Jason and Tane discuss ways to maximize your cash flow in retirement.
Hi my name is Tane Cabe. I specialize in helping leading edge baby boomers and seniors’ right size their home by creating a tailored plan to maximize cash flow and liquidity.
If you want to purchase a home and have no monthly payment without paying all cash – I can help you. If you want to reduce your monthly payment or eliminate it all together – I can help you. If you want more liquid cash to enhance your retirement lifestyle – I can help you. If you want to purchase a second home and become a “snow bird” – I can help you. Whatever your goals and retirement lifestyle dream is related to real estate – I can help you.
I have been in the mortgage and finance business since 1993. Along the way I have developed and sold multiple companies. I have taught, coached, instructed, and served as a speaker for various financial and mortgage industry panels.
For the last eight years I’ve invested countless hours into studying the challenges of leading edge baby boomers and seniors, looking specifically at how they plan for retirement. I’ve worked with many retirees through my own practice. I have written a book titled Double Your Retirement Dollars, Little Known Strategies to Quickly Increase Income, Assets and Cash for Today’s Retiree.
I manage a branch for Churchill Mortgage in Gig Harbor Washington. I not only serve the community I live in but eight other states. I reside in Gig Harbor with my wife Angie. We have two daughters, Lauren 21 and Morgan 23.
If you would like a free copy of my book simply call my office or email me directly: tane.cabe@churchillmortgage.com
253-853-5805 or toll free 800-490-4287
8805 North Harborview Drive., Suite 204 | GIG HARBOR, WA 98332
NMLS 78590 WA MLO-78950
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Announcer: Welcome back, America, to Sound Retirement Radio, where we bring you concepts, ideas, and strategies designed to help you achieve clarity, confidence and freedom as you prepare for and transition through retirement. And now, here is your host, Jason Parker
Jason: America, welcome back to another round of Sound Retirement Radio, and we’ve got a great guest lined up for you. We are going to be talking about ways to maximize your cash flow and retirement today. I’m going to be bringing Tane Cabe on the program in just a minute. Before I do though, as you know, I like to get the morning started right. I want to renew our minds, so I’ve got a verse here from 1 Corinthians 12:12. Here it is. Just as a body, though one has many parts, but all its many parts form one body, so it is with Christ. Awesome. Now I want to bring Tane on for my jokes just because I know how much he enjoys it. So Kane Cabe let me bring you onto the program. Welcome to another round of Sound Retirement Radio.
Tane: Hey thank you Jason, it’s good to be here.
Jason: Yeah, thanks for playing along with my joke this morning. So Tane, where do pencils go for vacation?
Tane: Well, let’s see, I have no idea where they would go for vacation. Maybe Hawaii?
Jason: Pencilvania
Tane: Pencilvania, of course!
Jason: So for our listeners out there … I had asked Tane if he would play along with my joke and he said “I don’t have to laugh, do I?” Thanks for playing along.
Tane: It’s a courtesy laugh, you know.
Jason: So if this is your first time hearing Sound Retirement Radio … Maybe haven’t been listening for the past couple of weeks, but Tane has been our guest. For this year of 2016, what we are trying to do is go really deep on one topic at a time. In January, our focus was social security, maximizing that benefit. In February, we are talking about HECM mortgages and also reverse mortgages. Tane Cabe is the author of “Double Your Retirement Dollars” and he is one of the top HECM mortgage originators in the country for purchases. So it’s a real honor to have you on the program, Tane. We had a chance to speak just a moment ago about these HECM purchases and you shared a really interesting statistic in terms of the people that you are helping. So would you share with our listeners who you seem to be helping a lot with these types of programs?
Tane: Yes. I help a number of people in terms of couples, single folks, but the majority, I would say, of the people I help using the HECM for purchase are single women. And they are single mainly because they are widows, but, you know, often times late in life, unfortunately divorces cause this. Well, but it’s interesting that the majority are clients that come through the process for a purchase are single women.
Jason: Wow. So because there is probably some people listening today that haven’t had a chance to listen to past episodes, let’s talk about the qualifiers and the difference between using the HECM as a purchase or maybe getting money out of a home for income. Will you just hit on some of those highlights for us?
