March e-News

New Retirees Embrace Reverse Mortgages
As Wealth Management Strategy
Increasing numbers converting home equity into cash to protect assets and maximize estates

by Thomas Madonna, Esquire and Brenda Archambault, Washington Trust Reverse Mortgage Specialist

When you hear the term “reverse mortgage", do you think of elderly couples reluctantly tapping their home's equity as a last resort so they can pay their taxes and living expenses? Think again.
Read full article.

Investing in Your Retirement

by Andre M. Fernandes, CFP®, Financial Counselor, Weston Financial

As a hard working person, it seemed a certainty that consistent annual savings into a long-term investment strategy would ultimately provide for a comfortable retirement. Fast forward 12 months. The recent economic downturn, or meltdown to better express it, has altered the thought of retirement for many individuals. Read full article.

 

Bank's Annual Peanut Butter Drive Wins National Award

Washington Trust Receives ABA Community Bank Award

Elizabeth B. Eckel, senior vice president of marketing and investor relations, Washington Trust, receives the Award from Arthur Connelly, chairman of the American Bankers Association.

Washington Trust was recently recognized for its contributions to the community through its annual “PB Xpress” peanut butter drive, at the American Bankers Association National Conference for Community Bankers in Phoenix, AZ, on Feb. 17. Washington Trust was awarded for its efforts in the “Reaching Out to the Underserved” category. Read full article.

New Retirees Embrace Reverse Mortgages As Wealth Management Strategy
Increasing numbers converting home equity into cash to protect assets and maximize estates

by Thomas Madonna, Esquire and Brenda Archambault, Washington Trust Reverse Mortgage Specialist

When you hear the term “reverse mortgage", do you think of elderly couples reluctantly tapping their home's equity as a last resort so they can pay their taxes and living expenses? Think again.

While equity-rich, cash-squeezed seniors are among the growing number of consumers who are taking out reverse mortgages, they are part of a varied and increasingly sophisticated group. People are using reverse mortgages to hedge against market risk, minimize estate tax liability, and protect their assets from a costly long-term illness. Financial planners and CPAs are incorporating reverse mortgages into their financial planning recommendations.

Since 1990, more than 300,000 seniors have used HUD's federally insured Home Equity Conversion Mortgage (HECM) to convert the equity in their home into cash without having to move. There has been more than a ten-fold increase in the number of reverse mortgages backed by the Federal Housing Administration (FHA) between 2000 and 2006. There were 112,154 loans endorsed in 2008, and as of February 2009 there were already 46,596 loans. And recently, the maximum loan limit was raised to $625,500.

As people retire, they want to be financially secure and independent. For many, a reverse mortgage is an effective way to achieve these goals.

Reverse mortgage facts
With a reverse mortgage, homeowners can turn the value of their home into cash without having to move or repay a loan each month. They can receive the cash as a single lump sum, as a regular monthly advance, or as a credit line. No matter how the loan is paid out, homeowners do not have to pay anything back until they die, sell their home, or permanently move out. To be eligible, homeowners have to be 62 years of age or older.

Reverse mortgages have been around since the 1950s, but only recently have they caught on as a financial planning tool. Misperceptions about how they work account for this. One myth is that the lender takes possession of the home once the reverse mortgage comes due. Another myth is that in a declining real estate market, homeowners or their heirs could end up owing more than their house is worth. Neither is true. The loan repayment can never exceed the value of the home when it is sold. And with the sale of the house, a person's heirs or estate receive any surplus after the reverse mortgage amount is paid off.

Maximizing wealth, reducing risk
Financial advisors are now recommending reverse mortgages as a solution for shielding investment portfolios from market volatility, long-term care expenses, and estate taxes.

One strategy is to use the reverse mortgage as a hedge against market risk. Consider a 70-year-old widow who supplements her retirement income with 4% from her investments each year. In a significant market downturn, taking the same amount of money may now represent 6% or 7% of her portfolio, greatly increasing the odds that she will run out of funds in her lifetime. By setting up a reverse mortgage as a line of credit, she can draw the annual supplemental income that she needs from the line rather than from her investments, allowing her portfolio to recover. Once it has, she can discontinue drawing from the line and resume payments from her investments. The reverse mortgage will enable her to reduce the risk of outliving her investment portfolio, maintain her standard of living, and actually increase her net worth.

