the safe maximum initial rate of retirement income withdrawals. The commonly accepted “safemax” begins with a first year’s withdrawal equal to 4-4.25 percent of the initial portfolio value. Subsequent years’ withdrawals then continue at the same dollar amount each year, adjusted only for inflation. Since many retirees have found the safemax uncomfortably limiting, Sachs and Sachs calculated greater percentages in some examples.

The strategies:

(1) The conventional, passive strategy of using the reverse mortgage as a last resort after exhausting the securities portfolio.

(2) A coordinated strategy under which the credit line is drawn upon according to a formula designed to maximize portfolio recovery after negative investment returns.

(3) Drawing upon the reverse mortgage credit line first, until exhausted.

The authors found “substantial increases” in the cash flow survival probability when the active strategies are used as compared with the results when the conventional strategy is used. For example, the 30-year cash flow survival probability for an initial withdrawal rate of 6 percent is only 55 percent when the conventional strategy is used, but is close to 90 percent when the coordinated strategy is used.

So, how is the reverse mortgage best blended together with other investments? In a nutshell, it’s a basic algorithm:

At the end of each year, the investment performance of the account during that year is determined. If the performance was positive, the next year’s income withdrawal is from the account. If the performance was negative, the next year’s income withdrawal is from the reverse mortgage credit line.

According to the study, this spares the account any drain when it is down because of its investment performance. It also leaves the account more assets to recover in subsequent up years. This is done in the early years of retirement, so the account grows before the reverse mortgage credit line is exhausted.

The authors emphasize that a reverse mortgage is not necessarily a useful vehicle for every retiree who has substantial home equity. A retiree whose primary source of retirement income is a securities portfolio and who also has substantial home equity must decide early in retirement whether to live within the safemax limit set by his or her portfolio. This decision is a fundamental component of overall retirement planning.

Next week: Where will most boomers go if they don’t age in place?

Tom Kelly’s new e-book, “Bargains Beyond the Border: Get Past the Blood and Drugs: Mexico’s Lower Cost of Living Can Avert a Tearful Retirement,” is available online at Apple’s iBookstore, Amazon.com, Sony’s Reader Store, Barnes & Noble, Kobo, Diesel eBook Store, and Google Editions.

By VERONICA DAGHER

Mistakes you are making now may sabotage your retirement later.

While not having a game plan for how you’re going to retire by age 65 may not seem like a priority today, for example, the longer you delay planning hurts your chances of actually being able to achieve that dream.

Financial mistakes such as overspending and helping the kids too much may also increase the probability you’ll run out of money before you die, say financial advisers.

Here are five mistakes investors should avoid:

1. Never getting a second opinion on your 401(k).

Too many clients follow the conventional wisdom of contributing the maximum to their 401(k), never considering if this is the best move for their financial situation, says Robert Schmansky, a Bloomfield Hills, Mich.-based certified financial planner.

An investor’s 401(k) might charge excessive fees, for example, and he or she may be better off investing some money in a Roth individual retirement account with more investment choices and lower fees, Mr. Schmansky says.

“It’s important to look at your entire financial picture,” he says.

2. Not having a plan.

“No financial plan means financial decisions are random,” says Kevin Reardon, a Pewaukee, Wis.-based certified financial planner. While living for the moment and making decisions on the fly may feel good, a lifetime of doing so often results in insufficient savings and an overleveraged lifestyle, he says.

“Be concerned about not being destitute,” he says.

Clients reluctant to plan can start by setting small goals such as saving 5% of their gross income a month and then gradually working up to saving 15% within 12 months for example, says Mr. Reardon.

3. Refusing to scale back.

For the past five years, Houston-based certified financial planner James Hoffman has encouraged a couple to downsize their home and boost their savings. The couple, now 67 and 66 years old, wish to retire in three years, but have yet to cut back. “They don’t feel any urgency,” he says.

That’s a mistake, though, as situations can change unexpectedly and they may not be able to work for another three years, he says.

In addition, by not making changes to their lifestyle now, they’ll likely find it more difficult to scale back their spending when they have no income and have no choice but to cut back later on.

