Not only are more people retiring every day, more people are living longer in retirement. That means more people are doing more of what people did before retirement, in retirement. Like owning an aircraft.
At AOPA Aviation Finance, “AAF”, we have seen lots of people who buy not just their second but also their third airplane in retirement. The bottom line is buying one or more airplanes in retirement is not out of the question. The question is how to finance an airplane in retirement knowing that retirement typically brings with it a significant change in cash flow.
Cash flow is a critical metric in decisioning loans because it represents the income half of the Debt-To-Income or DTI ratio. This ratio typically carries a lot of weight in credit-based financing packages. At AAF, we advise our members to consider advanced planning as it relates to one’s post-work, aviation life. One strategy we counsel retirees, or those soon to be, includes reducing as much of one’s personal liabilities as possible. Doing so will improve the debt side of one’s personal debt-to-income ratio, increasing one’s attractiveness to a credit-based underwriter.
For retirees who have retirement assets (annuities, etc.) and/or marketable securities that generate income, a conversation with AAF about how best to present your financial picture to a lender is worthwhile. We’ve made the case before that a robust portfolio returning an assumed average of 5% per annum is enough income consideration on the retirement cash flow side to merit credit-based airplane financing. Obviously past performance of stock markets is no indication of future performance, but, over the long enough term, 5% annual return is a reasonable expectation.
Even if your portfolio is chock-a-block with stocks that don’t pay a dividend but instead were purchased for their appreciating ability, it’s worth it to have a discussion with us. AAF is well-versed in getting lenders to see the full financial picture. Like in the case of our 85-year old client, we were able to make it clear to the bank there was enough liquidity to service the debt through to the full amortization, whether the person lived to 105, or not.
You might not be that old, or you might have different financial considerations. In those cases, another option, as discussed in a previous article, is the collateral-based loan. The advantages include an easier application process--there’s less paperwork involved in doing those types of transactions. The tax return provision is not a requirement like it is for a credit-based deal. That’s a good and easy suggestion for retired folks.
Collateral-based loans do involve a bigger down payment—30%, sometimes 40% down, but the tradeoff is the lender isn’t going to be looking at cash flow. Regardless, for the retired individual they tend to be a very good option.
It’s also a great option for folks with “lumpy” cash flows—income that appears in big chunks—like an annuity for instance, or unpredictably like residuals from intellectual properties.
The closer one is to their retirement, the more we advise advanced planning to better enjoy one’s aviation life in retirement.
Great rates. Great terms. Helpful and responsive reps. Three good reasons to turn to AOPA Aviation Finance when you are buying an airplane. If you need a dependable source of financing with people who are on your side, just call 800.62.PLANE (800.627.5263) or click here to request a quote.