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.
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.
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.
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.
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.
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.
You probably own several assets such as:
- Real Estate
- Vehicles (Land, Sea or Air)
- Fine Jewelry
- Fine art
- Antique Items
- 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.
Preparing for retirement can be challenging. Many people fail to consider the future costs of long-term health care and how that will affect your cash flow, lifestyle, and legacy.
If you suddenly have another bill of $5000 or more a month to pay for long-term care services, that would be financially challenging. Are you prepared for that? Could your adult children step in and be full-time caregivers?
Caregiving is tough, and family caregivers are usually untrained and unprepared for the job. A caregiver's job is also demanding, and they will find it hard to juggle their job and family responsibilities along with taking care of you.
Professional care is costly, and those costs are rising rapidly nationwide. You can prepare for both the financial challenges of long-term care as well as the emotional hardships by including affordable Long-Term Care Insurance in your retirement plans.
You will have access to guaranteed tax-free resources to pay for your choice of quality care options, including care in your home. Your loved ones will have the time to be family instead of caregivers.
The best time to obtain coverage is before retirement, ideally in your 40s or 50s since Long-Term Care Insurance is medically underwritten.
Seek Professional Advice
Experts suggest using a qualified Long-Term Care Insurance specialist to help you navigate the many options available to you and your family. Insurance rates are regulated, so no insurance agent, agency, or financial advisor can give you special deals. However, premiums do vary over 100% between insurance companies for the same coverage.
A specialist who works with the top companies can match your age, health, family history, and other factors and find you the best coverage at the best value. A specialist will save you money, and you will have the peace of mind knowing they are making the appropriate recommendations - Work With a Specialist | LTC News.
Available Resources on LTC NEWS
LTC NEWS offers several tools and resources to help you in your research for a planning solution or help your family find the appropriate care for a loved one at the time of crisis.
To help you plan for the future costs and burdens of changing health and aging, LTC NEWS can put together several resources, including:
- The LTC NEWS Cost of Care Calculator will show you the financial impact of long-term health care where you live. It will also show you state-specific information on tax benefits, care options, rules, and more.
- The Ultimate Long-Term Care Guide is an outstanding read to help you get a good overview of the topic area.
- Compare the major insurance companies that offer Long-Term Care Insurance products here - Top Insurers for Long-Term Care Insurance | LTC News.
- A detailed tax guide that includes available tax incentives can be found by reviewing the Long-Term Care Tax Benefits Guide.
Find all the resources on LTC NEWS - Resources for Long-Term Care Planning | LTC News.
Find Quality Caregivers and Long-Term Care Facilities
If your parent or loved one needs care now - or soon - you will need to find the appropriate care in the right setting depending on their needs.
Take a moment and read -
Get Expert Help Filing an LTC Insurance Claim
LTC NEWS provides free assistance with no obligation to help you, or a loved one complete the claim's process with your Long-Term Care Insurance policy. You can also support finding quality caregivers and get recommendations for a proper care plan, whether a person has a policy or not. - Filing a Long-Term Care Insurance Claim | LTC News.
Benefits of Reverse Mortgages
Today's reverse mortgages for those aged 62 and older could be an ideal resource to fund a Long-Term Care Insurance policy OR even provide money to pay for care if you, or a loved one, already needs help and assistance.
Some people have much of their savings invested in their homes. With today's reverse mortgages, you can find ways to fund care solutions, care itself, even help with cash flow during your retirement.
Learn more by asking questions to an expert. LTC NEWS columnist and host of the TV Show "62 Who Knew" will answer your questions regarding caregiving, aging, health, retirement planning, long-term care, and reverse mortgages.
Just "Ask Mike." - Reverse Mortgages | LTC News.
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