My 59 year old (retired) dad started a reverse mortgage 3yrs ago and only told us about it last week. We have always helped him out financially with the big annual expenses (insurance, car service, etc) but, I am extra worried, because he is not able to cover his own expenses (even with the reverse mortgage) and relying on us, plus the equity in his 1br unit is reducing at a rapid rate. He won’t move out and now relies on the extra income he receives from the reverse mortgage. Where do we start with turning his financial situation around?
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Thank you for your question. The situation you describe sounds like it is taking a toll on your father and your family. It may also become harder to recover from the longer it is left unresolved. My advice would be to have a serious and frank discussion with your father and encourage him to agree to get help from a professional. You can arrange a personal consultation with a financial planner and, make sure you also attend! A financial planner will take your specific financial situation as a start and address your father’s longer term cashflow needs and explore the options available (for example social security). Financial planners generally don’t charge for an initial meeting - so it really is a must do!
Here are a few points that you can raise with your father to get him to agree to a meeting:
- As you can appreciate reverse mortgages are not a charitable option. The financial institution is making money from your father’s circumstances and while this is working in the short term the longer term will most likely be detrimental for your father (ie eventually little to no equity in the property, high interest rates and fees etc)
- Based on your father’s age (59), his life expectancy is 24.22 years. Ask your father the question; will the current strategy get him successfully into his 80’s.
- Does your father have superannuation? Commencing an income stream from his super fund could potentially help. Note: You need to speak to a financial planner before commencing a pension. Obviously the earlier a pension is started the quicker it will be exhausted.
- Depending on ‘Asset and Income testing’, your father will most likely be eligible for the Age Pension at age 67, therefore, a bit more thought needs to be put into his planning and strategy between now and then to ensure he is not crippling his retirement.
- Depending on your father’s circumstances could a part-time job be thrown into the mix to assist with cashflow between now and when he turns 67 years old.
It is obviously nice for you to be helping out financially but this is not a long term plan. You need to be maximising the use of your resources for your own eventual retirement. Starting early and investing over your lifetime will allow compounding to grow your wealth.
Retirement planning needs careful planning and management and there is no quick and fast answer to your question. What is important is that you seek help from a professional that can provide specific answers and guide your father back to the path of prosperity.
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