Monthly Archives: June 2009

Reverse Mortgages Require Prudent Evaluation

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Reverse Mortgages have been in the headlines for the past few months. Seniors are using reverse mortgages to repair diminished nest eggs, as they try to stave off the damaging effects of this major recession:

Seniors’ portfolios hammered by the stock market decline are getting a boost from reverse mortgages. Such mortgages allow seniors to get monthly payments based on the equity value in their homes – the amount that the value of the home exceeds any mortgage on the home.

Aging has its compensations, at least in figuring a reverse mortgage payout. The older the homeowner, the better, because the payout increases with the homeowner’s age on the date the mortgage begins.  For homeowners younger than 70, the payout rate usually will be unattractive. But as age increases to 70 and beyond, the payout rate rises markedly, especially for larger loan amounts.

However the headline this morning states that Reverse Mortgages Leave Seniors at Risk according to the Government Accountability Office (GAO).  Meanwhile the Department of Housing and Urban Development (HUD), which usually backs these reverse mortgages, defends such programs’ safeguards.

While these reverse mortgage loans have become more attractive to seniors as the economy has soured and housing values have dropped, reverse mortgages are complex. That is why the FHA has long required that the seniors take part in HUD-approved counseling sessions before these loans are processed. The GAO report concluded that HUD “lacks effective controls” over the counseling programs.

Seniors should therefore consider carefully the reverse mortgage rates before entering into such a loan arrangement.  They should consider all eventualities that might arise and use a reverse mortgage calculator to estimate what they might be faced with in the future.  It could also be very worthwhile to consider using the AARP HUD Reverse Mortgage Counseling services too.

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US Seniors Stay Younger Than UK Seniors

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US pensioners are mentally ’10 years younger’ than those in England.

American pensioners are mentally 10 years younger than their English counterparts due to better education and quality of life.   Researchers found that Americans had better memories, were quicker witted and were generally smarter than their English counterparts. And the older the pensioner, the greater the difference.

Researchers from the Peninsula Medical School, the University of Cambridge and the University of Michigan have carried out the first international comparison of cognitive function in nationally representative samples of older adults in the US and England.

The study compared 8,299 Americans with 5,276 British seniors aged 65 and older. The same cognitive tests were administered to the two groups in the same year. The US advantage in ‘brain health’ was greatest for those aged 85 and older. On a population level, the overall difference in cognitive performance between the two countries was quite large and amounted to a decade of ageing – the cognitive performance of 75-year-olds in the US was as good, on average, as that of 65-year-olds in England.

U.S. adults reported significantly lower levels of depressive symptoms than English adults, and this may have accounted for some of the U.S. advantage in ‘brain health’ since depression is linked with worse cognitive function.

The research team also found significant differences in alcohol consumption between the U.S. and English seniors. More than 50 percent of U.S. seniors reported no alcohol use, compared to only 15.5 percent of English seniors. Previous research has shown that moderate alcohol consumption, compared to abstinence, is linked with better cognition among those aged 50 and over.

US citizens tend to retire later than those in England, and this too can have an effect on cognitive performance – there may be a connection between early retirement and the early onset of cognitive decline.”

Dr David Llewellyn, one of the researchers, added: “With the population of the world ageing at a rapid rate, future cross-national studies regarding medical and social factors and ageing can only make significant contributions to the quality and delivery of public health.“

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Dieting May Shorten Your Life

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There is an old joke that goes as follow:  I was teaching my horse to live on less and less food.  He had just about learned the trick when he upped and died.  Clearly obesity brings with it a whole slew of associated health problems, but being too thin apparently is not the answer.

A Canadian research study suggests that A few extra pounds can help seniors live longer through illnesses.

The study suggests people with a bit more meat on their bones actually live longer than people who maintain a normal weight for their height.  The study, published online in Obesity Journal, examined the relationship between body-mass index and death among 11,326 adults in Canada between 1994 and 2007. BMI uses height and weight to estimate body fat.

A similar Japanese study found people who are a little overweight at age 40 live six to seven years longer than very thin people.

The study was funded by the National Institute on Aging, the National Institute of Diabetes and Digestive and Kidney Diseases and the Canadian Embassy in Washington, D.C., and involved researchers at Statistics Canada, Kaiser Permanente Center for Health Research, Portland State University, Oregon Health & Science University, and McGill University.