Mr. Hoffman is working with the couple to find expenses they could trim now without too much pain—such as eating out two fewer times a week and socking that money away in savings.

4. Sacrificing your retirement to pay for the kids’ college.

Recently a 55-year-old husband and his 54-year-old wife went to see certified financial planner Debra Morrison as they had just finished putting their last child through college and were now ready to save for their retirement.

“They were happy their children graduated debt-free but they were downright scared about their lack of retirement savings,” says the Lincoln Park, N.J.-based certified financial planner.

This may be an extreme example, but too many parents are sacrificing their own retirement to fund their children’s education, she says.

“College-loan programs abound, retirement financial aid does not,” she says.

Ms. Morrison says while it’s natural for some parents to feel guilty about not being able to help their kids more, the best gift to their children is to secure their own retirement so they won’t need to lean on their children later on.

Ms. Morrison encourages parents to find “middle ground” with their children—offering to pay for books and commuting expenses, for example, or paying for two years at a state school.

If a child has his heart set on a college that’s more expensive than what the family can afford, Ms. Morrison says, it’s up to the child to find creative ways to meet that funding gap.

5. Thinking you’ll live forever.

Too many couples’ retirement dreams “go up in smoke” when a spouse dies unexpectedly, says Kathleen Rehl, a Land O’Lakes, Fla.-based certified financial planner.

A widow Ms. Rehl recently worked with was forced to sell the family home and her two young children had to change schools because the family was unprepared for her husband’s sudden death.

To avoid the “double shock” of grieving for a loved one and dealing with a new financial reality, Ms. Rehl advises clients to buy term life insurance on both spouses, create wills, and make sure both spouses are informed and ready to make financial decisions in case one dies.

Write to Veronica Dagher at veronica.dagher@dowjones.com

ENCORE

APR 03, 2012, 4:59 PM

By Anne Tergesen

How prepared are the baby boomers for retirement? The results of a new survey, released this week by the Insured Retirement Institute, a nonprofit that represents insurers, broker-dealers, and asset managers, are not too encouraging.

The survey of 803 individuals aged 50 to 66, contains some glimmer of good news: 74% of this group expect their financial situation to improve or stay the same over the next five years.

But, the report indicates that most do not expect to amass enough to cover their expenses in retirement. For example:

• Only 40% are extremely or very confident of having enough to cover basic needs in retirement.
• Nearly two-thirds are not confident about covering medical expenses.
• Three-quarters do not feel prepared for future long-term care costs.
• 60% believe their financial security in retirement will be about the same or worse than that of their parents.

Boomers expect to rely more on income from 401(k) accounts than defined benefit pension plans:

• 42% expect 401(k) and other defined contribution plans to provide a major source of retirement income, up from 36% last year.
• Only 37% expect to rely significantly on traditional pension plans, unchanged from last year’s survey.

Not surprisingly, a growing number expect to postpone retirement.

• 35% expect to retire after age 66, including 23% who expect to work into their 70s. (The numbers from last year’s survey were 28% and 17%, respectively.)

And more expect to work in retirement to supplement their income.

• 64% expect wages to be a source of retirement income, up from 57% last year.

Particularly at risk are single people and middle-income boomers, with annual earnings of between $30,000 and $75,000. “While most boomers report a higher level of confidence than they did last year, these two cohorts are the exceptions.”

• 72% of single boomers are not confident they will have enough money to live comfortably throughout their retirement years, compared to 60% of married boomers.
• 38% of unmarried boomers expect their financial security in retirement to be worse than that of their parents, compared to 26% of married boomers.
• 21% of unmarried boomers had to prematurely withdraw funds from their 401(k) IRA, or other retirement investments, compared to 14% of married boomers.
• 70% of middle-income Boomers are not very confident about having enough money to live comfortably in retirement.
• 40% of middle-income households stopped putting money into a 401(k), IRA or other retirement account (compared to 37% last year.)

Gen X Has Highest Debit, Greatest Generation Highest Credit Scores

A recent Experian study has found that the generation gap applies to finances and debt as well.

