"Verifiable Income" in Retirement?

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MandyLuna
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"Verifiable Income" in Retirement?

Post by MandyLuna »

I just retired this year. Currently living from my checking account for now, while also receiving a pension check each month.

Plan to begin withdrawals in 2022 and trying to decide when to take SS.

I was just denied for a small personal loan due to the relatively low income of my pension, even though I have a near 800 credit score. I don't need the money, but the bank was offering a generous bonus with no early pay off penalties.

Am I correct to assume that withdrawals from retirement accounts would not be considered "verifiable" income?.

Outside of a mortgage paid off a long time ago, I haven't owed any money to anyone for decades. I can't recall the name of the category in the credit scoring system, but thought I might want to boost it - in case I need another mortgage in the future for whatever reason (renting for now).

Any comments or suggestions here would be appreciated. Thank you.
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Watty
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Re: "Verifiable Income" in Retirement?

Post by Watty »

MandyLuna wrote: Tue Nov 30, 2021 10:05 am Any comments or suggestions here would be appreciated.
You can call the lender and explain the situation and ask them to reconsider your loan application. It may have just been declined by a computer with no one understanding what the details were.

There are old threads about getting mortgages in retirement that you can look up.

I have been able to get both credit cards, a home equity line of credit, and a car loan to get 0% financing after I retired and it has not been a problem. As I recall all that I did was put something like "retired" for the employer and occupation and when it asked for my income I just put what my income was on my last years tax returns.

That includes IRA withdrawals and Roth conversions so it is a non-trivial amount but I did not specify where that income came from. If you had any capital gains that were taxed at 0% then I would also include those in my stated income.

I have never been asked to give any details about where the income came from for loans like those but a mortgage application would need more details.

It can vary greatly and you would not want to do it just to just for your credit but you should look to see if doing things like Roth conversions or taking capital gains in a low tax bracket would make sense. I would not wait until late in December to do these just so that you don't get into any last minute SNAFUs
MandyLuna wrote: Tue Nov 30, 2021 10:05 am ....and trying to decide when to take SS.
See this web site.

https://opensocialsecurity.com/
Last edited by Watty on Tue Nov 30, 2021 10:38 am, edited 1 time in total.
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JoeRetire
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Re: "Verifiable Income" in Retirement?

Post by JoeRetire »

MandyLuna wrote: Tue Nov 30, 2021 10:05 am Am I correct to assume that withdrawals from retirement accounts would not be considered "verifiable" income?.
That depends on the lender.

In general, random withdrawals are not considered "verifiable" income.
Pension benefits and social security benefits would be.
Outside of a mortgage paid off a long time ago, I haven't owed any money to anyone for decades. I can't recall the name of the category in the credit scoring system, but thought I might want to boost it - in case I need another mortgage in the future for whatever reason (renting for now).
If your credit score is near 800, there's nothing needing to be boosted. Your credit score wasn't the issue in your denial.
Last edited by JoeRetire on Tue Nov 30, 2021 10:36 am, edited 1 time in total.
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PaunchyPirate
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Re: "Verifiable Income" in Retirement?

Post by PaunchyPirate »

I'm sure it will vary depending on who you're trying to get a loan from. You could probably set up a recurring withdrawal of $x,xxx per month from your retirement account that goes into your checking account and call that verifiable income after a couple months of being able to prove it via bank statements.

I went to buy a car a couple years ago with no earned income. I told the sales guy that my income was whatever I chose to pull out of my investments. His finance guy insisted I needed to put a monthly income on the application. So I made up a number. That was all it took to get the car financed and for me to get the additional cash back being offered. I paid the car off in full with the first payment.
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ResearchMed
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Re: "Verifiable Income" in Retirement?

Post by ResearchMed »

PaunchyPirate wrote: Tue Nov 30, 2021 10:35 am I'm sure it will vary depending on who you're trying to get a loan from. You could probably set up a recurring withdrawal of $x,xxx per month from your retirement account that goes into your checking account and call that verifiable income after a couple months of being able to prove it via bank statements.

