A new report points out that not only are people not saving enough for retirement, and living longer than expected, theyâre also cash poor and âhouse richââthey own homes into which theyâve sunk a lot of money but have no way to access liquidity from them. (Photo: Shutterstock)
Amid the retirement crisis comes an idea thatâs both new and very oldâlife estates.
A Propmodo report points out that not only are people not saving enough for retirement, and living longer than expected, theyâre also cash poor and âhouse richââthey own homes into which theyâve sunk a lot of money but have no way to access liquidity from them without either selling or resorting to reverse mortgages.
In fact, some estimate the amount of equity tied up in home ownership by seniors to amount to more than $6 trillionâthatâs trillion, with a t.
The latter were designed to help with that very problem, but they donât provide as much flexibility as seniors might want or need as they ageâparticularly if they need to relocate or go into a nursing home.
In addition, reverse mortgages acquired something of a predatory reputation, particularly since class action suits have alleged fraudulent behavior on the part of some reverse mortgage companies.
Enter the life estate, via retirement solution company Irene. Life estates, the report explains, are the ownership rights to a house for the duration of a seniorâs life. Under this system, investors can buy a house from the senior but grant them a life estate, allowing them to live in the house until their death.
âIn Europe we have been doing this for hundreds of years,â Fabrizio Tiso, cofounder of Irene, is quoted saying. According to the report, he launched the company after becoming aware of how few options were available to seniors while working at Boston Consulting Group.
Tiso adds, âI kept thinking that the way it is in Europe, where people invest in each property individually is flawed. It would be much less risky to package them up into a larger fund.â
So thatâs what Irene does. Investorsâ money is pooled and seniorsâ homes are purchased, granting them a lump sum as well as a lifetime monthly payment in exchange. The fund then takes care of the taxes, insurance and upkeep of the homes, the report adds, so that seniors can have a guaranteed, steady income. âWe want to make these peoplesâ lives easier so we donât want them to have to worry about house expenses,â Tiso says in the report.
That allows seniors to take advantage of the equity theyâve built up in their homes and stay put, without worrying that theyâll run out of cash to keep their homes habitable.