Tane: Yeah, sure. So qualifying … Let me just take a quick minute and explain the purchase so you can use home equity conversion mortgage to purchase. A lot of times people have a big home that they’ve raised the kids in and they end up having a lot of equity or owning it free and clear. They sell that home and instead of paying cash for the next home, what they end up doing is they end up putting about 50% down, depending on their age. A minimum age to qualify for this is 62. And so when they go to put that down payment of roughly 50%, the rest of the purchase is funded with an FHA insurance loan.
It’s called a home equity conversion mortgage or HECM. And there is no payments required of that loan. So it’s a great little scenario. I know you said before have your [inaudible 03:55]. It’s a great way to have your [inaudible 04:01] without having to pay all cash and still have no mortgage payment. So that’s a scenario where someone can use to purchase a home, which is what I specialize in. I also do refinancing and that happens to be where people maybe want to stay in the home that they have paid off or have a large amount of equity and now can convert that equity to cash or cash flow through monthly payments stream through a line of credit that can access whenever they want and not have to make a payment to service a monthly payment on that type of loan. So that’s kind of it in a nutshell and that’s a bit like a fire hose, but we can go into details more if you like.
Jason: Yeah. I want to take just a quick minute and share from a planning perspective because I’m a financial advisor. And my job as a financial advisor is to listen to what people are telling me they are trying to accomplish and then understanding what the different financial tools that are available to them and then point them in the right direction. And then also to educate them and say “look, there are advantages and disadvantages to everything”. We want to make sure people are well informed, that they are acting in their best interest and that they have all the details, all the information they need before they make a decision. Because really it doesn’t matter if we are talking about HECM’s or mutual funds, or annuities, or individual stocks, or individual bonds … I mean, all these thing have advantages and disadvantages.
But I do want to share this quick story. So several years ago, I remember some folks came into my office and they had lived in their home their entire lives … Not their entire lives, maybe 30 years or so. Long time. They had no mortgage, but they were in a position where they had basically run out of money. They had depleted all of their assets and they had this house that they lived in. And so they said “well, we have a couple of different options”. And what they were considering doing was just selling the house and maybe moving into an apartment complex. But the challenge that they had was they really love the house that they lived in. They loved the community. They had this garden in their backyard that they enjoyed. They had great neighbors. And they said “you know, Jason, we really don’t want to move out of this house”, but they’re really crunched, you know. They were at a point where they didn’t have enough money to really get by on a monthly basis. They were living solely on their social security.
So we got their daughter involved in the conversation. Their adult daughter. And going through the process, we talked about the advantages and disadvantages of selling the house and just cashing out and kind of making the next move and then we also talked about the advantages of using a HECM mortgage to create a line of credit so that they had … Actually, in their case, I think it was just monthly cash flow that they are taking every month. They had some kind of income option there, Tane. And you can talk about that … The options there in a minute. But one of the things they said that it was really important to them, was that it was really important that they wanted to be able to leave something to their children … To their adult children. And their house was their biggest asset. And so what we found was that it was a dollar amount specific that they really wanted to leave. They had two kids. They said “we really would like to leave them both $100,000”. So in that scenario, they were able to stay in their home. They were able to increase their cash flow by $1,000 per month. And so $1,000 dollars that they didn’t have before.
Fortunately, they were pretty healthy, so what we looked at was a Second-To-Die life insurance policy that was guaranteed out to age 110. So as long as they didn’t live past age 110, that policy was guaranteed … No changes in premiums, no changes in insurance cost. And that was going to cost them about about $300 per month. And it was guarantee a $200,000 death benefit. And this worked great, because the kids said “we don’t really want the house when mom and dad die”. So it worked great for the parents, because the parents got to stay in their house. They had, after paying the insurance cost, they still had $700 per month of additional income. They used $300 a month to buy an insurance policy that guarantees that each one of their kids are going to get $100,000 when they pass away. And that was important to them.
Again, from a planning perspective, what we want to understand are what are people trying to accomplish, what are the goals and objectives, and then what are the different tools out there that can help them, support to get where they want to go. Now, from your perspective, Tane, as you hear that story … What are your thoughts about that?
