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Friday, November 2, 2007

Your house as a retirement piggy bank

Many Americans have counted upon the appreciation of the value of their homes as a part (sometimes the major part) of their “retirement savings.” Now, all of a sudden that piggy is looking a bit scrawny. The recent market malaise has not only wiped out much of the value of this savings vehicle, but it has also left it locked into an asset that is not very liquid. It can take a couple of years to sell these days, especially at the mid and upper price ranges. This is causing more and more retirement-age people to delay retirement or forget about it altogether.

The mortgage industry has come up with the concept of a reverse mortgage, which allows the homeowner to take out their equity and not pay anything back until they die. There are some hefty fees involved, however; and, you still have the house to pay taxes on and maintain. A reverse mortgage isn't a perfect solution; but it can free up your equity to give you something to live on for a while in retirement. Still, selling out completely would be better.

At least one couple has come up with a unique approach to selling their house – they’ll give you your money back when they die. As reported in several news feeds, Bob and Ricki Husick came up with a really creative twist: Whoever buys their four-bedroom, 31/2-bath home on Fountain Hills Drive in Pine (near Pittsburgh) will get their money back after the Husicks die.

Not only that, but if the buyers are willing to provide care for the Husicks in their old age, they could also inherit the Husicks' retirement home in Arizona for a total estate now worth about $500,000. The couple has no heirs.

"Why not go for the works? So if we're worth $2.5 million, you get it all," said Mr. Husick, 55, a former Wachovia mortgage broker who would like to continue working after he and his wife move to Arizona.

"That's one way you get a built-in child or a built-in someone to care."
Of course, the value of the estate could erode, too, depending on the Husicks' fortunes and the cost of their long-term care. But Mr. Husick points out that he began saving for retirement at age 21, and he's willing to let the buyers write the will to ensure they inherit the Husicks' assets.

"We don't want you to think we're trying to trick you," he said. "You draw it up and we'll sign it."

If buyers prefer a more conventional arrangement, the Husicks are willing to sell their home, without any strings, for $399,900. The house, which the couple is selling themselves, has been on the market for 11 months.

Now there’s a novel idea. Instead of a reverse mortgage, which can be quite a bit less than the value of your house, because of the fees; offer a place in your will to whoever makes a full price offer to buy your home. Maybe it would appeal to the gambler in everybody.

While this all sounds a bit macabre, it is just part of a whole industry that is unfolding around the concept of cashing in on death. There is even a hedge fund that is backed by insurance policies that older people allow to be taken out on themselves. The elderly person is paid a lump sum up front, which they can use to fund their retirement, and he fund itself pays the premiums and collects the payout when the insured person dies. The fund is betting on collecting more that the total payout that it incurs and I’m sure employees several actuaries to calculate it’s odds on the pool of policies.

We do indeed live in strange times.

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