I went to buy a car a couple years ago with no earned income. I told the sales guy that my income was whatever I chose to pull out of my investments. His finance guy insisted I needed to put a monthly income on the application. So I made up a number. That was all it took to get the car financed and for me to get the additional cash back being offered. I paid the car off in full with the first payment.
When we looked into this for a mortgage for a second property, we asked about qualifying for a asset depletion loan.
(We were old enough not to pay penalties, etc.)

We were told "Sure, but we need two years showing your *monthly* withdrawals based upon the asset depletion amount".
Um... we had all that money because we hadn't yet touched any of it. :annoyed

Turned out we qualified based on regular income, in addition to our regular mortgage, but we hadn't realized that would work.

RM
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BigLaw Survivor
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Re: "Verifiable Income" in Retirement?

Post by BigLaw Survivor »

JoeRetire wrote: Tue Nov 30, 2021 10:34 am
MandyLuna wrote: Tue Nov 30, 2021 10:05 am Am I correct to assume that withdrawals from retirement accounts would not be considered "verifiable" income?.
That depends on the lender.

In general, random withdrawals are not considered "verifiable" income.
Pension benefits and social security benefits would be.
Outside of a mortgage paid off a long time ago, I haven't owed any money to anyone for decades. I can't recall the name of the category in the credit scoring system, but thought I might want to boost it - in case I need another mortgage in the future for whatever reason (renting for now).
If your credit score is near 800, there's nothing needing to be boosted. Your credit score wasn't the issue in your denial.
My personal experience is consistent with this. I’ve been retired for several years and have no pension and have not yet started taking social security. Having no regular income stream but $5 million in my retirement and taxable brokerage accounts (and a FICO score well over 800), I couldn’t even qualify as a co-signer on one of my kids’ $25k student loan refinance. I couldn’t believe it.
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HueyLD
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Re: "Verifiable Income" in Retirement?

Post by HueyLD »

You said: “ My personal experience is consistent with this. I’ve been retired for several years and have no pension and have not yet started taking social security. Having no regular income stream but $5 million in my retirement and taxable brokerage accounts (and a FICO score well over 800), I couldn’t even qualify as a co-signer on one of my kids’ $25k student loan refinance. I couldn’t believe it.”

Well, it is not a surprise to me at all. Banking regulators frown on collateral lending.

In other words, a safe and sound bank lending practice is to rely primarily on “the ability to repay.” Moreover, most money in retirement accounts cannot be pledged as collateral for loans and banks definitely do not care about the size your retirement accounts unless you have committed to a regular withdrawal schedule such as RMD, 72(t), etc.
Last edited by HueyLD on Tue Nov 30, 2021 11:44 am, edited 1 time in total.
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JoeRetire
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Re: "Verifiable Income" in Retirement?

Post by JoeRetire »

BigLaw Survivor wrote: Tue Nov 30, 2021 11:31 am
JoeRetire wrote: Tue Nov 30, 2021 10:34 am
MandyLuna wrote: Tue Nov 30, 2021 10:05 am Am I correct to assume that withdrawals from retirement accounts would not be considered "verifiable" income?.
That depends on the lender.

In general, random withdrawals are not considered "verifiable" income.
Pension benefits and social security benefits would be.
Outside of a mortgage paid off a long time ago, I haven't owed any money to anyone for decades. I can't recall the name of the category in the credit scoring system, but thought I might want to boost it - in case I need another mortgage in the future for whatever reason (renting for now).
If your credit score is near 800, there's nothing needing to be boosted. Your credit score wasn't the issue in your denial.
My personal experience is consistent with this. I’ve been retired for several years and have no pension and have not yet started taking social security. Having no regular income stream but $5 million in my retirement and taxable brokerage accounts (and a FICO score well over 800), I couldn’t even qualify as a co-signer on one of my kids’ $25k student loan refinance. I couldn’t believe it.
Consider it from the typical lender's point of view.

When you ask for a loan, the lender wants to feel confident that you can pay it back. Income streams provide that confidence.
On the other hand "but I have $5m in the bank today" doesn't, since the day after that you might not.

