Credit for Retirees

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
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MandyT
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Credit for Retirees

Post by MandyT » Sun Jun 18, 2017 7:59 pm

I am retiring from a position as a university professor (I'm 55). Because of the nature of nine-month contracts, I am technically employed until 8-31-17 (making about $75000 annually) and will be retired effective 9-1-17 (with a pension of about $26000).

I haven't thought very much about how credit card companies and other sources of credit will view this change. Will good credit scores be enough to counteract the decrease in income? If I plan to withdraw from my savings/investments, can/should I include that in my income? Does it matter if it's gains/interest or principal? Are any of the credit card companies more/less skittish about the decrease in salary, i.e., are there any cards I should apply for sooner rather than later? Is there anything else I should do while "employed"? (I am eligible for retiree medical insurance, so that should not be an issue.)

I have lots of credit for anything I would need to charge and am satisfied with my routine cash-back opportunities, but I was thinking of going for some sign-up bonuses. If any of you have any input about my questions or questions I haven't thought to ask, it would be appreciated.

tacster
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Re: Credit for Retirees

Post by tacster » Sun Jun 18, 2017 11:57 pm

I retired three years ago and have since applied and been approved for several credit cards (churning for airline miles). For income I use my total annual income from a pension plus distributions/withdrawals from mutual funds. Most (all?) of the CC applications I've seen explicitly allow including investment income. Although my total gross income is less than when I was working that doesn't seem to matter much. I don't think you will have anything to worry about regarding credit cards. Also, congratulations on the impending retirement.
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Spirit Rider
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Re: Credit for Retirees

Post by Spirit Rider » Mon Jun 19, 2017 1:01 am

The only thing you might notice is that in some cases the credit limits might not be as generous. It is when you start talking about credit requiring underwriting such as mortgages, etc..., when retirement income can be a little more problematic.

Social Security (SS) benefits can not be garnished by general creditors and up to two months of direct deposits in bank accounts are protected against creditors. ERISA protected pensions and 401k plans have federal anti-alienation provisions to protect them against general creditors. Most states (with some notable exceptions e.g CA) also provide state level protection to IRAs against creditors.

So quite naturally creditors can become a little leery about extending credit when a significant collection cause of action is not available to them. If you are looking to buy that condo or RV, you might consider doing that before you officially retire.

Goal33
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Re: Credit for Retirees

Post by Goal33 » Mon Jun 19, 2017 1:34 am

I've never been asked to verify my employment or my income except for when I went for a mortgage.
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gwrvmd
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Re: Credit for Retirees

Post by gwrvmd » Mon Jun 19, 2017 1:56 am

Salary is not a factor in the calculation of credit score . Amount of credit used and payment history are the two most important factors. Common question on financial literacy tests......Gordon
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basspond
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Re: Credit for Retirees

Post by basspond » Mon Jun 19, 2017 5:30 am

Be careful of doing something that will lower your credit score because some companies (like insurance) will base your rates on your credit score.

Ron
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Re: Credit for Retirees

Post by Ron » Mon Jun 19, 2017 7:18 am

I've been retired for a decade, thus far. During that time I have purchased two cars and have obtained three new CC's. The only thing I listed on the credit application was my income total. I didn't say where that income came from (it came exclusively from my retirement portfolio). What matters is the FICO score the credit grantor is pulling.

In my case, it's always been above 800. They are more interested if you have the history of paying your bills, not necessarily where you get your "income", regardless of source.

Now if you're talking about a mortgage/note, that's a different situation. However, depending on your loan source it's also possible to use just your retirement portfolio/investments to get approval for an asset based loan depending on the approval source such as Fannie Mae.

BTW, even though I did get a loan for those two cars I purchased, I turned right around and paid them off (with funds from my retirement accounts). However, there was no problem at all getting the loan approval.

FWIW,

- Ron

takeshi
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Re: Credit for Retirees

Post by takeshi » Mon Jun 19, 2017 8:09 am

MandyT wrote:Are any of the credit card companies more/less skittish about the decrease in salary, i.e., are there any cards I should apply for sooner rather than later?
Income does play a part but we don't have full details for how very creditor assesses such things. If a creditor is skittish then applying sooner isn't going to help in the long term anyway.
basspond wrote:Be careful of doing something that will lower your credit score because some companies (like insurance) will base your rates on your credit score.
Credit based insurance and credit scores use different models that evaluate report data differently. It's entirely possible for a given change to have different impacts with each.
Goal33 wrote:I've never been asked to verify my employment or my income except for when I went for a mortgage.
I have and many others have as well. Don't conflate "I have never" & "never happens".

