need for showing an income stream ?

[phoneguy55]

Just starting my first full year of ER, and wondering about my lack of "verifiable income stream". I have my old employers 401K which I am going to pull a one-time-per-year lump out of to live on.( they don't allow any other kind of distribution scheme ) Doing such will last me well into time my SS starts. My separate IRA will then be untouched and doing it's thing until SS starts. BUT...I can start distributions from the IRA just to show an income stream, however the max I can pull is 19k a year. I wonder if that is really enough to satisfy any lending institution for a Mortgage refi or a car loan....and if not, then should I even bother. ( Wondering if that relatively small but steady income stream plus the IRA assets might satisfy a lender.) Whatcha think ....?

 

[azphx1972]

If you're retired, why do you need to borrow money? Get a HELOC before you ER, if you want to be able to borrow against your asset in the event of an emergency.

 

[phoneguy55]

....I wish I had the time to refi my mortgage before my hasty retirement last year, but had to decide within a few weeks time. Other than a car loan or a home refi, I most likely would not need to borrow any money, but it would be great to knock a few points off this mortgage.

 

[azphx1972]

I guess you could try to look into no doc loans, but they're typically at higher rates. Good luck.

No-Doc Mortgages Are Back?! - Forbes.com

 

[phoneguy55]

Thanks for the link. That's what I have found also....I can get a refi.....but at the cost of a few points....which defeats the purpose. That's why I started wondering about setting up a "virtual paycheck" by taking distributions from my IRA. I could lower my annual lump withdrawal from the 401K by the amount of IRA distributions, so it would be a wash as far as draw down on my total assets. But would a "paycheck" of 19K a year really help qualify me ? ? ?...I wonder. I know a bank would have to definitively answer this question, but thought I would toss this out for another opinion.

 

[Koolau]

If you're retired, why do you need to borrow money? Get a HELOC before you ER, if you want to be able to borrow against your asset in the event of an emergency.

This happened to DW and me. No idea we would ever have mortgage again. Got a chance to move to a better place at virtually no difference in cost, BUT, had to buy the new place and THEN sell the old place. ONly way it would work. SO... Had to get a mortgage. Almost could not because our verifiable income was so low. THEN they looked at the money we had "taken" from our 401(k) to put into IRAs to then convert to ROTH. THe conversion triggered taxes (i.e., verifiable income). I thought "THis is the dumbest thing I've ever heard of. I didn't spend the money, I just moved it around and the gummint taxed me." But the bank was happier than the proverbial bacon donor in the wallow.

So, to answer phoneguy55, is it possible to move some of your tIRA to a Roth and have a taxable event? If you do, there are lots of "issues": You will owe taxes. You need the cash to PAY the taxes. You might end up paying more taxes in the long run, depending upon your situation. IOW, while this worked well for us, it may not be advisable for you. So research THOROUGHLY before heading down this path because YMMV.

 

[phoneguy55]

Thanks Koolau.... I hear what you are saying. My whole gameplan is working out as I had planned, except for doing a refi. If saving $2k a year is going to cost me even half of that, then it doesn't make sense to change my plan, even if it does hurt to not lower my Mortgage by 2 points. Hopefully I won't have to worry about the Auto Loan problem for a few years yet since Wells Fargo actually let me refi the car without an income check because I also have a mortgage with them. Thanks again for your input.

 

[lemming]

I keep getting things from Chase about doing a refi, no closing costs, but their first rule is having a job . I could give them tax forms but even those would show really low income. I remember from trying to get a loan in the 90's they don't care about assets. Dang it how could reducing my interest rate by 2% make me a worse risk?

 

[phoneguy55]

I KNOW....isn't that crazy.....? If I am able to make my payments on time now.....why wouldn't I be able make them at $200 less a month. Sheesh... Now add to that, the whole "underwater" aspect of the lowered housing markets, and I am pretty well stuck with my old rate. Oh well....I had done all my pre ER calculations on living with that payment, so no harm - no foul. ( just frustration).

 

[jazz4cash]

Your once per year lump sum distribution from the 401k should generate a 1099 and 1040 income (unless an exception exists). Now, if they ask to see paystubs, it could still be a problem.

 

[W2R]

I haven't needed to show an income stream for anything and I don't think I ever will need to do that because I never intend to borrow money again for anything.

Some day I might move to another house, but if I do and if it turns out that I must own two houses for a little while, then I'll just "lend myself" the money to buy the second house in cash and then "pay myself back" when my present house sells. If things got too tight I'd just claim SS to grease the wheels.

 

[Katsmeow]

We just refinanced a house. DH is fully retired, while I am semi-retired (work very part-time).

There are basically 2 ways to go as I understand it.

1. Look up asset depletion loan. Basically this looks at your assets - including retirement funds - and creates an income stream based upon depletion over your life expectancy. I think to use retirement funds for this you have to be 59 but I'm not sure.

2. Systematic withdrawals from an IRA can be considered income just like any other income. We provided a copy of Vanguard statements showing the systematic withdrawals (in our case they had been going on for over a year). There are Fannie Mae guidelines on these according to the mortgage broker. The IRA had to have in it enough money to cover 3 years of mortgage payments. Also he said that in the past the guidelines required that the payments have been established for some period of time but he said it was getting looser and he had just had someone approved who set up the systematic payments for the first time during the mortgage process.

In your situation if your only income is $19k a year from the IRA you might have to look at an asset depletion loan but I'm not sure about that from an age standpoint.

On your 401K can you roll it over to an IRA instead of withdrawing from it and then draw out from that IRA as well?

 

[Bikerdude]

Banks usually do not like income that is under your control. They do like pensions, social security and annuities.