That said, there are no-income loans to be had for those with no income, but sufficient assets. And sometimes a HELOC can be had.
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Katietsu
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Re: "Verifiable Income" in Retirement?

Post by Katietsu »

There have been people in your situation turned down for a rental apartment because of no verifiable monthly income. I know one case where the building was owned by a corporate entity and even an offer to pay the full one year lease amount was denied because there was not a “paycheck/SS/pension” for 3X the rental amount. No common sense.
phxjcc
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Re: "Verifiable Income" in Retirement?

Post by phxjcc »

MandyLuna wrote: Tue Nov 30, 2021 10:05 am
Am I correct to assume that withdrawals from retirement accounts would not be considered "verifiable" income?.
No, you are not correct in assuming this.

If you can show two years of history by supplying Retirement Account Statements and Bank Statements to prove the cash flow you will be fine.

Just did a refi and the underwriters wanted two months of statements.
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billthecat
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Re: "Verifiable Income" in Retirement?

Post by billthecat »

phxjcc wrote: Tue Nov 30, 2021 11:57 am
MandyLuna wrote: Tue Nov 30, 2021 10:05 am
Am I correct to assume that withdrawals from retirement accounts would not be considered "verifiable" income?.
No, you are not correct in assuming this.

If you can show two years of history by supplying Retirement Account Statements and Bank Statements to prove the cash flow you will be fine.

Just did a refi and the underwriters wanted two months of statements.
How does that work? Do you basically have your initial main brokerage account (or retirement account), and add a new "budget" account, and then just regularly do a transfer from the main brokerage account to the "budget" account every two weeks (or twice monthly, or whatever paycheck period you want to simulate)?
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twh
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Re: "Verifiable Income" in Retirement?

Post by twh »

If you are retired and planning on getting a home mortgage...you have to show income or use asset depletion or a combination...

For income, the mortgage company will credit your SS income as soon as you start taking it. So, theoretically, you could start SS, get the loan and then suspend SS.

Also for income, if you are taking monthly equal withdrawals from Roth/tIRA, those will count as income. Normally, you will need to show some number of months of history of this, so you need to plan ahead. Most brokerages also have an autopilot withdraw setup for this that includes a letter showing your instructions that you can share with the mortgage company.
phxjcc
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Re: "Verifiable Income" in Retirement?

Post by phxjcc »

billthecat wrote: Tue Nov 30, 2021 12:04 pm
phxjcc wrote: Tue Nov 30, 2021 11:57 am
MandyLuna wrote: Tue Nov 30, 2021 10:05 am
Am I correct to assume that withdrawals from retirement accounts would not be considered "verifiable" income?.
No, you are not correct in assuming this.

If you can show two years of history by supplying Retirement Account Statements and Bank Statements to prove the cash flow you will be fine.

Just did a refi and the underwriters wanted two months of statements.
How does that work? Do you basically have your initial main brokerage account (or retirement account), and add a new "budget" account, and then just regularly do a transfer from the main brokerage account to the "budget" account every two weeks (or twice monthly, or whatever paycheck period you want to simulate)?
IRA is held by Company A.

Distribution goes to checking account B.

Pension goes to checking account B.

SSOASDI goes to checking account B.

You provide statements of A and B and SSA award letter and pension statement.

If IRA distribution is much greater than pension, just don't mention the pension if the IRA cash flow is enough to qualify for the loan.

It is a matter of "passing through the gates" (aka "check the Box") of loan underwriting.
fourwheelcycle
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Re: "Verifiable Income" in Retirement?

Post by fourwheelcycle »

We usually pay cash for new cars, but when we bought our last car we were offered a significant discount if we took out a four year loan, which could be paid off at any time with no penalty. We said OK, and when the finance officer at the dealership asked for our incomes we gave him numbers that included all income - pension, RMDs (net of QCDs), SS, and 1099-DIV. He never asked about verifiable income and we got the loan, which we paid off a week later with no penalty.

If the finance officer had asked if our reported income amounts were verifiable, I suppose I would have said we could verify them from our bank and brokerage statements or from our MFJ tax submission, but I would have refused to show him any of those documents. I realize a mortgage lender would probably push harder for income verification, but if we really needed a mortgage I would be willing to share the supporting documents.

