Sequence of Returns Risk

Portfolio Intact. Retirement Secure.

HECM line of credit as a non-correlated buffer asset during a modeled 3-year market downturn.

Robert Boladian, CMPS® CLA® · Mission Pacific Mortgage · For advisor use · Confidential

Client Situation

A retired couple, ages 70 and 68, with a $1.5M home and a $2.2M portfolio were drawing $120,000 per year when markets declined sharply in the first two years of retirement. Continuing to draw from the declining portfolio was projected to reduce terminal value by more than $380,000.

$380K+Portfolio PreservedProjected over a 3-year downturn

~10xVolatility ReductionCited peer-reviewed Pfau research

$612KInitial HECM LOCProjected to $831K at Year 15

How It Worked

The Problem

The clients were drawing $120K per year from the portfolio during an early-retirement market decline.
A portfolio-only strategy projected a $380K+ permanent reduction in terminal value.

The Structure

A HECM reverse mortgage line of credit was established with an initial $612,000 available.
During the 3-year downturn, the couple drew from the line instead of the investment portfolio.

The Result

The portfolio remained fully invested during the downturn and recovered normally.
The modeled terminal value preserved was $380K+, and the FA retained full AUM throughout.

What This Means for the Advisor

→ The HECM line of credit can function as a portfolio-preservation tool during market stress, not as a competing investment product.

→ Sequence of returns risk is a major concern in early retirement, and housing wealth can be part of the coordinated planning discussion.

“Creating buffer assets to avoid selling at losses is a valuable tool to address sequence risk, and that’s where reverse mortgages come into play.”

Wade D. Pfau, Ph.D., CFA, RICP · Published retirement research

Have a client approaching or in early retirement? Model the sequence-risk buffer strategy.

Review the HECM buffer alongside the existing retirement income plan before a market downturn forces a sale.

BOOK A PARTNER CALL

Outcomes anonymized. Results may vary. Year 15 figures are projections based on stated assumptions, not guarantees. For a reverse mortgage HECM, the borrower remains responsible for property taxes, homeowners insurance, and property maintenance and must occupy the home as a primary residence. The loan becomes due and payable upon a maturity event, including the last surviving borrower ceasing to occupy the property. Interest accrues on amounts drawn and reduces remaining home equity. Line-of-credit growth applies to the unused principal limit only and does not represent an increase in home equity. Borrowers must complete HUD-approved counseling. Not tax advice.

Robert Boladian, CMPS®, CLA® · NMLS #14241 · (760) 828-7444 · [email protected]
Mission Pacific Mortgage · EAB Holdings, Inc. NMLS #1786785 · DFPI Licensed · San Diego, CA