section 1 - The American College Online Learning Center

6. Capitalize on the value of the home—Use a reverse mortgage, downsize and pull outequity, use the sale-leaseback strategy, or consider a home equity loan. (Focus on thereverse mortgage.)a. Helps to potentially minimize:(1) Longevity risk—A reverse mortgage can be used if the client has anunusual life expectancy.(2) Inflation risk—A reverse mortgage can be used if the client needs toaugment his income to maintain his purchasing power.(3) Long-term care risk—A reverse mortgage can be used if the client hasadditional expenses for long-term care.(4) Incapacity risk—A reverse mortgage can be used if the clients haveadditional expenses associated with their incapacity.(5) Health care expense risk—A reverse mortgage can be used if the clienthas uninsured health care expenses.(6) Liquidity risk—A reverse mortgage can be used to provide liquid cash inthe later stages of retirement.(7) Loss-of-spouse risk—A reverse mortgage can be used if the client loseshis/her spouse.b. Hurts by potentially exacerbating:7. Investing in equities(1) Bequest opportunity—May take away the client’s opportunity to leave thehouse to his or her heirs.a. Helps to potentially minimize:(1) Longevity risk—A portfolio that brings in more investment return because itinvests in equities will provide income for the later years of retirement.(2) Inflation risk—Since stocks are the highest yielding assets over longperiods of time, they are the best investments to offset the losses inpurchasing power.(3) Timing risk—If the stock market has larger than normal returns in the earlyyears of retirement, the client will benefit.(4) Asset allocation risk—If the appropriate portfolio is chosen.(5) Reinvestment risk—Stock holdings are not subject to reinvestment risk.(6) Liquidity risk—Since equity investments are highly marketable, they areavailable for use at a moment’s notice.b. Hurts by potentially exacerbating:(1) Excess withdrawal risk—Since equity investments are highly marketable,they may encourage a client to spend his/her assets too quickly.(2) Timing risk—If the stock market has losses in the early years of retirement,the client will be adversely affected.(3) Asset allocation risk—If an under-diversified portfolio exists(4) Market risk—When an event occurs to drop all stock prices, it will probablylower your client’s equity holdings.5.37