Retirement Planning For The Non-Affluent:
A New Role For Credit Unions

March  3, 2022

The credit unions (CUs) that prosper over the next 2 decades will have the following inter-related features:

  • They will catch up to banks in digitalizing their operations.
  • They will enhance their traditional focus on local presence and in-house service by accessing wider geographical markets that could be national.
  • They will participate in networks containing firms offering services that complement those of the CU.
  • They will distinguish themselves in providing services to high-priority but underserved consumers.

The last of these features is central, and the others are requisites for achieving it. The “high-priority but underserved consumers” are non-affluent retirees, the ranks of which are growing rapidly. Census data indicate that about 10,000 people will reach age 65 every day for the next 10 years, and more than half of them worry about the prospect of outliving their money. A cost-effective way for credit unions to meet those needs would generate enormous benefits to them, and to society.

The Retirement Funds Integrator (RFI), which I developed with Allan Redstone, provides a mechanism for doing this. I will describe the challenges that had to be overcome in developing RFI, how we met them, and how credit unions could participate.

The First Challenge: Integrating the Components of Retirement Plans

The three components of a retirement plan are currently marketed by three industries as stand-alone products: financial asset management, HECM reverse mortgages and annuities. Integration means adjusting the terms of one to the terms of the others, in the process generating synergies and cost savings that are otherwise unattainable. RFI integration also provides seamless transitions over time from one source of funds to another.

Credit union participation would not involve them in management of financial assets, or in the issuance of reverse mortgages or annuities. They provide no funding. Rather, their roles would be to coordinate the integration process, implement the educational process, and provide or facilitate the process of advising the retiree. These responsibilities will become clearer as we proceed.  

The Second Challenge: Overcoming Imperfect Markets

In the markets for both annuities and reverse mortgages, price shopping is inordinately difficult, with the result that price spreads on identical transactions can be obscenely large. To deal with that problem, RFI has developed access to networks of reverse mortgage lenders and highly-rated annuity providers, along with a mechanism for selecting the lowest price available from the firms on the networks.

Participating credit unions would use these networks in providing the best possible deals for their retiree clients. The resulting savings to the retiree add to the synergies derived from integration. Some illustrations are shown in an appendix note.

The Third Challenge: Coping With Instrument Complexity

Both annuities and reverse mortgages are very complicated and not fully understood by most retirees. The challenge is to educate retirees, many of whom are past their intellectual prime, in the costs and benefits of a complicated instrument with multiple components.

To deal with that problem, RFI divides the process of creating retirement plans into two segments. The first segment is simple enough for retirees to use in developing a preliminary retirement plan. The second phase employs a trained advisor to work with the retiree to convert the preliminary plan into a final plan. The two phases will be considered in turn.  

Phase 1 of Retiree Education: Developing a Preliminary Retirement Plan  

Phase 1 provides the retiree with a graphically-displayed preliminary retirement plan that shows spendable funds and its components every year to age 104. Such a plan would look something like this.

Chart, waterfall chart

Description automatically generated

Our tests indicate that the preliminary plan is manageable by most retirees without assistance other than the Help function built into it.

While the phase 1 retirement plan is designed to educate the retiree, it can also be used by the credit union as a marketing tool. A chart such as the one above could be placed in an office lobby, with a notice such as “Develop Your Own Retirement Plan.” And the program that generates a retiree-specific chart can be placed on the credit union’s web site.

It is made clear to the retiree that the plan is preliminary, and that modifications are available to meet special needs or preferences, in consultation with an RFI-certified advisor. That advisor can be one or more of the credit union’s employees.

Phase 2 of Retiree Education: Developing a Final Plan With Advisor 

In phase 2, the retiree in consultation with an advisor who has access to the more powerful version of RFI, converts the preliminary plan into a final plan. That plan takes account of features and options that reflect the retiree’s preferences but had been left out of the preliminary plan. The credit union offering RFI will want to provide its own advisor or advisors, for whom RFI will provide a training program.

Conclusion: Credit Union Benefits

In addition to the social benefits arising from participation in RFI-based transactions, the credit union will earn significant revenue. The revenue source is the commission paid by annuity providers, typically 3-4% of the amount paid for the annuity. Subject to experience-based modifications, revenues will be allocated by function, as follows:

Lead Source: 40%

Financial Advisor: 25%

Program Administration and Technology Provision: 25%

Administration of Annuity Contracts: 10%

We seek credit union partners to participate in the initial rollout of RFI.  Those interested can contact the Mortgage Professor at 

Appendix Note on Quantifying RFI Benefits

Consider a retiree of 64 who has financial assets of $500,000 and home equity of $400,000. The RFI approach integrates asset management, a deferred annuity (10 years in the examples) and a HECM reverse mortgage credit line. This is compared to a stand-alone approach based on the 4% rule that is widely used by financial advisors. The 4% rule involves draws of 4% of the original asset portfolio amount increasing by 2 percent a year. To make it comparable to RFI, we add a HECM tenure payment, which is a fixed monthly amount. In contrast to the annuity which runs for life, the tenure payment ends if the borrower moves out of the house.

Chart 1 compares the spendable funds available to the retiree under the two approaches, assuming a 4% rate of return on assets. The integrated approach provides more spendable funds over the retiree’s life, and complete protection against running out as a result of living too long. At a 4% rate of return, the 4% rule runs out of assets at age 98, with only the tenure payment remaining. Higher rates of return will avoid that calamity while increasing the difference between the two schedules.

Chart, line chart

Description automatically generated


To assure that retirees using RFI were getting the best competitive prices, we developed networks of both annuity providers and reverse mortgage lenders. The RFI system automatically selects the best deal from those offered, unless the retiree wants to use another provider, in which case RFI will show the cost of indulging the preference.

The importance of this is illustrated in Chart 2, where the top line is calculated at the best terms in both markets, as it was in Chart 1, and the lower line uses the worst terms in both markets. But note that even using the worst terms, RFI beats the 4% rule.


Chart, line chart

Description automatically generated


In or near retirement? The Professor’s Retirement Funds Integrator (RFI) might enhance your life during retirement.

Want to shop for a Reverse Mortgage from multiple lenders?

Sign up with your email address to receive new article notifications