In late 1999, at a time that would turn out to be the end of a record run in the stock market, California decided to change its pension plan.
Sure that the big returns they had enjoyed in the past would continue indefinitely, officials in charge of the California Public Employees’ Retirement System, or Calpers, increased payouts for all beneficiaries in the system. According to Bloomberg, “The assumed investment returns implicitly forecast that the Dow Jones Industrial Average would reach about 25,000 by 2009 (it barely made it over 10,500 that year) and 28,000,000 by 2099.”
Warren Buffett has been among the most successful investors in history, amassing a multibillion fortune for himself and helping many of his individual investors make large fortunes as well. Buffett is generally optimistic on the future of the economy and of the stock market, but he is realistic.
Considering the impact of the assumptions made by California and a number of other large pension funds, Buffett wrote, “Many helpers are apparently direct descendants of the queen in Alice in Wonderland, who said: ‘Why, sometimes I’ve believed as many as six impossible things before breakfast.’ Beware the glib helper who fills your head with fantasies while he fills his pockets with fees.”
Buffett’s aptly named “glib helpers” now counsel patience to many investors whose retirement account balances are far below what they expected to have. While patience is most certainly a virtue, it is not helping retirees faced with a significantly lower income right now.
In many cases, the glib helpers are continuing to collect annual fees. The fees are lower than they would be because of the lower returns, but that is little consolation to those with lower incomes.
If you are in this situation, where the income you receive is significantly lower than the income you expected, your home could offer a solution. Many financial planners now realize that your home is an asset and that asset could be used to provide retirement income.
Recent research indicates that a reverse mortgage could be an important part of your retirement plan and it could help you receive higher income than a traditional retirement income strategy.
We don’t know what the future holds, but we don’t pretend to. All we really know is that many of our clients have benefitted from reverse mortgages and these innovative financial products have long been overlooked as an income source.