How Does A Reverse Annuity Mortgage Work?

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How does a reverse annuity mortgage work? That's a lot to say: reverse annuity mortgage.

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Hi there, I'm Stan The Annuity Man, America's annuity agent, licensed in

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all 50 states and Puerto Rico, founder of the contractual guarantees-only approach

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of just looking at policies for the contractual guarantees, not the hypothetical and theoretical.

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This topic is a good one because I'm going to take it from a myriad of angles because there's a

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lot of misinformation going on out there with the Johnny Appleseed agents, with reverse mortgages,

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etc., and the annuitization of a reverse mortgage. In essence, that's what it is.

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I'm going to do that in Stan The Annuity Man fashion right after this.

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So, let's talk about a reverse mortgage and why you would do that or why people choose to do that.

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In this country, most people's net worth, the majority of that,

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is in a house. They bought it in 1958. It was worth $62,000 then, and now it's worth

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$346,000. Okay? And then their total net worth, including that house, is probably

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$450,000. So they don't have a lot of money to live on. They're in Chapter 2 of their lives.

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I might be talking to you. Maybe, maybe, maybe not.

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But I want you to be very careful out there because I'm going to give you an

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example of what was recommended by an actual fiduciary to a client. It's now a client,

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but they weren't a client when they called me about it, which was horrific.

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Now, I think the reverse mortgage industry is good as a whole. I know there are bad actors out

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there. There are bad actors everywhere, especially in the annuity industry.

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But what people are doing is, here are the generalities of it,

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so don't email me at [email protected], saying, "Well, you got this part wrong."

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In essence, you're saying, "I'm going to get payments for my house,

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and when I die, the reverse mortgage company gets the house."

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That's pretty much it.

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You're creating annuity-type payments with the equity from

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your house. That's fantastic. For a lot of people,

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that's all they have from the standpoint of extra money, "found money."

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Now, what I've seen is the beneficiaries of that house get mad because Mama did a reverse

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mortgage for more income so she could go on a cruise and gamble more. And they're like,

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"That's not, I don't want that because I want the house."

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It's not your house. It's Mama's house.

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She can do what the heck she wants. She doesn't owe you anything.

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But here's the bad story I'm getting ready to

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tell you and what I want you to be very, very, very careful of.

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With reverse mortgages, okay, you're getting the money out of the house,

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and then when you die, that company keeps the house.

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There are agents, and in this case, it was a fiduciary, that were advising Mama

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to take the money from the reverse mortgage and then buy an annuity.

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What?

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That's criminal. We can mince words here, but that's criminal. Criminal.

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When you buy an annuity, and when you do that through us,

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I've got a ton of staff in my Las Vegas office. They actually like

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doing paperwork. I can't believe that, but they do, and they're very good at it.

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But we have to put in that application for any annuity

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that you purchase what's called source of funds.

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What is the source of funds?

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It could be IRA, Non-IRA, Roth IRA, 401(k), 403(b), whatever, land sale, inheritance.

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What it can never be is reverse mortgage.

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What it can never, ever be is a loan to buy an annuity.

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No exceptions.

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Now, Johnny Appleseed agent that needs to make the car payment,

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what they're going to tell Mama to do is take that money from the reverse mortgage,

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put it in the bank account, and then write a check from the bank account to the annuity company.

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What is that in English?

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It's called money laundering.

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That's what that is.

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Because what Johnny Appleseed agent would then say is the money came from a checking account.

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That's called a felony.

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Okay?

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Because when you filled out your mortgage paperwork,

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if you lied on that mortgage paperwork, you could go to prison.

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Same thing.

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Same thing.

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How desperate do agents and fiduciaries, in this case,

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I'm sure most fiduciaries out there that might be watching this are going, "Oh my God."

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You just have to be careful, okay?

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Because you should never, ever, ever, ever use reverse mortgage proceeds to buy an annuity.

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I had one the other day. A guy said, "We have a house that's now worth $2 million."

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And that can happen in today's world. "We bought it for $200,000. It's on this lake,

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and now it's worth $2 million. We want to do a reverse mortgage and buy annuities."

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I'm like, "Can't do it."

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He goes, "Well, the guy down the street can."

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I said, "Yep. He's going to jail."

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You just need to know that because the reverse mortgage is already the annuity.

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So, you want to wear belt and suspenders?

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Belt and suspenders so my butt crack doesn't show when I bend over.

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You don't need an annuity to buy an annuity.

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Okay?

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A 1035 exchange means the annuity you purchased commercially is at a surrender charge,

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and the annuity you're going to is better contractually than the one you're coming from.

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That's a real annuity transfer.

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But to take proceeds from a reverse mortgage on a house to buy an annuity is criminal.

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There's no gray area.

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It's not bad, or that's too bad, or that's just not a good decision.

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No. It's freaking criminal.

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But if you don't have a lot of additional 401(k) or checking account money and you have

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a house that's really appreciated, the first thing I want you to do

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is stop for a second and reward yourself for that.

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Good for you.

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There's no difference between buying a stock and waiting, waiting, waiting, and it's now

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worth a lot, than buying a house and waiting, waiting, waiting, and it's now worth a lot.

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Good for you.

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Good for you.

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That's fantastic.

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I would encourage you to have an honest discussion with your family,

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an honest discussion with your lawyer or your CPA.

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Not your pastor. Please don't get them involved in your freaking finances. Please, please.

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Talk to them and say, "This is what I'm thinking. I'm thinking about taking this asset that's really

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appreciated and then getting some money so we can live a good lifestyle using that money."

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Now, whoever chose Tom Selleck to give that, I mean, all kidding aside, well,

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kind of kidding, it was between me and Tom Selleck for that advertisement.

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He won.

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I don't know why.

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You know? I told them in the interview that I would grow a mustache. Not a

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problem. It wouldn't be as thick as his mustache.

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You know? I could drive up in an '83 Ferrari. Not a problem.

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But they went with Tom.

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And, you know, we all think of Tom Selleck for reverse mortgages.

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I don't know why.

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I mean, they've run a good ad campaign.

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But just be careful out there.

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That's an annuity-type payment.

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You're setting up an annuity-type payment for your home.

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And you can think of it as life only. It's going to pay for as long as you're breathing

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and on a respirator. And when you die, the reverse mortgage company gets the house.

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Not a bad deal.

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It's America.

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Somebody thought of that.

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Somebody's driving around neighborhoods going,

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"Wonder what would happen if I could buy the house and then didn't give them payments."

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That's how it all works.

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That's entrepreneurship.

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Do me a favor. Go to my site, theannuityman.com.

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I've written a bunch of owner's manuals to get for free.

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I do a few of these videos. One a day, seven days a week.

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You're like, "Stan, seven days a week?"

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Seven freaking days a week.

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Okay?

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Somebody said the other day, "Do you just get up in the morning and do a video?"

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No. We fly to a mountain location, inside the mountain.

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We film bunches of videos for a few days. It's like boot camp, you know?

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That's the reason sometimes you're like, "Oh man, you look worn out there, Stan."

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That's the reason.

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We do a bunch of them so that every single day there's new content out there.

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But go to my site.

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You can email me at [email protected].

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And then above my head, there's a video I'd

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like for you to watch called Annuities Are Commodities.

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All annuity types are commodity types that should

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be shopped with all carriers for the highest contractual guarantee.

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I nailed it.

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Nailed it.

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10 out of 10.

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It's like the guy that dove off the top thing in the Olympics, hit the water, no splash.

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I mean, that's how good the video was.

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Watch that video, and I'll see you next time.