Dr. Yoni Freedhoff, director of the Bariatric Medical Centre in Ottawa, agreed that elderly people benefit most from a few extra pounds, because fat can be used as an energy reserve in case they get sick and have to go to the hospital.  But the research does not suggest that seniors should keep a steady diet of fatty foods and high-calorie milkshakes, either.  “At the end of the day, people have to live the healthiest life they can enjoy living. Period,” said Freedhoff.

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Drug makers admit taking too much money

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Drug makers admit they’ve taken too much money

By agreeing to cut prices by $80 billion over the next 10 years to close the Medicare Part D prescription drug doughnut hole and help pay for health care reform, the major pharmaceutical companies have admitted that they’ve been raking in way too much money.

The drug manufacturers, organized as the Pharmaceutical Research and Manufacturers of America (PHARMA), have agreed to a minimum 50 percent discount for most Medicare beneficiaries for brand-name medicines purchased in the doughnut hole gap in Part D coverage, roughly between $2,700 and $6,100 a year.

The doughnut hole came into existence when former President George W. Bush and his fellow Republicans designed Part D to benefit pharmaceutical and insurance companies more than the elderly Americans who need the coverage. At the same time, the federal government was barred from negotiating drug prices in bulk with the pharmaceutical companies.

The $80 billion commitment, part of $2 trillion in health care cost cuts sought by President Barack Obama over the next 10 years as part of the health care reform effort, shows how excessively profitable the pharmaceutical industry has become.  Even so this represents only 4% of the targeted reduction.  In Canada, where the government negotiates drug prices as part of a Single Payer arrangement, American made medicines are considerably cheaper.

The 30 percent overhead for private health insurance is  the other big area for cost cutting. Eliminating these middle men through a Single Payer arrangement or Obama’s public health insurance option is the best way to achieve universal coverage at the least cost. Every other industrialized country has already shown the way.

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Tax deductible mortgages

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Any one in the US or the UK will wonder why such a post is necessary. They all automatically have their mortgage interest payments tax deductible. Not so in Canada. However with a little work, even in Canada you may find that Tax deductible mortgages are worth the hassle. According to Jonathan Chevreau, Financial Post, the Canada Revenue Agency is unlikely to challenge if they are done properly.

Why it should take such effort is unclear. It is accomplished by applying the so-called Smith Manoeuvre, popularized first in British Columbia by Fraser Smith in a book of the same name. It has now spread across the country, apart from Quebec. Smith developed and packaged a variation on the standard tax-permissible strategy of selling off non-registered securities; using the proceeds to pay off the mortgage; then reborrowing to repurchase the securities, thereby creating legally sanctioned tax-deductible debt.

A major competitor to Smith, TDMP or Tax Deductible Mortgage Plan, has been named one of Canada’s fastest-growing companies by Profit magazine. It ranked 88th on the 21st annual Profit 100 ranking.

TDMP has a $39 per month fee charged to homeowners, a fee which is itself tax deductible. For this, TDMP takes on all the back-office work and saves the homeowner the bother of having to move the money around every month in order to make their mortgage payments and purchase securities. The fee is considered a carrying charge for administration of income from investments.

Why Canada does not follow the lead of the UK and the US on tax deductible mortgages is unclear. Such an approach does help the residential housing construction market, which can create large numbers of jobs. However until it does, the TDMP approach seems a good way to proceed.

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Retirement Planning – Pensions Galore

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Herewith without comment: Glenys and Neil Kinnock have six state pensions – Times Online.

GLENYS KINNOCK, the new minister for Europe, has amassed six publicly funded pensions worth £185,000 per year with her husband Neil, the former leader of the Labour party. They have already received up to £8m of taxpayers’ money in pay and allowances, he as a European commissioner and she as a member of the European parliament.

The pair are already drawing payments from three of their taxpayer-funded pensions. Glenys Kinnock, 64, soon to be elevated to the House of Lords alongside her husband, is collecting a teacher’s pension and from next month is entitled to another from Brussels with an estimated annual value of £48,000.

Lord Kinnock, 67, is receiving one pension as a former MP and a second for his service in Brussels, together worth more than £112,000. Glenys Kinnock is simultaneously drawing a ministerial salary of £83,275. Her job entitles her to a further ministerial pension.