The Wizard
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Re: Credit for Retirees

Post by The Wizard » Mon Jun 19, 2017 8:28 am

A lot of my retirement income comes in the form of taxable income via 1099-Rs. So I would have no trouble showing evidence of sufficient income if needed.
But folks with large taxable accounts and modest tax deferred accounts could have a problem if the bulk of their income doesn't show up on their form 1040...
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2015
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Re: Credit for Retirees

Post by 2015 » Mon Jun 19, 2017 12:04 pm

I haven't been interested in credit in decades, which is why my credit score hovers around 800 and no higher. However, since retiring two years ago with 2/3 less "reported" income, my credit score has actually increased (go figure) since starting the credit card churning game. The score bounces around and I neither know why nor care (since I have no need for credit) but this doesn't interfere with card approvals. I do love those CC and checking account bonuses.

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FrugalInvestor
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Re: Credit for Retirees

Post by FrugalInvestor » Mon Jun 19, 2017 12:19 pm

We've noticed no signigicant change in our (excellent) credit scores. We are early retired and have no pension so our income can be very 'lumpy' as we manage it for tax and health insurance purposes. I just report a reasonable long-term average withdrawal rate of about 3% per year. It's never been questioned and I doubt ever will be. We put everything on our credit cards for cash rewards and then pay off every month.
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

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Meg77
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Re: Credit for Retirees

Post by Meg77 » Mon Jun 19, 2017 1:03 pm

MandyT wrote:I am retiring from a position as a university professor (I'm 55). Because of the nature of nine-month contracts, I am technically employed until 8-31-17 (making about $75000 annually) and will be retired effective 9-1-17 (with a pension of about $26000).

I haven't thought very much about how credit card companies and other sources of credit will view this change. Will good credit scores be enough to counteract the decrease in income? If I plan to withdraw from my savings/investments, can/should I include that in my income? Does it matter if it's gains/interest or principal? Are any of the credit card companies more/less skittish about the decrease in salary, i.e., are there any cards I should apply for sooner rather than later? Is there anything else I should do while "employed"? (I am eligible for retiree medical insurance, so that should not be an issue.)

I have lots of credit for anything I would need to charge and am satisfied with my routine cash-back opportunities, but I was thinking of going for some sign-up bonuses. If any of you have any input about my questions or questions I haven't thought to ask, it would be appreciated.
If you want to get a mortgage (refinance or new property purchase), you'll want to do that before you retire. If you have substantial equity in your home, it might make sense to take out a home equity line of credit to use in the future if you need it, but other forms of credit - credit cards, even car loans - don't materially consider income when it comes to approval decisions and don't verify the income figures you give them in any way.

I'm a banker though, and by all means consider distributions from your retirement accounts, pensions, social security, interest and dividends when reporting your income to credit card companies or for other purposes. There is no explicit definition of "income" or way you're required to calculate it, and it has little bearing on your tax return (many of our wealthiest clients have low or even negative AGI because their "income" comes from trusts or partnerships which are taxed separately).
"An investment in knowledge pays the best interest." - Benjamin Franklin

MandyT
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Re: Credit for Retirees

Post by MandyT » Mon Jun 19, 2017 3:29 pm

Thanks to Meg77 and the others who have replied to my inquiry.
Meg77 wrote:If you want to get a mortgage (refinance or new property purchase), you'll want to do that before you retire. If you have substantial equity in your home, it might make sense to take out a home equity line of credit to use in the future if you need it, but other forms of credit - credit cards, even car loans - don't materially consider income when it comes to approval decisions and don't verify the income figures you give them in any way.
I am a renter in a LCOL area and intend to continue to rent long-term.
Meg77 wrote: I'm a banker though, and by all means consider distributions from your retirement accounts, pensions, social security, interest and dividends when reporting your income to credit card companies or for other purposes. There is no explicit definition of "income" or way you're required to calculate it, and it has little bearing on your tax return (many of our wealthiest clients have low or even negative AGI because their "income" comes from trusts or partnerships which are taxed separately).
One thing that prompted my question was that, the last time I logged in to one of my credit card accounts, it asked me to verify my salary. In the future, I want to answer this question truthfully, but preferably in a way that will not disadvantage me.