Tane: Well, I think that is a great opportunity for people. I would say … What I see daily is that the husband typically wants to make sure that his wife is taken care of. And then the wife wants to make sure, or the mother, wants to make sure the kids are taken care of. So it accomplishes a number of things. The cash flow extra if something happens to him and cash for the children once they both pass. It’s a fantastic opportunity. The thing is, we need to be careful about, is there are people out there that might take advantage of a situation like this and suggest an alternative product versus a life insurance policy. Maybe taking that money and investing it in the market or putting it somewhere at risk. And that’s the thing probably you can speak too more of, but we definitely want to be careful about that. [crosstalk 09:13]
Jason: That’s a great point, because there are some people out there that would advocate for you taking reverse mortgage… In fact, I ran into a person recently that they took the reverse mortgage, they took a lump sum and then they took all that money and went and stuck it in the stock market. I think that a dangerous, a bad move that I don’t think most people would think very highly of them. And this is their biggest asset, the last of what they have and you don’t want to put that money in a position where you could lose it. The other thing I think that you really hit on there, Tane, is … I’ve also seen where they’ve recommended that people take a HECM mortgage or reverse mortgage and then they go buy an annuity. And we’ve talked in the past about the line of credit, but talk about why the line of credit is probably better than buying an annuity anyways.
Tane: Right. Well, the line of credit is a unique animal. And if anyone has ever [inaudible 10:05] is ever … Had a traditional line of credit and equity line accredited on their home, he knows that that requires payment and typically you can use the money and then pay it back and use it again. This line of credit is similar, but the unique thing about it is if each year, on the unused portion … The amount of credit that you have not tapped into … So for example, if someone had $100,000 line of credit and they didn’t use any of it that year, next year it would increase the amount available to them.
It has what’s called a credit line growth rate. And the mechanics of it are simple. It just assumes that you are one year older and FHA says “we are going to give you an extra amount of money next year if you haven’t used all the money on the previous year”. And that is tied to whatever the interest rate is on the loan. The interest growth rate is always going to be one and a quarter percent above the interest rate. This is not, though, to be confused for [inaudible 11:05] a way to return, you know. Someone were to put money into an investment, maybe a even CD, that’s probably the best example, where you hit a certain percentage rate of return. This is just extra money available to you that grows in the amount available to you that you can’t cash in. You can’t take it with you. So if you don’t use it if you sell your home, then you would lose that growth rate. It’s just not like a rate to return on an investment. That’s kind of exempt.
Often times confuse when people … look at the statement, “oh yeah, it’s a rate of return, I can see that”. But no, it’s not. It’s just more money available to you.
Jason: One of the other areas where I’ve seen this been used recently, Tane, has been with higher net worth married couples that never had children. So these are people that … some of the folks that I’ve met have several million dollar that they saved in retirement accounts. They live in this house, they don’t owe anything on it, and they say “you know what, we don’t have anybody we are trying to leave this money to. We just want to be able to live comfortably for the rest of our lives and using one of these tool as a way to have access to more tax free income.
Or, again, if they are looking at downsizing or rightsizing, as like you like to call it, moving into maybe a smaller house, putting less money down, so they keep more of their assets working for them. Because again, they don’t have anybody that they are trying to leave the home to. They are just saying “I want to make sure I have enough income, I want cash flow. I want that cash flow to be tax efficient”. And income from a HECM mortgage is not taxable income to people and that’s kind of a nice feature and benefit.
Tane: Right. Absolutely. I just talked to a gentleman yesterday out of Texas and he is looking at doing a line of credit. You know, just home free and clear. It’s a $900,000 home. But he is wanting to use this line of credit to supplement his drawdown … To offset his drawdown on his traditional RIA accounts, because he is using more than he really wants to and he can see that [inaudible 13:05] running out. So having a combination of this line of credit and lessening the drawdown on his retirement accounts, it could stand his cash flow for the rest of his life. [crosstalk 13:25] strategy.
Jason: Yeah. And I have talked to some people too and they say “you know, Jason, we’ve done a lot for our kids. We’ve put them through college, we’ve helped them buy cars, we’ve helped them buy houses. They are on their own now. They got to do their thing”. And some of them even joke with me and they say “as I take my last breath, I hope to spend my last quarter”. For some people it’s really important to leave something behind to the kids and grandkids and, if that’s the case, we want to make sure that we are helping them do that.