According to the study, baby boomers are strong and steady in their pursuit of the American dream, while Gen Y has focused on building credit with their student loan and auto loan payments. Generation X not only has the highest amount of debt but the second to lowest credit scores, and the Greatest Generation has reduced their overall debt and has the highest credit scores of all of the generations.

Findings from the study showcased the types of debts Americans have, the amounts they owe and the differences between the generations. The four groups studied are the Greatest Generation (age 66-plus), baby boomers (age 47 to 65), Generation X (age 30 to 46) and Generation Y (age 19 to 29).

“The gap between the highest and lowest average credit scores is vast–829 for the Greatest Generation to 672 for Generation Y–yet the amount of average debt for these two groups is very close. On the other hand, the baby boomers and Generation X are carrying much higher amounts of debt–about three times more–than the Greatest Generation and Generation Y,” said Michele Raneri, vice president of analytics, Experian.

Based on the results, nationally, the average debt in the United States was revealed to be $78,030 and the average VantageScore as 751. Average debt was calculated using first and second mortgage loans, auto loan/lease, other types of installment loans, as well as revolving accounts, but not necessarily a combination of all for each consumer.

The study looked at the distribution of debt over six key areas, including first mortgage, second mortgage, bank and retail cards, auto loans and student loans. Each generation’s largest debt contributor has been the first mortgage with Generation X (76.3%) moving slightly above the national average by five percent. The Greatest Generation and Generation Y came in under the national average by 8% and 17%, respectively, and the baby boomers were in line with the national average. The only category boomers were actually 23% higher than the national average was second mortgage.

As for Gen Y, the study found some major shifts regarding its largest debts. Mortgages contributed to 59.9% of their debt, followed by student loans at 15.1%, auto loans at 13.7% and bankcards at 5.2 %.

“While having the smallest amount of debt overall in the study, proportionally, their debts compared to the national averages are significant,” said Raneri. “This generation’s debt for mortgage is 17 percent lower, 421 percent higher for student loans, 136 percent higher for auto loans, and 24 percent higher in bankcards.”

According to the study, the Greatest Generation has less than half debt of baby boomers and Generation X, but proportionally, their highest debt burden falls in the mortgage category at 66.6%, followed by their second mortgages at 13.4%, and bankcards at 6.0 percent.

TIME MoneylandBy DAN KADLEC | @dankadlec | March 16, 2012 |  

Read more: http://moneyland.time.com/2012/03/16/retirement-rescue-boomers-embrace-reverse-mortgage/#ixzz1pZEcJzk0

Home equity is a major financial asset for older homeowners, and the  only sizable asset for many of them. With home prices continuing a  five-year plunge, many seniors have growing concerns about what to do  about not only their homes, but their overall retirement plans. A new website set up by the National Council on Aging (NCOA) is designed to deal with these issues.

“For  many middle-income families, home equity is their most valuable asset,”  says Barbara Stucki, vice president for home equity at NCOA. Home  Equity Advisor is the name of the group’s new initiative. Stucki says  it’s designed to centralize the extensive information, expert advice,  and decision-making tools that will help consumers make informed choices  about their homes.

“What we’re seeing from the  reverse mortgage world is that people are in a lot of debt,” she says.  “A lot of people are thinking about trying to tap the equity in their  home, or perhaps downsize to a smaller home to save money … Our big  concern is that if people do tap the equity in their home that they have  access to a broad range of possible solutions and not just a single  option.”

At the same time, there is a broad  range of home-related issues that go beyond accessing equity. NCOA has  provided information that aims to help people with aging, health, home  location, among other things.

“It’s not just a  question of making a rational economic decision,” Stucki observes. “One  of the challenges of home equity is that there are emotional decisions  associated with it. A house is your home, after all. Oftentimes, people  tend to wait [to make a decision] because they are overwhelmed. We hope  this will help them so that they can plan before it’s a crisis.”

The site has a Quick Check  tool that allows users to fill out an online questionnaire about their  housing-related needs or problems. Based on their answers, the site can  return information and advice that is tailored to a specific situation.