I think RMDs do represent current income, but I would not put Roth conversions in the same category. A Roth conversion is elective, not mandatory, and it is just moving savings from a pre-tax bucket to a post-tax bucket.
twh
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Re: "Verifiable Income" in Retirement?

Post by twh »

fourwheelcycle wrote: Tue Nov 30, 2021 12:24 pm I think RMDs do represent current income, but I would not put Roth conversions in the same category. A Roth conversion is elective, not mandatory, and it is just moving savings from a pre-tax bucket to a post-tax bucket.
If you are usings periodic (i.e. monthly) withdrawals from a tIRA and wanting that to count as "income" by the underwriter, you should not do a one-step Roth conversion. You need for the iIRA withdrawal to show up in a checking account. At that point, you can do a 60-day indirect Roth conversion if you don't really need that money. Unlike other indirect 60 days conversions, a tIRA->Roth 60 day can be done as many times as you like and are not limited by the once-in-12-month rule. My point is that the money needs to show up in your hands in order for the underwriter to give you credit for the "income".
fourwheelcycle
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Re: "Verifiable Income" in Retirement?

Post by fourwheelcycle »

twh wrote: Tue Nov 30, 2021 1:26 pm Unlike other indirect 60 days conversions, a tIRA->Roth 60 day can be done as many times as you like and are not limited by the once-in-12-month rule. My point is that the money needs to show up in your hands in order for the underwriter to give you credit for the "income".
I only mentioned Roths because Watty referenced them. I know about the once-in-12-months indirect rollover rule because my wife and I rolled-out all of our retirement accounts when we retired, and we were careful to do them all as custodian to custodian transfers. We don't do monthly RMD distributions because we do QCDs throughout the year, although mostly in October, then we do our remaining RMDs in one withdrawal during November. However, the indirect Roth exclusion is new to me - thanks.
BigLaw Survivor
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Re: "Verifiable Income" in Retirement?

Post by BigLaw Survivor »

JoeRetire wrote: Tue Nov 30, 2021 11:41 am
BigLaw Survivor wrote: Tue Nov 30, 2021 11:31 am
JoeRetire wrote: Tue Nov 30, 2021 10:34 am
MandyLuna wrote: Tue Nov 30, 2021 10:05 am Am I correct to assume that withdrawals from retirement accounts would not be considered "verifiable" income?.
That depends on the lender.

In general, random withdrawals are not considered "verifiable" income.
Pension benefits and social security benefits would be.
Outside of a mortgage paid off a long time ago, I haven't owed any money to anyone for decades. I can't recall the name of the category in the credit scoring system, but thought I might want to boost it - in case I need another mortgage in the future for whatever reason (renting for now).
If your credit score is near 800, there's nothing needing to be boosted. Your credit score wasn't the issue in your denial.
My personal experience is consistent with this. I’ve been retired for several years and have no pension and have not yet started taking social security. Having no regular income stream but $5 million in my retirement and taxable brokerage accounts (and a FICO score well over 800), I couldn’t even qualify as a co-signer on one of my kids’ $25k student loan refinance. I couldn’t believe it.
Consider it from the typical lender's point of view.

When you ask for a loan, the lender wants to feel confident that you can pay it back. Income streams provide that confidence.
On the other hand "but I have $5m in the bank today" doesn't, since the day after that you might not.

That said, there are no-income loans to be had for those with no income, but sufficient assets. And sometimes a HELOC can be had.
And the day after taking out the loan you can lose your job and income stream as well.

A lender can also trace back how long you've had the $5 million and, coupled with a high FICO score, be pretty confident that the borrower is going to pay it back.

Yes, there are other ways, as I've since discovered. I'm fine. In this particular instance, I was just trying to help a kid establish a credit history.
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JoeRetire
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Re: "Verifiable Income" in Retirement?

