In my current plan we die with no cash left and have this millions of euity in our house. Any way for me to model something like a reverse mortgage since I would like ot model bringing the value of the estate down to zero.
If I model selling the hosue there are taxes that hit in a big way because of home offices.
Disclaimer: ESPlannerBASIC, ESPlanner, ESPlannerPLUS and ESPlannerPRO, are educational calculators designed to give users input in mapping out financial futures, but should not be acted upon as a complete financial plan. The creators of these programs are not certified, registered, authorized, or any other type of financial planners. These programs are simply tools for helping you think through economic futures. Its "recommendations" should be viewed as informative inputs into your own decision-making with respect to saving and the purchase of life insurance. ESPlannerBASIC, ESPlanner, ESPlannerPLUS and ESPlannerPRO provide neither economic, financial nor tax advice, which can only be delivered to you by authorized professionals.
RSS
Bump.
My wife and I live in the San Francisco area and have no kids. Housing is expensive and represents a big part of our net worth.
To approximate a reverse mortgage, I've modeled a change from owning to renting at age 80, but that reflects a tax hit I wouldn't experience, and even at that age still does a poor job of consumption smoothing: I get a permanent increase in discretionary spending capacity just when I don't need it.
I could pull this transition in another five or ten years to improve the smoothing, but then I'd be modeling 25 or 30 years of life from that point that I'm not planning to live.
It seems that I could handle the income side of this transaction with special receipts, but how about the reduction in equity in the primary residence?
Any other suggestions?
SirDodo,
I have modelled the inflow of money from a reverse mortgage as a non-tax related Special Receipt. It can be a lump sum or a stream of payments. As a cash-basis taxpayer, I do not believe one cannot deduct accrued interest anyway.
Repayment occurs when you pass on or move out and sell the house. Special Bequests are handled out of the home equity upon death. So, I have modelled the payoff as a Special Bequest that comes out of the sale of the home when your estate sells it at the end.
The program may not match the interest rate on your reverse mortgage. If I enter the balance in "today's dollars" the program should grow it at whatever your Assumptions page calls for. Or, you could do a quick Future Value calculation matching the terms of the reverse mortgage and set that figure as the future Special Bequest.
This is the closest I can get. I am not a pro.
Good luck,
Tim
I try to model this by setting my Maximum Indebtedness to a very high value, and checking to see if it's still in the range of a reverse mortgage. I sell the house one or two years before my maximum age (mainly to avoid the insurance the ESP would force me to buy). It's probably not accurate to the dollar, but it's probably in the ballpark, and planning for forty years out or so, who knows what financial products will be available anyway.