Getting a Loan After Retirement - It Can Be Done – Just Know What to Expect

Retirement should be a time for those who have worked all their life to sit back and enjoy the fruits of their hard work. However, their savings alone may not be enough to pay for other things you may need. What if you want to assist your children in purchasing a car or a home? If you are retired, it may be more challenging to qualify for a loan.

Borrowing as a Retiree

Banks and other lenders will usually consider income from a pension as regular income. The same goes for your social security, and even some investment income will qualify as steady income. In some cases, you might be able to include any annuity or survivor benefits as long as you can prove it will continue for at least three years. Your total assets can also, in some cases, contribute to your ability to obtain a loan.

If you are self-funding your retirement - meaning you do not have a defined pension with guaranteed income - you likely earn most of your income from retirement savings, rental properties, or investments. 

Lenders will look at a retiree's monthly withdrawals as a "salary." Alternatively, lenders subtract these payments by estimating the total value of your financial assets. Afterward, they take a portion of the remainder then divide it over a few years. 

When borrowing, you must decide if you want a secure or unsecured loan. Unsecured loans do not require collateral but are challenging to obtain and come with higher interest rates. Secured loans, on the other hand, are much easier to secure but require collateral. This collateral can include assets such as vehicles, property, material possessions, or even your home. If a loan goes unpaid, the lender seizes the collateral. Retirees should always evaluate their personal loan offers before making any final decisions.

Here are some of the various ways retirees may qualify for loans.

Social Security

We accrue a significant amount of money from working throughout our lifetime with the contributions made to Social Security. Lenders often will view this as a retiree's primary source of income. One of the benefits of Social Security is that it will not expire, so long as you live, you will receive your social security benefits. 

Pension

Fewer employers often defined pensions; however, they still exist, especially if you work for the government or have a union pension. Pension is another source of cash that lenders will consider. As you may have noticed, the primary characteristic that lenders look for is a regular and permanent source of income that the lender deems reliable. 

Survivor's Benefits

A limited source of income in lenders' eyes is social security survivor's benefits. Generally, spouses and ex-spouses become eligible for survivor benefits at age 60 as long as they do not remarry before that age. These benefits are payable for life unless you start collecting a retirement benefit that is larger than the survivor benefit.

There are other forms of survivorship benefits from pensions where the surviving spouse will receive benefits for life, often at a smaller amount. Couples with pension income will frequently be asked if the pension benefit continues if the primary recipient passes away first. If so, will that benefit be reduced, and if so, by how much.

Retirement Funds

Your assets will produce income when you retire, whether from qualified accounts like a 401(k) or IRA or non-qualified savings and investments. Lenders will only count 70% of these accounts as solid assets because the rest is considered too volatile.

Rental Property Income or Other Business Income

These types of investments can be a relatively reliable source of income to qualify for a loan. The lender will look for a consistent flow of income. Lenders typically do not require proof of continuation for assets such as these, except for assets that can diminish over time. Business investments are a tremendous post-retirement plan for regular income.

Annuity Income

Annuities are often purchased to provide income during your retirement. While most annuities will pay for your lifetime, the lender will want to verify that your annuity income will continue. 

Personal Assets

You probably own several assets such as:

• Real Estate
• Vehicles (Land, Sea or Air)
• Fine Jewelry
• Fine art
• Antique Items
• Collectibles
• Precious metals

These types of assets can be considered by lenders but usually at 70% of the value. Each lender will have its own rules and will place different values in certain types of assets. 

Financial Support from Family

Some older people may receive financial support from their children, which significantly eases the financial stress. However, borrowing money from family members must not be taken lightly, and retirees and their children should adequately plan for any loans taken.

In some cases, a lender may consider regular financial support from an adult child as income. Your loved one could also consider co-signing the load, which would make them responsible for payment if you cannot do so yourself.

In the end, the thing lenders look at most is a retiree's ability to meet their payments regularly. The exact amount a retiree earns doesn't matter if they are unable to meet their loan payments. Whether they are buying a car or a home, it's essential to stay within your means. 

For those who are close to retirement, it's important to include long-term care in your retirement plans, as a long-term care need may make paying your loan much more difficult. If you own a Long-Term Care policy, your income and assets are protected from the high costs of extended care. Your need for long-term health care increases as you get older; protecting assets from these costly expenses will safeguard income and assets.

Remember, preparing to pay a loan is much easier than finding ways to pay for an existing one.