A second example: a senior couple with a $400,000 home and an $800,000 investment portfolio is concerned about future estate tax liabilities for their heirs. Employing a reverse mortgage to fund an irrevocable life insurance trust ensures that they will be able to provide their heirs with an inheritance tax-free. Similarly, a reverse mortgage can pay the premiums on shared long-term care policy, reducing the risk that a serious illness poses to a couple's estate while helping to maximize its potential value.

Meeting new challenges
Retirees today face financial challenges that are unique to their generation, including:

• Financing longer retirements
• Having minimal or no defined pension plan
• Paying rising medical costs
• Being unsure about the solvency of Social Security

The good news is, there are financial strategies that can help them address these issues. Increasingly, professionals are recommending reverse mortgages as a way to maintain or enhance their clients' quality of life while minimizing their financial risk.

If you have questions about reverse mortgages, please call Brenda Archambault at 401-348-1220 or contact us online.

Thomas W. Madonna practices law with the Law Firm of Madonna & Connors. Brenda Archambault is a Reverse Mortgage Specialist at Washington Trust, one of the largest providers of reverse mortgages in New England.

Attend one of our convenient Reverse Mortgage Seminars!
Call 401-348-1200 or contact us online.

• April 7th, Washington Trust, 1203 Oaklawn Avenue, Cranston, RI
• April 8th, Shelter Harbor Inn, 10 Wagner Road, Westerly, RI
• April 9th, Arturo Joe's, 140 Point Judith Road, Narragansett, RI
• April 16th, Washington Trust, 730 Kingstown, RI, Wakefield, RI
• April 21st, Kountry Kitchen, 10 Smith Avenue, Greenville, RI
• April 22nd, Washington Trust, Olde Mistick Village, Mystic, CT
• April 29th, Washington Trust, 236 Centerville Road, Warwick, RI
• May 27th, Chelo's, 2225 Post Road, Warwick, RI

Investing in Your Retirement

by Andre M. Fernandes, CFP®, Financial Counselor, Weston Financial

As a hard working person, it seemed a certainty that consistent annual savings into a long-term investment strategy would ultimately provide for a comfortable retirement. Fast forward 12 months. The recent economic downturn, or meltdown to better express it, has altered the thought of retirement for many individuals.

Whether you are a young professional or nearing the end of your career, constructing and implementing a retirement plan is essential. Let’s identify three questions you should answer prior to structuring your investment strategy:

• Time Horizon: Identify your expected time horizon - when do you intend to retire? The longer time horizon you have, the longer period of time you are able to save and the longer those savings have to grow. A younger person has the flexibility to modify spending and saving patterns over decades. In contrast, an older individual is closer to retirement and may begin to consider becoming more conservative.
   
• Consumption Goal: How much will you be spending during retirement? A common rule of thumb suggests that you will need approximately 80% of your current annual expense total. Accordingly, a more comprehensive analysis and assessment should be considered to project future spending patterns.
   
• Retirement Period: How long will retirement last? Actuarial tables continue to reflect longer life spans given modern medical advances. As a general practice, add a buffer. Anticipate living into your late 80s or 90s.

The combination of your retirement spending rate and the term of retirement should give you a ballpark estimate of what is required to save prior to retirement. Note: Using online calculators may assist you in determining a more workable figure for spending, life expectancy and portfolio requirement prior to retirement.

Once you have added a framework to your goal, treat the savings requirement as if it were any other annual expense you are currently obligated to satisfy – simply put, pay yourself first. Of course, if current cash flow precludes you from doing so, perhaps modifying current consumption, future consumption, or your target retirement date is required. In any event, let’s identify some tips that may be of use as you navigate through the current turbulent market and future market cycles:

• Where to Invest: If possible, saving through a tax-deferred employer sponsored plan like a 401(k) where the employer will match your contributions is advisable. If you maximize those contributions and continue to have excess cash flow, consider additional savings through taxable and/or tax-deferred accounts (i.e. IRA or ROTH). Select an investment platform that offers various investment types (Cash, Bonds, Stocks, Mutual Funds, ETFs etc.) and is not limited to investments managed by one company. Once you have identified a custodian, Research.
   
