The Reverse Mortgage in action

160516.Reverse Mortgage

Two specific applications of the reverse mortgage are examined …

In last month’s article, “The Reverse Mortgage: an underutilised retirement planning tool?” we explained that a reverse mortgage is a potential solution for retirees who both wish to stay in the family home indefinitely and continue to enjoy a lifestyle beyond what their investment wealth is able to support.

Without access to a reverse mortgage, such retirees would be forced to either downsize to free up capital to live on and/or revise their lifestyle expectations downwards. Neither option may be particularly palatable.

In this article, we examine how a reverse mortgage would work in such a situation. We refer to it as the “Maintain lifestyle” scenario. We also discuss a scenario called “Bring forward inheritance” in which a reverse mortgage is utilised to provide assistance to adult children while retired/near retired parents are alive, rather than delay the children’s access to proceeds of the family home until the parents’ death.

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Why are most millionaire doctors and lawyers Income Statement Affluent?

Why are most millionaire doctors and lawyers Income Statement Affluent?
Doctors and lawyers are inefficient at turning high incomes into wealth

In both his most recent book, “Stop Acting Rich”, and his previous best selling books, “The Millionaire Mind” and “The Millionaire Next Door”, Dr Thomas Stanley, US researcher of the behaviours of wealthy people, distinguishes between millionaire households that he calls Income Statement Affluent (“IA”) and Balance Sheet Affluent (“BA”).

Stanley defines millionaires as those holding more than $1 million in net investment assets. The family home and other lifestyle assets are excluded from this measurement, as they are seen primarily as sources of consumption rather than avenues to true financial independence1.
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The Holiday House Is A Lifestyle Choice

Holiday houseThe holiday house purchase decision: emotional or logical?

You’ve just spent two glorious weeks at the end of January at your friend’s beachside holiday house with your young family. The stress of the past year’s hard work has vanished and you’re feeling great. You’ve reconnected with your partner and your five and eight year olds have been reacquainted with a parent.

It’s about the worst time possible to make a rational investment decision but you decide that you should buy your own holiday house, now. A couple of hours drive from home, so that you and the family can recreate the bliss of the recent holiday every weekend.

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How far to financial freedom?

What you live off when you’re not working …Financial freedom

In our introductory meetings with potential new clients, we want to obtain a preliminary view of their “Net Investment Wealth”. It quickly gives us an idea of how far along the road to financial freedom or financial independence they have come and how far they have to go.

Net investment wealth is your net worth less your lifestyle assets. It’s the stuff available to live off when you are no longer earning income from your work.

To make the concept more concrete, consider Steve and Kate Wilson. Their assets and liabilities are shown below:
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Is This You?

By most measures, you’re doing pretty well.

You either have a successful career, as a professional or business executive, your own growing and vibrant business and/or are independently wealthy.

You set and achieve high standards for yourself.

But you feel that your personal financial affairs may not be as well positioned and as organised as other aspects of your life. You are not driven by money for the sake of it, but “money related” issues on your mind may include:
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