A: There’s at least one kind of loan where your mother’s age will actually help her get more money than she might otherwise: a reverse mortgage.

 

Reverse mortgages allow older people to borrow against the equity in their homes and receive either a lump sum or a monthly check. The older you are, the larger the amount you can typically receive. If your mother’s home is worth $200,000, for example, she could boost her monthly income by $699 to $777 with a reverse mortgage. If she were 10 years younger, the amount she would get could be as low as $319 a month.

 

These payments would continue until she dies, sells the home or permanently moves out, at which point the loan must be repaid. Typically, the repayment comes from the proceeds of selling the house; any remaining equity in the home would go to her heirs.

 

AARP has a free booklet about reverse mortgages called “Home Made Money” that you can download from its Web site (www.aarp.org) or order by calling (800) 209-8085. You might also check out Tom Kelly’s book, “The New Reverse Mortgage Formula” (2005, Wiley Publishing) for help in evaluating the various reverse mortgage products.

A: You may need both if she hasn’t started tapping this money and it’s held in traditional IRAs instead of Roth IRAs.

That’s because withdrawals from traditional IRAs are supposed to start in the year after the taxpayer turns 70-1/2. Failure to do so incurs substantial penalties. If your mother hasn’t begun withdrawals, she’s going to want to consult a tax professional on the best way to make things right.

Once that’s done–or if she’s been making the proper withdrawals all along–it’s time to consult an objective financial planner with experience in advising people in retirement. (You can get referrals from the National Association of Financial Advisors at (888) FEE ONLY, among other sources.) How her money should be invested depends on her risk tolerance and objectives.

The planner will probably recommend streamlining all those accounts. There’s generally no need to have multiple traditional IRAs, and all those accounts make tracking her finances much more difficult. Besides, she may be paying fees that she could probably avoid by combining her accounts.

Q: In the past, you’ve mentioned that variable annuities aren’t a good investment for seniors. Why, then, does an official at our bank try to convince us to put our savings into one? We are in our early 80s and have always had certificates of deposit at this bank.

A: The answer is pretty simple: profits. The bank can make a lot more money from you if it can sell you a variable annuity, compared to what it can make selling you a CD.

At your time of life, though, variable annuities don’t make much sense. It typically takes 15 to 20 years for the tax advantages of a variable annuity to offset the increased costs, and chances are pretty good you won’t live long enough to see that day. Annuities also come with surrender charges that can cause you to lose 10% or more of your cash if you need to tap your savings in the first few years; with a CD, you’ll typically lose only a few months’ interest if you need to make an emergency withdrawal.

Regulators have repeatedly warned banks and brokerages about pushing annuities on seniors. If this official persists in hounding you, you might mention that fact and suggest he call the Securities and Exchange Commission or the National Association of Securities Dealers if he needs more details about why these investments are often inappropriate for seniors.