Welcome everyone to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, health care and more. This show is an extension of the book, How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretyearontime.com. My name is Mike Decker. I'm the author of the book, How to Retire on Time, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to financial topics, we can pretty much cover it all. Now that said, please remember this is just a show.

Everything you hear should be considered informational as in not financial advice. If you want personalized financial advice, then request your wealth analysis from my team today by going to www.yourwealthanalysis.com. With me in the studio today is mister David Fransen. David, thank you for being here today.

Hello. Thank you.

David's gonna be reading your questions, and and I'm gonna do my best to answer them. You can send your questions in right now or anytime this week by either texting them to 913-363-1234. Again, that's 913-363 1234 or email them to hey mike@howtoretireontime.com. Let's begin.

Hey, Mike. What do you think of reverse mortgages? We've seen a lot of ads, right, during the day.

Yeah. Yeah. Okay. So reverse mortgages, I think the best way to to frame this one is whenever things go wrong, you have backup plan a, backup plan b, backup plan c. This is like backup plan r as a reverse mortgage.

It it should be way, way, way down on the list. See. I've I've heard of but cannot confirm people say no. Just, you know, get a reverse mortgage. You're gonna die in your house.

That's your intention. You might as well get the money out and grow it in the market or do all these things. There's so much suitability and regulation around trying to prevent people from doing this, yet it still happens. So, like, if you buy an insurance contract, is this coming from a reverse mortgage? If you check that box, there's probably a huge x on on, like, getting approved for that.

I don't know how they'd catch it in, like, a brokerage account. But in my opinion, your primary residence should stay your primary residence and you keep the assets there. It should not be a source of income. It should not be a part of your portfolio. It's where you live.

And that's it. Yeah. If you intend to downsize, that's a whole another conversation. So let's say you intend to downsize. Yeah.

Let's say, David, you're 65 years old and around 75, you and your bride intend to just get a smaller house.

Yep. That sounds reasonable.

Yeah. You just want less to clean, less to take care of, maybe a smaller community.

Totally.

First off, you wanna be mindful of how much your house is appreciated in value because you might wanna sell sooner than later so you can get the the there there's a a threshold, like 250,000 if you're single or 500,000 of gains that you can defer in the sale of your house, which you wanna be mindful of that so you're not paying unnecessary taxes if you know you're already gonna go in that direction. But if you wanna downsize it, then you might consider a part of your house as a part of future addition into your portfolio. Let's say your house is worth 700,000 and the future house is worth, let's say, 400,000. It's just a smaller situation.

Okay.

Maybe you you anticipate a $300,000, addition to your plan. I I could see that happening. But notice how it only comes in when you sell the house. You're not pulling the money out of the house with this reverse mortgage stuff. I mean, really, in my mind, a reverse mortgage is like your last line of defense before you you go into Medicaid and things get a little bit more rough.

Okay.

So that makes sense.

Yeah. So it's a reverse of a regular mortgage. Right? So I need to borrow money to buy a house. And then

A reverse mortgage is basically saying, I'm in the house. Let me get money from the bank, and then the bank just enjoys it when you die.

I see.

They get the house and then they do whatever they want with it. Problems with the reverse mortgages is you're still paying the taxes on the house that you're living in. So you're not immune to that, and that can increase in value. You can still owe money. So if you have a if you have a reverse mortgage and let's say the house goes down in value or something happens, it's not kept up well, you can be asked for that.

If you go into a a nursing care facility or something similar and you're not living in the house anymore, they can demand payment or take the house. So the they're just there are all sorts of things that can happen. And I'm I'm I'm glossing over the technicalities. There are different contracts and ways to structure reverse mortgages. Don't assume they're all the same, but it's something I would recommend if you can help it to steer clear of Yeah.

And focus on retiring on assets that don't include your primary residence. And, also, don't ask if a reverse mortgage is right for you from a reverse mortgage broker. Talk to a fiduciary. Talk to, you know, someone that is legally bound to do us in your best interest. So if if they can claim to be a fiduciary, like a a series 65 financial advisor or a CPA maybe, they can't really give investment advice, but they could show you some things.

I I don't know. I just be careful of of reverse mortgages.

Sounds a little bit risky.

Asking from a reverse mortgage broker. If a reverse mortgage is right for you is kinda like asking if you should buy steak from a butcher, in my mind.

That sounds delicious.

Yeah. But proceed with caution and just remember that there's always a catch. Everything you do, there's always a catch. And if you don't understand the downside, there may be something that you're missing. So pump the brakes.

Ask more questions until you understand. That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist.

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