But for when people feel like they’ve done their duty, they’ve helped in every way that they really need to. Now they just want to maximize and make sure they are enjoying their life to its fullest. Well, we want to help those people accomplish that too, because retirement is not about what your financial advisor wants, it’s about what you want. Your financial advisor should have a better set of ears than a better set of lips, when it comes to telling you what to do. That’s what we are a big fans of here.
Tane: Yeah, that’s good.
Jason: One of the things that… One of the biggest fears we hear about this thing is what happens if you live in the house a long time and you use up that asset completely, where the house has no equity left in it. Share with our listeners what happens under that scenario.
Tane: Yes. Absolutely. So the loan on this home equity conversion mortgage is due in payable when the last borrower moves out of the home permanently. Now, if at any given time, the mortgage balance each month is going to increase, because there is no payments required, but the is interest on the loan and the interest accumulates over time.
At some point in the future, if the loan goes long enough and the home value stays the same or goes up a little bit, eventually that mortgage balance could exceed the market value of the home. And if that is the case, what we have it’s what is called a nonrecourse feature on this loan, where FHA… These loans are insured by FHA… And the FHA insurance will cover in these shortfalls.
Not to be compared with the traditional short sales, which we’ve heard about with the most recent real state crash. A lot of people were in foreclosure and in short sales and that sort of thing. And those people experienced a lot of pain and trouble in their life, because they had to cover that difference or pay for that somehow in a short sale. And in this case, if there is more owing on the mortgage than the [inaudible 15:50] of the house, that short fall will be covered by the FHA insurance. That insurance also covers real state fees to sell the home. It also will be transferred to the state. So in another words, the state ends up with the home and those people pass away… The state state ends up with the home, that insurance will cover them as well. So the kids are not left with a burden and not going have to pay any extra interest that sale from the home can’t pay.
Jason: And I have to tell you. I have seen in recent history, because of the real state crash… Quick example… We saw some folks that took out a reverse mortgage in 2007, at the height of the real state bubble… You know, their houses worth a lot more money. 2015 rolls around, and they’re moving out of that house and the amount that they owe on the loan is equal to, about the same, amount the same amount as the value of the house. So they are in a position where they are not going to be able to probably sell it and cover the loan in its entirety.
So there are situations… I know a lot of times you will run projections where you show that assuming normal market conditions and housing is increasing at 3 or 4% per year, that there is a good change that there will still be equity. But there is certainly a possibility that there will be no equity in that house at a future point. And when that is the case, I always remind people that if you are thinking about this… I always like to say “hope for the best, but plan for the worst”. So understand what the worst case scenario is, that you can make a good decision and that you are comfortable with the worst case scenario.
Tane, I also wanted to remind our listeners, you have agreed and I have had the opportunity to do speaking engagements with you. And I know form those live events that we do, that your presentation is always really well received. And so one of the things that I’ve asked is that if you would be willing to share that presentation via a webinar, so that people around the country can listen to not only the advantages and disadvantages of these different tools, but also how people are really using them in their lives. So for our listeners, if you are driving down the road this morning, you can visit soundretirementplanning.com. Over on the right hand side of the screen, you are going to see a big box there that says you can register for our webinar that is coming up in February with Tane Cabe. And so I encourage our listeners, if you are interested in learning more about this subject or topic, that is really going to be great format to ask questions and get an education and do that in the safety of your own home. You don’t have to leave your house to get good information.
Tane, what’s another example or another story that you’ve had recently. I know that you say you’ve seen this where a lot of times you are working with widows. People where their husbands die unexpectedly and they are really hurting for income on a monthly basis. So does a story come to mind for you on a situation where you’ve helped somebody recently on that?
Tane: Yeah. Absolutely. Yeah. I just actually sat down with a client. We just helped her purchase a home. She lost her husband 4 years ago and… Gene, her husband was young. They had their whole rest of their life ahead of them and didn’t expect this or see this coming. They have built a home together, their dream home. They lived in that home. They figured that they’d live the rest of their lives there, but life happens. And Gene ended up alone. So she ended up selling the home that they built together, had a little over $200,000 from the equity in that home, and ended up buying a home in an active adult community.