Currently, I have in the neighborhood of 600K in 403b, traditional IRA's, Roth IRA's, and plain ol' bank accounts. The plan for the next few years is to do some Roth conversions and withdraw from my savings account when needed to supplement my pension. When I tried to research the topic, I got the same list of income sources that you cite, which makes no mention of withdrawals from savings--that's what made me wonder there was a lurking "gotcha".

Based on what you're saying, I think I can justify adding 20K to my "income" based on a fairly conservative withdrawal rate from this portfolio. Thanks again.

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Meg77
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Re: Credit for Retirees

Post by Meg77 » Mon Jun 19, 2017 3:36 pm

MandyT wrote:Thanks to Meg77 and the others who have replied to my inquiry.
Meg77 wrote:If you want to get a mortgage (refinance or new property purchase), you'll want to do that before you retire. If you have substantial equity in your home, it might make sense to take out a home equity line of credit to use in the future if you need it, but other forms of credit - credit cards, even car loans - don't materially consider income when it comes to approval decisions and don't verify the income figures you give them in any way.
I am a renter in a LCOL area and intend to continue to rent long-term.
Meg77 wrote: I'm a banker though, and by all means consider distributions from your retirement accounts, pensions, social security, interest and dividends when reporting your income to credit card companies or for other purposes. There is no explicit definition of "income" or way you're required to calculate it, and it has little bearing on your tax return (many of our wealthiest clients have low or even negative AGI because their "income" comes from trusts or partnerships which are taxed separately).
One thing that prompted my question was that, the last time I logged in to one of my credit card accounts, it asked me to verify my salary. In the future, I want to answer this question truthfully, but preferably in a way that will not disadvantage me.

Currently, I have in the neighborhood of 600K in 403b, traditional IRA's, Roth IRA's, and plain ol' bank accounts. The plan for the next few years is to do some Roth conversions and withdraw from my savings account when needed to supplement my pension. When I tried to research the topic, I got the same list of income sources that you cite, which makes no mention of withdrawals from savings--that's what made me wonder there was a lurking "gotcha".

Based on what you're saying, I think I can justify adding 20K to my "income" based on a fairly conservative withdrawal rate from this portfolio. Thanks again.
When you make distributions from traditional retirement accounts, the entire distribution amount (whether principal, capital gains, dividends, interest or some combination) is reported on your tax return as income. So it's perfectly acceptable to include any distribution you could reasonably be planning (or have already made) as "income" when asked. This is true even if the distribution is coming from savings or from a Roth - it won't be taxable in that case, but it's justifiably "income" for the purpose you are considering.
"An investment in knowledge pays the best interest." - Benjamin Franklin

Spirit Rider
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Re: Credit for Retirees

Post by Spirit Rider » Mon Jun 19, 2017 3:57 pm

In the past, I always declined to answer when the credit card card issuer asked what my current income was. They always stated some BS that the government requires them to know their customer. Which is true, but there is no requirement in those rules to determine income.

Starting this month Capital One put up a verification page after logging in. It will not allow you to get to your account unless you update your phone #(s), email address AND income. Well, I guess I will not be using that card any longer. I have plenty more.

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FrugalInvestor
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Re: Credit for Retirees

Post by FrugalInvestor » Mon Jun 19, 2017 4:06 pm

Spirit Rider wrote:In the past, I always declined to answer when the credit card card issuer asked what my current income was. They always stated some BS that the government requires them to know their customer. Which is true, but there is no requirement in those rules to determine income.

Starting this month Capital One put up a verification page after logging in. It will not allow you to get to your account unless you update your phone #(s), email address AND income. Well, I guess I will not be using that card any longer. I have plenty more.
Citi also put up a similar page recently. I wonder if there's some new rule prompting this or if it's just coincidence? Maybe Meg77 will know.
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

123
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Re: Credit for Retirees

Post by 123 » Mon Jun 19, 2017 4:11 pm

Why not apply for a couple of cards before you are on the books as "retired" if you have concerns? Apply for one. After approval wait a month and apply for a 2nd. Spread your transaction around so that there's some activity every few months on every card you've got, i.e. a beverage from Starbucks or gas for your car.
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