“When is the best time to finance an aircraft, before or after I retire?” We’re getting that question a lot more these days.
If the goal is to present the best possible scenario of yourself to a lender, then the answer is always “before.” Because most aircraft loans are based on cash flow (vs. “income”), the lender needs to see cash flow sufficient to pay all debts plus the debt of the aircraft while still leaving about another 60% left over to cover your 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 be different. Whether that be pension payments, taking retirement distributions from IRA/401K, Social Security, etc. – 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 401K and IRA accounts, others may require up to 2 years 1099 and personal tax returns to gauge what this looks like.
Generally speaking, 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 2 years and current income vs. the need to project retirement income or need to wait for 2 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 the prospect will meet the aforementioned criteria. There are some lenders that will also be able to make exceptions by assuming a conservative percentage of marketable securities could be used as part of debt service. Again, most lenders are looking at actual cash flow to determine repayment ability, therefore options may be limited if you have income (or your investments are going up), but you are not distributing the gains as cash flow.
Great advice. Great rates. From helpful and responsive reps you can trust. Three good reasons to turn to AOPA Aviation Finance when you are buying or refinancing 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.