Home  Equity Advisor also offers information aimed at helping people with  four major objectives. In each of the four areas, there is additional  information on common questions and objectives that consumers might  have:

1. Stay and tap home equity

Take out a home equity loan

Refinance mortgage

Consider a reverse mortgage

Use equity sharing

Use home equity to pay off credit card debt

Build a secondary dwelling unit

Live with family

Make home repairs

Modify my home

2. Sell and move

Buy a new home

Find a new community lifestyle

Rent a new home

Move to assisted living

Stay in a nursing home

3. Strategies to stay in your home longer

Prepare for natural disasters

Avoid home equity scams

Maintain my health

Stay active

4. Preserve home equity and access other resources

Share housing

Increase income through employment

Get financial help from family

Consider public programs

Put my house in a trust

“The  reality is that a lot of times, people just look at a house as a place  to live or think of their equity as simply a mortgage,” Stucki says. “We  have to think more strategically about how to draw down that asset.”

And  right now, she observes, the options for doing so are limited. NCOA  would like to see “the financial services industry develop more  innovative products” involving home equity. One example Stucki cited  would be a more targeted product that ties the use of home equity funds  to a single spending need, such as paying for long-term care expenses.

NCOA  says Home Equity Advisor was developed with funding from the Financial  Industry Regulatory Authority (FINRA) Investor Education Foundation.

Feb. 10, 2012, 5:46 p.m. EST

By Charles Passy

If actuaries were the sorts of people to tell bar jokes, this might be one of them. But in truth, the 78-year-old woman happens to be flesh and blood. (We’ll call her Martha.) And equally real, for that matter, is her $20 million, newly minted life insurance policy — which was approved in late 2010 by The Hartford.

On first blush, such a business decision may seem to be merely a bold poker play — the insurance equivalent of going for an inside flush. (A $20 million policy, after all, is a big deal; the average face amount for a Hartford policy, by comparison, is a mere $500,000.) But look a little deeper and you’ll see something at work beyond risk-taking; you’ll see a revolution in the making, experts say. Ever so quietly, insurance-industry number crunchers are tossing aside the old statistical models and life tables. They’re recasting tired stereotypes about the “fatal” diseases of yesteryear. They’re rethinking that most ancient of questions: How long will we live? And they’re coming up with what many would say is a radical answer.

Call it the new death calculus: the 21st-century equation for determining human longevity. Or call it misguided guesswork, as some critics have. Either way, it’s hard to imagine a math problem that has flummoxed humanity for longer. (Actuaries, in fact, have been fumbling for an answer since 1583, when the first life insurance policy was issued.) And it’s even harder to conceive of one with more at stake in the outcome.

The dollar figure affected is so staggeringly enormous that it takes a while just to write out all the zeros. Start with $1.6 trillion, which is the amount currently invested in life insurance annuities — products typically tied to the longevity of the owner. Add another $6.5 trillion. That’s the amount in private and government pension plans, according to the Investment Company Institute. (Were the average U.S. life span to increase by just one year over current government projections, the country’s private pension systems — already struggling to keep pace after the recent market upheavals — would take a roughly $115 billion hit, based on data from Swiss Re, a prominent reinsurance firm, and ICI.) Now throw in another $4.3 trillion (what Americans have in 401(k)s and other defined-contribution plans), plus $4.6 trillion (what we’ve saved in IRAs), plus $10.5 trillion (the face value of individual life insurance policies in force in the U.S.) and you begin to get a sense of the ante. Leaving aside the matter of Social Security — a 14-digit-dollar question of its own — the pool of money tied to the death calculus is somewhere on the order of $27 trillion.

But don’t let the astronomical scale fool you. This particular bit of math is not merely a challenge for big governments and big business to solve. It’s one doozy of a personal challenge as well. As the expectations of human longevity morph and shift, so of course should people’s retirement plans — and with them, perhaps, answers to everything from the big-picture decisions (How much must you sock away for later years?) to the nitty-gritty (Can you afford to maintain two homes? Does it make sense to kick in for your granddaughter’s wedding?). After all, to prepare for four additional years of life span over current projections, someone who’s 50 years old now would need close to $160,000 beyond his or her current retirement savings to maintain a modest lifestyle, experts say. And increasing a nest egg by that much, assuming historical rates of return and inflation, could mean squirreling away an additional $2,500 a year. Scary, you say? Well, factor in the current jitteriness of the stock market and the millions of baby boomers fast approaching retirement and the solution to the death calculus is arguably more pressing than ever.