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Second Career Or Sixth Career

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As we all live longer and healthier lives, many cannot wait to ‘retire’ and move on to a second career.

If you need any inspiration for that, check out the Vancouver Sun Profile of B.C. Supreme Court Chief Justice Donald Brenner, who has resigned after nine years at the helm of the province’s senior trial bench.

At 64, Brenner could have continued sitting until 75, but he said he was looking forward to new challenges.

After 17 years as a judge of the Supreme Court of B.C., including the last nine years as chief justice, I have decided it is now an appropriate time for me to step down. I will be leaving our court on Sept. 7, 2009. I’ve had five careers, I think. It’s time to reinvent myself again.

Among other things Brenner was at one time a commercial pilot with Canadian Airlines. He is setting a great example for us all.

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Retirement Planning Faces A Perfect Storm – HSBC

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An HSBC Insurance study reveals that as far as pensions are concerned, a ‘Perfect Storm’ looms for an unprepared world.

A number of factors are in play:

  • Demographic, individual and financial elements are poised to derail people’s retirement plans unless they prepare properly now.
  • People’s short-term survival strategies in the midst of this recession are creating a serious long-term pensions ‘downturn deficit’.
  • This all is occurring even though people are aware that they are likely to live longer.
  • It is made worse by poor levels of financial understanding, education and access to advice
  • People are more concerned with protecting their possessions in the short-term than ensuring they can look forward to a financially secure retirement

Stephen Green, Group Chairman of HSBC, said: “The ‘preparedness gap’ reveals that families need greater support and guidance to effectively handle their finances, not simply in schools and colleges but through ‘trusted advisers’ providing professional financial guidance. The cost of procrastination is likely to be high.”

More specific advice can be found on the HSBC web page on Planning For Retirement.

As Jonathan Chevreau points out Canada is affected by the aging trend that is occurring worldwide. HSBC projects that between 2010 and 2015, the number of dependent adults in Canada will pass the number of dependent children for the first time, a crossover point which will arrive much earlier compared with emerging economies.

To better cope, 48% of Canadians and 55% of Americans would like to see further tax relief on savings. 16% of Canadians think the retirement age should be raised and more support be provided to those who choose to work longer.

28% of Canadians viewed debt as a key obstacle to saving more. Many are trying to create a “buffer” of savings by cutting back on both large and small purchases while also paying down debt.

Nevertheless it is clear that many people will struggle to make ends meet when they come to retire, unless they urgently review their priorities and planning and have the means to make adjustments..

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Beware Get-Rich Schemes That Are Too Good To Be True

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It is good to be on-guard against Get-Rich Schemers and Their “Money Making Programs”. They usually claim to have the secret to making money fast with very little effort or time. Usually there is a catch if you look closely.

One get-rich scheme for seniors that was somewhat curious but did not have an obvious catch appeared some three years ago. Terry Savage in the Chicago Sun Times is describing how those seniors are now facing a devastating future. His article describes how a Risky insurance plan has seniors spinning with many now on the hook for huge loans – and taxes.

The arrangement was called “Spin Life”. Agents encouraged older people to take out huge life insurance policies on themselves, even though they didn’t need the insurance and couldn’t afford to pay the premiums. Investors would lend them the money to pay the premiums for the first two years, until the policy was past the “contestability period.” Then the policy would be sold to an investor, who would continue to pay the premiums, hoping to collect on this “bet” on the senior’s longevity.

Somewhat macabre but the senior citizen was tempted by an upfront “bonus” – ranging from thousands of dollars to expensive cruises — just for letting the investor bet against the insurance industry’s mortality tables and eventually collect the policy proceeds when the senior died. They were promised more money when the policy was sold after two years to investors. In some cases, the insurance companies decided that the insured should guarantee at least 25 percent of the premium loan but the seniors were assured there was no risk since well-known names in financial services were raising money to buy these policies.

With the credit crunch, the pools of investor money predicted to buy these policies has dried up and there is no money to complete the deal. Even if the insurance companies forgive the loan, the senior is liable for taxes on the forgiven loan.

To simply walk away from this deal, the policy buyer would owe huge sums – half in guarantees to the lender, half in taxes to the IRS. Or the senior could keep paying the large premiums hoping to find a buyer who would pay something for the policy with a large payout when the senior died. That’s a no-win situation.

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