In Practice September 18, 2008

17 Questions to Ask About Home Equity in Retirement Planning

A new white paper helps advisers ensure their clients' retirement plans are safe from the declining housing market.
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Home equity makes up a significant portion of wealth for many Americans, according to a new white paper by Principal Funds. In fact, a house accounts for about 21% of wealth for the “typical household” approaching retirement (mean of the middle 10% of the sample of households headed by an individual aged 55 to 64). That percentage of wealth is higher than wealth from a defined contribution (DC) plan assets (8%) or defined benefit plan assets (16%), according to data in the paper.

As Americans age, many rely on their homes as a sort of insurance against unforeseen events. A study released earlier this year from Barclays Global Investors (BGI) suggested that Americans felt overly prepared for retirement because of the value of their home (see Retirement Picture Bleak for Many).

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With home values accounting for so much of the wealth of Americans, how will retirement planning be affected by the dramatic decrease in home values (a plunge of about $400 billion between 2007 to mid-2008, according to the paper)? The decreasing home values are already causing a drop in confidence about retirement planning for Americans of all ages, Principal says

 

Suggested Questions to Ask Clients

 

The report suggests 17 possible questions for financial professionals to gain insight into a client’s status:

  • Have you estimated how much your house has depreciated within the past two years?
  • If so, how much has it declined?
  • How much did housing equity contribute to your retirement plans?
  • How much did your housing equity contribute to your overall wealth?
  • Has this housing price decline affected your planned retirement date?
  • How long do you think it will take for housing prices to recover in your neighborhood?
  • If so, how many more years do you plan to work?
  • As a result of this decline, are you postponing any major medical treatments?
  • Are you still making contributions to your 401(k) plan? Are you taking early
    withdrawals?
  • Are you contemplating a reverse mortgage?
  • Is it appropriate to reconsider your investment strategy in light of the decrease in
    housing wealth?
  • How has this decline in your housing wealth affected your investment risk tolerance?
  • Has the decrease in housing wealth affected your legacy planning?
  • Do you have outside sources of health, life, or long-term heath care insurance to
    reduce the risk of incurring uninsured medical expenses?
  • Are you staying informed about your client’s debt levels as part of your regular client
    reviews?
  • Are you continuing to emphasize the need for long-term investment planning of an
    overall portfolio?
  • What is your client’s source of retirement income? What portion, if any, of this
    income will be derived from a reverse mortgage?

The free white paper is available here.

Products September 18, 2008

Web Site Features Free SRI Screening Tool

Do you have a client looking for a green fund that is also gay/lesbian friendly? IW Financial has a screening tool for you.
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The new tool enables users to screen for stocks that fit the mold of so-called socially responsible investing (SRI). The SRI Stock Screener is available for free on The Big Money (www.thebigmoney.com), a newly launched financial news site from online magazine Slate.

The Web site notes that SRI has “quickly gone from a fringe concern to a mainstream movement, from $12 billion of assets in SRI mutual funds in 1995 to more than $200 billion today.’

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Companies are rated on the site by their performances in five profile areas: “gay/lesbian,’ “green,’ “labor and human rights,’ “nonmilitary,’ and “no vice.’ Users can select as many of the categories they like to see the mostly highly rated funds.

According to the methodology, IW Financial (which specializes in environmental, social, and governance analytics) compiled the ratings by comparing each company with all others in its coverage. The company examined about 3,400 publicly traded U.S. companies, including most of the Russell 3,000 and S&P 1,500.

“The Screener is a convenient, easy-to-use way for investors to gain insight into the environmental and social practices of companies where they have an investment or those in which they may plan to invest,’ said James Ledbetter, the editor of The Big Money (previously former deputy managing editor of CNN Money) in an IW Financial news release. “It is one of a number of tools we have added to The Big Money site to increase interactivity and to create practical value for visitors.’

The tool is available here.

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