As for Americans whose retirement strategies won’t be affected, Stephen C. Goss, chief actuary of the Social Security Administration, can think of only one off the top of his head: “Bill Gates,” he says. For the rest of us, though, the answer matters deeply. Which is why a growing number of academic soothsayers — from actuaries and other mathematical modelers to biodemographers, medical sociologists and futurologists — are hard at work trying to solve the $27 trillion question.

To understand the latest thinking at The Hartford on this question, one has to travel a thousand miles from the company’s suburban Minneapolis headquarters to the rolling hills of Asheville, N.C. In the early-morning hours, if you loiter on the right mountain trail, you’re likely to see a sprightly, white-haired streak of a man jogging by. Dr. Robert Pokorski sets his alarm for 5 a.m. each day — but the alarm never goes off. “I’m always up by then,” he says, reading medical and other journals before he heads off for a run. It is this man, a 59-year-old physician-philosopher, M.B.A. and practicing Buddhist — working from a home office deep in the Carolina woods — who is steadily transforming The Hartford’s underwriting manual.

That tome, which provides guidance on virtually every new blood test, diagnosis and medication — essentially defining each variable in the insurance company’s death calculus — is now more than 2,000 pages long, having quadrupled in size over the past three decades. Pokorski, who was named chief medical strategist for the company’s life insurance division in 2010, is hardly responsible for all of those changes, but his impact on the manual at large has been enormous, says Brian Murphy, an executive vice president at the company. Summoning research and data from throughout the medical literature, Pokorski, along with other physicians, made the case that heart disease and several forms of cancer are no longer the “death markers” they once were. As recently as 1995, for instance, a man with advanced coronary disease was flatly uninsurable. Now it’s expected that an arterial blockage can be repaired relatively simply and new plaque buildups can often be controlled with medication, so that life expectancy is only modestly affected.

The changes, in The Hartford’s case, have been immediate — with hundreds of formerly uninsurable applicants now getting coverage (or better classes of coverage) each year. But the driver here has not been altruism so much as it has been a financial hip replacement of sorts for the firm. The Hartford, which two decades ago was the No. 6 life insurance company by revenues, is now ranked at No. 17. Its share price, meanwhile, has plummeted a jaw-dropping 78 percent over the past four years, compared with the 40 percent fall for the Life and Health Insurance benchmark index. The economy has been brutal on the company. But The Hartford’s new death calculus, in an odd way, is likely to give it a slight edge on the competition, Pokorski believes. “I think we take risks some large companies may have overlooked,” he says. The sales numbers, in fact, back that up in part. The Hartford increased year-over-year sales by 15 percent in the first half of 2011, compared with an industry average of 4 percent.

Rivals aren’t exactly giving ground. MassMutual, the No. 5 life insurer, boasts that it, too, takes a very progressive approach when it comes to evaluating, say, breast cancer survivors. “I would say we’re on the leading edge,” says Melissa Millan, a senior vice president with the insurer. Representatives for top-ranked MetLife and Prudential also say their underwriting manuals are changing by the month, as medical marvels reinvent treatment paradigms. They say they have an eye to the future as well.

Pokorski, for his part, grins widely, his wireless eyeglass lenses popping up on his cheekbones. He says cheerfully that one doesn’t need to look to the future for guidance as much as to the past. Average life expectancy has risen from 47.3 years in 1900 to 78.3 today. While much of that early — and most dramatic — gain came from lowering infant and childhood deaths, the experience in more recent decades is particularly telling, Pokorski says, pointing to reduced mortality rates at older ages. Since 1940, American men have gained about a year of life expectancy — and American women, 1.1 years — with every five-year period. If we merely hold to the same pattern, he says, average life expectancy at birth by the end of this century will be close to the century mark. Just count the number of centenarians. There are now about 53,000 Americans who are age 100 or older, compared with just 2,300 in 1950 — a 2,200 percent increase. The general population, meanwhile, has merely doubled in that span of time.

