On Your Mind… Knee Surgery, Options, and Reverse Mortgages

You’re flooding our inbox again…

In our regular monthly issue of my Retirement Millionaire newsletter, we asked subscribers to send us ideas they’d like to read about. Dozens of you have written in with suggestions.

Keep those ideas coming our way… You might see an answer soon in a Retirement Millionaire Daily issue.

And we’ve also been getting lots of questions this week on our latest Daily essays, so let’s get straight to today’s Q&A…

Q: If you can live for years with knee pain, is it worth having surgery? – R.W.

A: If you’ve exhausted the treatments we detailed and decide surgery is your best option, do your research. Remember, knee-replacement surgery is an elective procedure, so check how much your insurance company will cover. The medical term is a “total knee arthroplasty.”

In fact, I recommend you get a good idea of the fair market value of your procedure. You can do this by going to the website, www.healthcarebluebook.com.

This “Blue Book” is like the Kelley Blue Book site used to value cars so that you can get the best price on any vehicle.

Simply enter your zip code and the procedure, then hit search. The program will give you the average, fair cost for that service. Here in Baltimore, the average cost of a total knee replacement is $27,825.

In addition, some places offer cheaper prices if you pay in cash. Ask your surgeon if he offers a cash price for the procedure. This is especially helpful if insurance won’t cover most of your costs.

There’s even an entire surgical center in Oklahoma with flat “cash price” fees. You put in the procedure and receive a price quote right up front. A total knee replacement there is $15,499… That’s a 44% savings off the Baltimore price. It might be worth the money to make the trip. (You can find more information about the center here.)

Q: My IRA brokerage account allows options trading… However, they will not allow selling of naked puts in the IRA account. They claim that is the rule for IRAs (i.e. the “law”)… Could you please confirm if this is standard in the industry, or if one can sell naked puts in IRAs, and if so, which brokers would allow this? – M.N.

A: The government does restrict what type of trading you can do in an IRA. You can’t sell naked puts in an IRA, but you can sell puts if they’re covered. For readers who don’t know, that means you need to have 100% of the capital that’s at risk in your account.

Let’s say you want to sell a put on XYZ with a $10 strike. Recall that one option contract represents 100 shares of stock. So you’re at risk of buying $1,000 worth of XYZ shares.

If you’re using a margin account, you often only put up a fraction (typically 20%) of this amount – known as the margin requirement. So in this case, you’d need to have $200 in your account to open this trade.

But in an IRA, you have to have 100% of that amount in your account in case you’re put shares. So selling this put in your IRA means you’d need $1,000 in your account to open the trade.

As I said last week, this is meant to keep you from leveraging your retirement too much.

And if you’re interested in learning more about safe ways to “trade for income” using options in retirement, click here for an overview of my Retirement Trader service. (This isn’t a long promotional advertisement, just a simple order form that will give you a risk-free 30-day trial to learn more about my service.)

Q: I subscribe and enjoy Retirement Millionaire, Income Intelligence, and now your daily letter. I am a Certified Reverse Mortgage Professional (CRMP is a designation from the National Reverse Mortgage Lenders Assoc.) and noticed in your recent letter that you had a glaring mistake that I wanted to bring to your and your readership’s attention.

You had indicated that if the property value drops for any reason and you are not able to sell the property for the full amount of the loan that the borrower would have to make up the difference.

This just isn’t true. The reverse mortgage loan is a non-recourse loan. The borrower (or heirs) would never have to repay to the lender more than the home was worth. – D.G.

A: One of the things I love about writing this newsletter is hearing from so many educated, well-researched readers… many of whom are experts in their fields. It keeps us honest and on our toes.

So thanks to all of you who wrote in. We apologize for the error and would like to clarify our essay…

Yes, reverse mortgages are considered non-recourse loans. That means the mortgage lender can’t claim other property or assets to cover the cost of the loan… only the home itself.

Normally, the lender would get your home upon your death and whatever they sell it for would cover the loan. That’s it. However, some special circumstances might lead to a default on your loan… As we mentioned, if you have to move out (say to an assisted living facility) for at least 12 months, you would be in default. At that point, the loan comes due and you’d have to sell the house.

Now, if you sell the home for less than the value of the loan balance, you could be on the hook for the difference – if the reverse mortgage isn’t backed by the Federal Housing Administration (FHA). This group protects folks like you against problems like this. Make sure you understand this up front before signing on for any type of loan.

Likewise, should your heirs want to keep the house after you die, they would need to repay the balance on the loan. (The Consumer Financial Protection Bureau has great resources. Start here and here to learn more.)

Such transactions are full of nuance and take a legal professional to fully explain your individual situation. That’s why we strongly encourage anyone interested in this popular loan to first speak with their estate planner.

Have a topic you want us to research? Send your suggestions to [email protected].

What We’re Reading…

  • The “Bubble Guru” called the last market peak… What’s next?

Here’s to our health, wealth, and a great retirement,

Dr. David Eifrig and the Retirement Millionaire Daily Research Team
April 14, 2017