The September 2017 AAII Journal is Now Available Online


Feature Article » Exchange-Traded Funds

Technology Takes Over the Top-Performing ETF List

Two semiconductor funds help put technology on top, though last year’s dominant sector, health care, maintained a presence.

Portfolio Strategies »

Minimizing Taxes With Asset Allocation

Strategically taking into consideration both tax laws and the tax-efficiency of an investment will maximize aftertax returns.

Portfolio Strategies »

The Impact of Expense Ratios on Retirement Income

Simply lowering investment expenses on a $1 million portfolio by 0.01% boosts annual portfolio income by more than $200 per year.

Investor Professor »

Reverse Mortgages

An overview of how reverse mortgages work and their costs, plus explanations of key terms.

Portfolio Strategies »

Using Reverse Mortgages to Mitigate Periods of Poor Returns

A coordinated strategy of using reverse mortgages can both support higher withdrawal rates and allow for a smaller allocation to cash.

First Cut »

Expanding the Driehaus Growth and Momentum Screen

The size and earnings surprise requirements on this growth and momentum screen were loosened to identify more stocks with potential upside.

Departments »

Briefly Noted

Current news items of interest to individual investors.


Comments from members on recent articles, including IRA beneficiary rules, dividend yield substitution and ETF changes made to the Model Fund Portfolio.

Editor’s Note:

AAII Journal Editor photo “When my information changes, I alter my conclusions,” economist Paul Samuelson explained, paraphrasing a statement attributed to John Maynard Keynes.

Samuelson’s words succinctly convey my attitude toward reverse mortgages. Until a few years ago, reverse mortgages held a negative connotation in my mind. If pressed, I could not give you the exact reasons why, but costs and articles about seniors losing their homes were culprits. I’ll admit to having never looked closely at reverse mortgages.

My opinion started to evolve last year. In her book, “How to Make Your Money Last: The Indispensable Retirement Guide” (Simon & Schuster, 2016), personal finance columnist Jane Bryant Quinn discussed how her own opinion changed. She summarized her revised viewpoint in the June 2016 AAII Journal (“Cash Flow and Allocation Strategies for Retirees”) by describing reverse mortgages being a fourth bucket of money (in addition to cash, bonds and stocks) that retirees can withdraw from.

Quinn’s discussion only lasted a few paragraphs as there were other topics I wanted to cover with her. At the time that the transcript was being finalized for publication, I saw the need for a longer, more in-depth article on reverse mortgages. So, I added it to the list of article ideas that I keep. The one question I had was who to write it. I wanted someone who not only understood how to effectively use reverse mortgages, but who I could also trust not to be promotional about them.

Several months later, I saw a tweet from Wade Pfau regarding a book he wrote about the subject (“Reverse Mortgages: How to Use Reverse Mortgages to Secure Your Retirement,” Retirement Researcher Media, 2016.) Wade is a professor at The American College and has written much about retirement income strategies. After reading his book, I reached out to him. He responded with a great article discussing both how reverse mortgages emerged as an additional tool for funding retirement and how to strategically use them. You can see it here.

The article further changed my mind. I now think reverse mortgages are worth considering as part of an overall retirement strategy. At the same time, retirees (and soon-to-be retirees) should go into them with eyes wide open and with a disciplined, well-thought-out strategy.

Reverse mortgages come with costs. Their benefit as a supplement to withdrawal strategies occurs over the long term. Quinn suggests retirees intending to strategically use them should plan on staying in their houses for at least 15 to 18 years. Throughout the duration of the reverse mortgage, taxes, insurance and upkeep must be paid. Any outstanding balance will need to be settled once both spouses leave the house.

On the other hand, when properly used, a reverse mortgage can allow a retiree to withdraw a greater sum of money. This is because the credit line grows over time and it can be used to fund spending during down markets (instead of withdrawing portfolio dollars when asset prices are depressed by down market conditions.) If left to grow, the credit line can also help with late-in-life costs (home health care, modifications to the home, etc.) for those who wish to “age in place.”

Like many other financial products, reverse mortgages are not one-size-fits-all. They need to be evaluated in the context of a person’s/couple’s finances and lifestyle desires. Like annuities and life insurance, reverse mortgages can be very helpful. They can also be financially harmful if sold or used incorrectly.

Stepping back to look at the bigger picture, how retirement is financed is a very personal decision. Retirees now have a variety of products and strategies to choose from. The options range from covering all fixed costs with guaranteed income (Social Security, pensions, annuities, etc.) to combining an all-equity portfolio with a cash bucket to a mixture of various assets and products—not to mention overlaying prudent tax and spending strategies.


Charles Rotblut, CFA
Editor, AAII Journal


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