• Research: Review the options available to you. An average investor might consider investing in mutual funds. Mutual funds consist of many individual securities - allowing you to better diversify your portfolio. Identify a number of funds with different characteristics. Do not simply select the single best performing fund as you may find yourself chasing return. Rather, Diversify.
   
• Diversify: Although investment performance during 2008 may have led you to believe that asset allocation does not work, fund your portfolio with different asset styles and classes. For instance, domestic equity investment may include large-cap, mid-cap and small-cap companies. Furthermore, large-cap funds have historically exhibited less volatility than mid-cap or small-cap funds. You might also consider adding international funds, bond funds, and alternative investments to further diversify your portfolio. This may lead to less risk and more return over the long-term. The overall asset mix should be dependant on the current economic environment as well as your Risk Tolerance.
   
• Risk Tolerance: Determine your tolerance for risk and volatility. Completing an online risk tolerance questionnaire may help you confirm your level of comfort with risk. A conservative investor; someone who is looking to avoid large swings in the market, may consider a portfolio that allocates 15-30% in equity and 70-85% in cash and fixed income. A growth investor; someone who is comfortable with market risk and its inherent volatility, may allocate 80-90% in equity and 10-20% in fixed income. Over the long-term, equities typically demonstrate higher rates of return as compared to fixed income; however there is no guarantee of this. After identifying the current investment platform, your level of risk and your preferred investment managers, Implement and Monitor.
   
• Implement and Monitor: By this stage, you have already completed the heavy lifting. After you have implemented your investment strategy you should monitor it regularly. Underperforming funds may require replacing. Also, rebalancing your portfolio at least once per year may be appropriate. This will ensure that the portfolio remains in line with your original investment objective and comfort level.

There is a lot to think about and do; no doubt about it. If, at the end of the day, you feel overwhelmed with the process necessary to implement a prudent retirement investment strategy, you may consider introducing a professional into the equation. A competent financial advisor will guide you through the investment process, identify any potential pitfalls along the way, and provide the direction necessary to reach your financial goals for the future.

Remember, although you cannot ultimately control the performance of your portfolio’s assets, you do hold the power to plan your retirement and control the amount you save between now and then. During these difficult times, sometimes focusing on what you can do or change today is a great place to start.

Bank's Annual Peanut Butter Drive Wins National Award

Washington Trust Receives ABA Community Bank Award

Elizabeth B. Eckel, senior vice president of marketing and investor relations, Washington Trust, receives the Award from Arthur Connelly, chairman of the American Bankers Association.

Washington Trust was recently recognized for its contributions to the community through its annual “PB Xpress” peanut butter drive, at the American Bankers Association National Conference for Community Bankers in Phoenix, AZ, on Feb. 17. Washington Trust was awarded for its efforts in the “Reaching Out to the Underserved” category.

“PB Xpress” began in 2001, as Washington Trust tried to find a nutritious way to help fight hunger in Rhode Island. Since then the Bank has collected 57 tons of peanut butter for the RI Community Food Bank. The drive for 2009 will take place from March 2 - April 4. Please visit www.peanutbutterbank.com for more information.

“Washington Trust is truly honored to be recognized for this award,” said John C. Warren, Washington Trust chairman and chief executive officer. “Our annual 'PB Xpress' peanut butter drive helps supply the food bank with a nutritious food item and helps raise awareness of hunger in Rhode Island.”

The ABA selection Washington Trust from a field of more than 100 nominations based on the innovation, creativity and effectiveness of the Bank's approach to making a difference in its community. The ABA Community Bank Awards program was established in 2005 to recognize community bank's outstanding charitable achievements.

To find out more about the PB Xpress, click here!

Enter to win a $10 iTunes Gift Card!

Answer one question and you'll be automatically entered to win a $10 iTunes® gift card. Twenty five winners will be chosen. Don't delay! Contest ends on April 30, 2009. Click here to answer and enter to win!

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Washington Trust's 2008 Annual Report Now available.

Click here.