An active adult community, for those that don’t know, are these 55+ communities. Generally they have a lodge, where you can swim. There is restaurants, there is workout facilities. It’s a real social type environment and for her… She was excited to buy a home in this subdivision and she just is a great lady and really appreciates the fact… She said in her little testimony yesterday… She said “I can’t believe how happy I feel, how wonderful this is to be in a new home and that I have no monthly mortgage payments”. Because what she did was she ended up putting about a little under $200,000 down and she will never another mortgage payment. It’s a brand new home. In fact, I end up taking a lot of pictures of it, because I really like the design, the open floor plan. It’s only 1,400 feet square house. Great home and she is just happy there. So for her, her life is kind of beginning again and she is really excited about that. [crosstalk 20:38] it’s nice to be able to help people like that.
Jason: Yeah. That is a great story. And again, there is a lot of different financial tools out there and I know your specialty is really helping people with purchase of their retirement home. And I don’t know why there builders keep building all these two-story homes that are 3,000 square feet, when most of the demographics in our country are people that are looking to have no yard work. They want one story that they can live in for the rest of their lives and I love that’s what these active adult communities are really catering to. They are saying “hey, let’s create your dream environment” if you will and I think that’s awesome.
Tane: Yeah. We actually create a different guides to retirement communities that we can provide people as well as their interested in those active adult communities within specific states. I’m happy to offer that as well.
Jason: Folks if you… I was just going to say you are listening to episode 83 if you are driving down the road this morning. Remember, you can listen to these programs again, if you just can’t get enough of my voice and you want hear me. My wife says she thinks I sound like Hermit the frog when I do this program, but… You are always welcome to listen online. We transcribe the whole program for you, if you rather read it.
Tane, but I want to make sure our listeners understand how they can get in touch with you. You have your book “Double Your Retirement Dollars”. I think it’s a really good resource for people that are looking for more information, but tell us about your website. How they can get your book? And maybe if they are looking for one of these guides on an active adult communities, how can they get in touch with you?
Tane: I think the best thing is just to call our office and they can ask for me, they can talk to me directly. Or they can just ask for the book and we will be happy to send them a copy of my book out complementary or any guides that they might be interested in. We can discuss that. But we are not trying to sell you anything or anything. We’ll just provide that information and let you come to your own conclusions after reviewing it, whether this is something for you or not. Phone call is the best. You can also reach me through Churchill Mortgage website, which is churchillmortgage.com/tanecabe. It’s T-A-N-E-C-A-B-E. And it’s churchillmortgage.com. But the best way, I think, would be to call and I can give you that number. If you are ready, it’s 800-490-4287. And I’d be happy to send you out you a copy of the book.
Jason: All right. So again for our listeners, that’s 1-800-490-4287. Again, we’ll include links to Tane’s website. We’ll have his phone number in the show notes. Soundretirementradio.com or soundretirementplanning.com. Episode number 83.
I want to encourage you, if you are getting ready for retirement, remember, retirement is all about cash flow. It’s your income that will determine your lifestyle in retirement. You don’t just want income, you want tax efficient income. Tax free is even better than tax efficient, but that’s one of the things that I think these HECM mortgages can do for people… Is generate more income and still have them paying less money in taxes. So maybe what you do is, instead of pulling money out of your investment portfolio, you decide that you are going to let your portfolio continue to compound and grow. And you find different ways to generate the cash flow.
Join us on our webinar at the end of February. Go to soundretirementplanning.com and sign up for the webinar.
Again if you interested in speaking with Tane, his number is 1-800-490-4287.
Tane Cabe, thanks so much for being a guest on Sound Retirement Radio.
Tane: Thank you, Jason.
Announcer: Information and opinions here are believed to be accurate and complete. For general information only and should not be construed as specific tax, legal or financial advice for any individual. And does not a solicitation for any securities or insurance products.
Please, consult with your financial professional before taking financial action, before taking action on anything discussed in this program.
Parker financial, its representatives or its affiliates have no liability for investment decisions or other actions taken or made by you based on the information provided in this program.
All insurance related discussions are subject to the claims paying ability of the company.
Investing involves risk. Jason Parker is the president of Parker Financial, an independent fee based wealth management firm, located at 957 Washington Avenue Northwest, Silverdale, Washington.
For additions information, call 1-800-514-5046. Or visit us online at soundretirementplanning.com.
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