 

[azphx1972]

Your once per year lump sum distribution from the 401k should generate a 1099 and 1040 income (unless an exception exists). Now, if they ask to see paystubs, it could still be a problem.

I was just wondering about that. My last two refi's required W2s and paystubs.

 

[Koolau]

I haven't needed to show an income stream for anything and I don't think I ever will need to do that because I never intend to borrow money again for anything.

Some day I might move to another house, but if I do and if it turns out that I must own two houses for a little while, then I'll just "lend myself" the money to buy the second house in cash and then "pay myself back" when my present house sells. If things got too tight I'd just claim SS to grease the wheels.

W2R, this is the best strategy if you can swing it. In my case, I was looking for the better part of half a mil. Loaning it to myself wasn't an option (not in total, anyway). I had structured far too much of my "stash" in tax deferred vehicles over the years of w*rking. Taking that much would have put me in the top tax bracket for a good chunk of the money. Then, I'd need more to pay the taxes (and so on...) One banker looked at our assets and asked "Why don't you just take the money from your 401(k)?" I'm serious. I couldn't believe it. I suggested that I'd need a "signature" loan from him to pay the taxes. He didn't seem to get it.

Overall, the process of securing a loan left me shaking my head at what the gummint has done to the process (overreacting to no-docs, bad appraisers, etc. etc.) and how utterly incompetent some loan "officers" are.

Back to tax deferred vehicles for a second. The process of getting a loan (needing to, really) reenforced my opinion that 401(k)s and tIRAs have a downside that not everyone recognizes (I didn't until it was too late). Not suggesting these vehicles should never be used. Rather, one needs to balance them off with taxable accounts to some extent. Because of the way my 401(k) grew toward the end of my c@reer, I ended up with an unbalanced situation between taxable and deferred. Obviously, everyone's situation is different, so YMMV.

 

[Gill]

I was in this position about a year ago. The bank suggested I set up an automatic monthly withdrawal from the IRA of a certain amount, which was far more than I take from my IRA. They asked for proof of this arrangement, I got the mortgage and when it closed I immediately cancelled the monthly payout with Vanguard.
Bruce

 

[Koolau]

Banks usually do not like income that is under your control. They do like pensions, social security and annuities.

Oddly enough, when we applied, they counted our ROTH conversions the same as DW's SS and my pension income. I was truly surprised. I even asked the banker about it. As far as he was concerned (and the bank) they were equivalent. Obviously, YMMV.

 

[Bikerdude]

Oddly enough, when we applied, they counted our ROTH conversions the same as DW's SS and my pension income. I was truly surprised. I even asked the banker about it. As far as he was concerned (and the bank) they were equivalent. Obviously, YMMV.

Its been my experience that the more income from sources they like the more they like income from sources they usually dislike.

 

[clifp]

Oddly enough, when we applied, they counted our ROTH conversions the same as DW's SS and my pension income. I was truly surprised. I even asked the banker about it. As far as he was concerned (and the bank) they were equivalent. Obviously, YMMV.

They do seem to consistently count roth conversion as income. The only reason I can figure it is generates a 1099R which is a paper trail.

 

[NW-Bound]

As we cannot even tap IRA without penalty (without using 72t that is), we will have no income for a few years. However, I am loaded with after-tax money that a $1/2-million house payment could be managed. However, I still have cap gain tax to worry about, plus the time I would be out of the market. Talk about big market timing move.

The other day, my brother bought a Honda Civic for his daughter, and got a 0-interest loan. I thought about that, and figured I would not be able to get such a loan if I were to buy a car, even with all the cash I have. Hah! I guess it is all cash deal for me from now on.

 

[Koolau]

<SNIP>

The other day, my brother bought a Honda Civic for his daughter, and got a 0-interest loan. I thought about that, and figured I would not be able to get such a loan if I were to buy a car, even with all the cash I have. Hah! I guess it is all cash deal for me from now on.

Things are so screwed up in the banking industry, it reminds one of the old joke:

"There must be something wrong with his credit. He always pays cash!" YMMV

 

[Brett_Cameron]

I refinanced my mortgage just before I retired in 2011. They asked for permission to get income tax filing summary from the IRS for 2 years plus 12 months of checking account statements plus proof that I had paid the mortgage for 12 months. Since I had bank draft mortgage payment, I had to point out (highlight) the mortgage payments on the bank statements.

 

[cardude]

I attempted to refi a couple of years after I retired in 2008 and it was a disaster. This was right in the middle of the financial collapse and the banks were just not interested at all. Tried it again a couple of years later when I had a years worth of verifiable income from a car lot I started, but it was still a no go. Banks wanted two years of tax returns showing good income. They had no interest in the size of my retirement accounts showing I could pay it off at any time. I finally got the refi done through Schwab Bank. Since the bulk of my assets are held at Schwab that helped convince them I could afford the loan. It was a very frustrating experience not being able to get a loan after years of banks clamoring to get my business when I had the big car lot.

So, these days having some kind of verifiable income stream is important in retirement if you want to get a loan.

 

[Bestwifeever]

So, these days having some kind of verifiable income stream is important in retirement if you want to get a loan.

For people who are 62, could be a factor in the when to take SS decision, just to have that verifiable income.

Like W2R, we hope to never borrow money again so have not thought about this, but we could double the regular income of DH's pension by claiming SS now if we really needed to show we are not surviving on air and wild hickory nuts.

 

[Meadbh]

I have a HELOC on my home, which I purchased in 2010. When I sold my previous home in 2011, I paid the balance. My financial advisor discouraged me from closing the HELOC in case I needed to borrow money in the future. I plan to use it once in a while for major unexpected expenses, just to make sure that I still can. I think establishing such a credit line should be on the preretirement checklist. Just in case!