Financing and retirement
Is it better to buy before you leave the workforce?
If the goal is to present the best possible scenario of yourself to a lender, then the answer is always “before.” Most aircraft loans are based on cash flow (versus income), which means the lender needs to see cash flow sufficient to pay all debts plus the debt of the aircraft while still leaving about another 60 percent left over to cover the cost of living.
Consistency is key to aircraft lenders, and generally they are looking to see that cash flow is consistent year over year. When moving from full-time employment to retirement, income flow will usually change. Whether that be pension payments, taking retirement distributions from IRA/401(k) plans, Social Security, or other sources, lenders need to be able to determine that cash flow will be sufficient to support all of your bills plus an aircraft loan and maintenance expenses. Some lenders may be willing to project retirement income via statements for 401(k) and IRA accounts, others may require up to two years of 1099 forms and personal tax returns to gauge what this looks like.
Generally, it is best to seek aircraft financing while you are still employed full time and look to close on the aircraft purchase prior to your official date of retirement. This will make the process easier as the underwriting will be based on the prior two years and current income versus the need to project retirement income or need to wait for two full years of tax returns after retirement.
This is not to imply retired folks can’t get financing. The point to remember is with the more restricted cash flow a retiree enjoys, usually from interest and/or dividends, residual income from the business or businesses in which the retiree may have an interest, or other pension or retirement savings accounts, a lender must feel comfortable that the prospect will meet the aforementioned criteria.
Some lenders will make exceptions by assuming a conservative percentage of marketable securities that could be used as part of debt service. Again, most lenders are looking at actual cash flow to determine repayment ability. Your options may be limited if you have income (or your investments are going up), but you are not distributing the gains as cash flow. [email protected]
aopafinance.org
800-62-PLANE (75263)
Adam Meredith