Post by JoeRetire »

BigLaw Survivor wrote: Tue Nov 30, 2021 3:58 pm
JoeRetire wrote: Tue Nov 30, 2021 11:41 am
BigLaw Survivor wrote: Tue Nov 30, 2021 11:31 am
JoeRetire wrote: Tue Nov 30, 2021 10:34 am
MandyLuna wrote: Tue Nov 30, 2021 10:05 am Am I correct to assume that withdrawals from retirement accounts would not be considered "verifiable" income?.
That depends on the lender.

In general, random withdrawals are not considered "verifiable" income.
Pension benefits and social security benefits would be.
Outside of a mortgage paid off a long time ago, I haven't owed any money to anyone for decades. I can't recall the name of the category in the credit scoring system, but thought I might want to boost it - in case I need another mortgage in the future for whatever reason (renting for now).
If your credit score is near 800, there's nothing needing to be boosted. Your credit score wasn't the issue in your denial.
My personal experience is consistent with this. I’ve been retired for several years and have no pension and have not yet started taking social security. Having no regular income stream but $5 million in my retirement and taxable brokerage accounts (and a FICO score well over 800), I couldn’t even qualify as a co-signer on one of my kids’ $25k student loan refinance. I couldn’t believe it.
Consider it from the typical lender's point of view.

When you ask for a loan, the lender wants to feel confident that you can pay it back. Income streams provide that confidence.
On the other hand "but I have $5m in the bank today" doesn't, since the day after that you might not.

That said, there are no-income loans to be had for those with no income, but sufficient assets. And sometimes a HELOC can be had.
And the day after taking out the loan you can lose your job and income stream as well.
Of course, anything can happen.
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pshonore
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Re: "Verifiable Income" in Retirement?

Post by pshonore »

I applied for an HELOC at TD Bank a few years back. I supplied 1099R forms showing income from pensions, SS, etc. I was told those were not acceptable but the original "award letters" would be. That makes no sense at all, but I complied and the loan was approved. It all depends on the bank.
andypanda
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Re: "Verifiable Income" in Retirement?

Post by andypanda »

"Income streams provide that confidence.
On the other hand "but I have $5m in the bank today" doesn't, since the day after that you might not."

Of course a borrower could quit their job or be fired the day after the loan was approved.

Since I paid off my last mortgage in 1997 I have been debt free and have frequently been amused by financial institutions/lenders who don't trust people with a large bank balance, multiple large CDs, a large taxable portfolio, want to pay cash, etc.

It's almost as if they simply don't trust people who have money. And yes, I was still working. Until 2012 fwiw. Meanwhile, my Big Bank FICO score bounces between 807 and 821 because "too many cards (that are paid monthly) and no recent loan activity"

I'm just a financial misfit. :sharebeer
mr_brightside
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Re: "Verifiable Income" in Retirement?

Post by mr_brightside »

relevant thread. seems like with a lot of things 'it just depends' on the lender

will be looking at a mortgage in about 18 months possibly so I'm mentally preparing myself for this rodeo :o

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andypanda
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Re: "Verifiable Income" in Retirement?

Post by andypanda »

It does depend on the lender. And the car dealer for that matter.

Less than a year before my parents had to move to a retirement community for assisted living and nursing home care, they took a Sunday drive to the next town over in the Shenandoah Valley. They happened to see a new Toyota parked in front of the dealer and my father liked it a lot. A higher end Avalon fwiw. Everyone was off or at a conference except for a new salesman and a manager.

They signed some paperwork for a cash sale and my father was told to go ahead and take the car and bring a check in the next day when the local credit union opened. Their 4-year-old Malibu was left at the dealer.

Monday morning he stopped by the credit union in their town of 8,000. Being in their mid-80s, they had about half a million in laddered 5-year CDs. The manager came out to greet them. The manager listened to what they needed and told a cashier to print a check and they'd figure it out later because it wasn't worth breaking a CD & doing the paperwork or doing a formal loan. They ended up with an interest-free loan until the next CD matured. I don't recall what he got for that Chevy or the size of the markdown, but the sticker on the Avalon was $35k or so.

My parents, living below their means all the way to the end. Except for the really nice retirement community. :)
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