The idea that humankind is on the threshold of the most meaningful bull run-up of them all — the longevity rally — may be an exciting prospect. But tell it to researcher S. Jay Olshansky and he is sure to laugh in your face. (In a nice way.) Olshansky, 57, who teaches at the University of Illinois at Chicago, is the sort who posts videos online of his nonagenarian father dancing and telling bawdy jokes. And the most outrageous joke Olshansky (the younger) can think of, it seems, is that human life spans are heading for Methuselah territory.

By Steve Vernon

(MoneyWatch)  

Americans aged 62 and older had accumulated $3.19 trillion in home equity by the end of the third quarter of 2011, according to data recently released by the National Reverse Mortgage Lenders Association (NRMLA). During the same quarter, home equity increased by $46 billion, reflecting stabilization and improvement in home prices. The $3.19 trillion is the net result of a $4.2 trillion increase in aggregate senior housing values and a mortgage debt of $1.02 trillion.

This is good news for us older folks, as home equity often represents seniors’ largest financial asset, frequently surpassing the value of 401(k), IRA and retirement savings combined. As a result, one of the most important issues facing aging boomers will be if — and how — to use their home equity to help secure their retirement.

Reverse mortgages are one way to use your home equity in retirement. You can borrow against the equity in your home without having to make monthly payments as required when you have a traditional mortgage or home equity loan. Under a reverse mortgage, funds are advanced to you, and interest accrues on this balance. The outstanding balance isn’t repaid until you leave the home, sell it or pass away. You can take loan proceeds as a lump sum at loan origination, establish a line of credit or request fixed monthly payments for as long as you continue to live in your home.

According to the NRMLA, 99 percent of the reverse mortgages offered in America are home equity conversion mortgages (HECM) that are insured by the U.S. Department of Housing and Urban Development (HUD). To date, more than 725,000 senior households have utilized an HECM.

Possible uses of a reverse mortgage include:

– To pay for high medical or long-term care bills
– To pay for needed repairs on your home
– To provide a monthly payment to supplement your retirement income
– To buy a new home

As with conventional mortgages, you can get a reverse mortgage with a fixed or variable interest rate. Bear in mind: No matter what type of reverse mortgage you get, interest rates are generally higher than conventional mortgage rates. For example, one proprietary calculator shows a fixed reverse mortgage rate with an annual percentage rate (APR) of 5.95 percent, while conventional 30-year fixed mortgages are in the 4 percent territory right now.

Here’s one example of how a reverse mortgage might work, according to an online calculator offered by the NRMLA. A 70-year-old couple with a paid-for home worth $300,000 could get a monthly payment of $986 for as long as they live in the home or a single sum payment of $172,564. The calculator shows a variable interest rate of 4.11 percent; at that rate, the outstanding loan balance would grow to $211,037 in five years and $258,086 in 10 years. These amounts would be repaid to the bank if the house were to be sold or the owners pass away.

The monthly income shown by this example would certainly help supplement Social Security and other retirement income, but most likely it won’t compensate for not having any other retirement savings. I’d not count on using a reverse mortgage as an excuse not to save as much as possible for your retirement years. 

Before you snap up a reverse mortgage to secure your retirement, learn all you can about its terms and conditions. HUD, the NRMLA and the Federal Trade Commission (FTC) all offer excellent educational websites on the topic. In particular, make sure you understand the important conditions, such as upfront fees and insurance premiums, which can range from two to five percent or more of your loan amount.

You should also consider other ways to use your home equity to secure your retirement, including:

– Renting your house and using the monthly income to cover rent on a smaller, cheaper place,

–  Selling your house and investing the proceeds, or

– Taking on a roommate by renting a room or two to realize some income. 

If you aren’t purchasing long-term care insurance, then I’d seriously consider holding your home equity in reserve for the day when you might incur high bills for long-term care. At that time, you can take out a reverse mortgage or home equity loan. If you don’t ever need long-term care, then the home equity will provide a legacy to your children.

Your home equity: How to use it for retirement security
Planning your retirement: 9 ways to reduce your housing costs 

As always, take the time to investigate all of your options. You’ll sleep better at night, knowing that you’re making informed decisions.