Financial Advice for Pilots
Financial Advice for Pilots
The airline industry has been upended by the COVID-19 pandemic.
Among those hardest-hit are pilots — a group with a unique set of skills who are now facing major career and financial choices that could affect the rest of their lives. Over the past few months, multiple airlines have offered early retirement packages to their pilots and corporate professionals.
In our conversations with pilots navigating this transition, I have found that taking a few specific steps for their finances can be incredibly helpful.
They may conclude that retiring sooner, working longer or pivoting to another role could be the best option for them, both financially and emotionally.
So, in the midst of planned job cuts and early retirement packages, what’s a pilot to do?
Plan for the Best: Explore New Options and New Possibilities
A reduced income doesn’t have to translate into financial ruin.
We have worked with many professionals facing industry job uncertainty who moved into new jobs or decided to take a pay cut to switch careers, but they still earned solid, stable incomes for a longer time frame while still achieving greater personal and professional satisfaction.
We have seen pilots take on different roles that still give them the ability to produce income and keep their mind and skills sharp.
For example, I’m aware that some pilots have been able to pivot to instructor roles or take on other responsibilities within the airline.
A number of pilots even hold advanced degrees or certifications that qualify them for a career in another field, such as law, accounting or real estate, which could provide an alternative income source. And others may decide to pursue military service.
But Prepare for the Worst
Now is a good time to consider how a layoff/redundancy could impact your personal finances as a pilot, particularly those who are eyeing retirement or approaching age 65.
Here are some steps to prepare yourself financially in these uncertain times:
Take Inventory of Your Financial Assets, Including Cash
Determine if you have sufficient cash to cover expenses for an extended period, especially if stood down.
If possible, keep any extra cash flow in anticipation of lost income.
While most pilots will have some savings and other liquid assets, an early retirement package or redundancy package could help cover expenses through to retirement or when you can access your super.
Determine how long you can pay for everyday expenses before needing to withdraw money from your superannuation & when can you access your super.
Categorize Necessary vs. Flexible Spending Items
All expenses ultimately fall into two buckets: necessary or discretionary.
Necessary spending items include fixed payments, such as mortgage payments, or utilities, groceries and other types of expenses that are required to continue running your household.
It may be prudent to hold off on some home projects and other financial goals until your income becomes more stable.
You may want to consider paying off debt or refinancing at a lower interest rate. Our mortgage broker partners can support you with refinancing.
Check Your Portfolio in Preparation for Early Retirement.
If you don’t have enough cash on hand to weather an extended stand down, you may need to start taking income from your superannuation fund earlier than expected.
Examine your eligibility to withdraw monies from super & any tax implications before proceeding. Alternative seek professional advice from our financial planners who can provide you with all the information so you can make an informed decision.
Your investment & superannuation portfolios shouldn’t be too heavily invested in stocks as you begin to draw income.
On the other hand, re-actively moving to cash or having too conservative of a portfolio could be a detrimental move.
Having a properly diversified allocation and continued discipline is crucial to long-term financial success.
In addition, you may have had employee share schemes that may have large capital gains attached to these shares. So it is vital that you have an exit strategy in place whilst managing your ongoing tax liability.
Add Up All of Your Retirement Income Sources
Many pilots with retirement on their minds may find that retiring earlier could be financially feasible and even less stressful, after assessing their retirement assets, pensions and potentially future social security benefits.
Generally, we like to start with how much income you need in retirement?
For most, they do not know what they need. If you take out your mortgage, holidays, and one-off expenses, what are your weekly expenses.
A recent research paper has estimated to live comfortably Australians require $62,000 per annum in retirement.
Then we get you to work your way back.
Begin this exercise by listing out your estimated:
Age pension/social security benefits (for most this will not kick in to age 67, but for our clients who are pilots their assets are generally too high to receive any benefits).
List your investment income. This includes your investment portfolio and investment property rental income (after expenses).
Then list how much superannuation income you will be drawing.
For most, this may be the entire $62,000. For others, it may be $62,000 – investment income = superannuation withdrawal amount. Whilst others may look to start with a 4% withdrawal strategy.
For example, a person with a $1 million portfolio could expect to withdraw $40,000 annually, growing with inflation.
There are different tax implications with your different investment vehicles or entities, so it may be wise to consult our financial advisors to help you assess your financial capacity and the most tax effective way to structure your assets coming into retirement or a prolonged period of stand-down.
Your Financial Co-Pilot
As a pilot, one of your greatest assets is your earnings potential, which is why it’s important to protect it.
It’s not uncommon for pilots to focus so much on their career that they forget to create a financial strategy for their future retirement years and any unexpected obstacles they may face along the way.
At Newcastle Advisors, we understand the unique challenges pilots face, both in their career and with their finances.
Our goal is to serve as your financial co-pilot, offering advice and recommendations to help you live life on your terms.
We continually monitor your flight-plan through life.
This team endeavours to create synergy for a smooth landing in retirement.
At Newcastle Advisors, our business model is simple: to serve the many financial needs that pilots face throughout their career and life. Working with clients throughout the country, both young in their career and preparing for retirement, we offer comprehensive services that touch on their entire financial picture.
In everything we do, we aim to uphold our values:
Unclouded Vision
We aren’t tied to any large institution or bank nor do we have quotas to meet.
Instead, we maintain a high level of ethics, putting our clients’ interests first.
Whether we are explaining the reasoning behind our recommendations or offering education on investing, we want you to feel confident in your financial future and to feel empowered to make informed decisions.
Clear Skies Ahead
We make sure you are always aware of the strategies we recommend and the fees we charge.
You will never face unexpected or hidden costs.
Serving as Your Co-Pilot
We want to work closely with you for the long-term. While you are ultimately in charge of your finances, we are here to provide advice and guidance along the way as you travel your financial path.
Collaborating with Your Crew
You are the Pilot in Command of your finances, but we aim to serve as your Crew Resources Management. We believe the best financial strategies are those that cohesively work together, so we work with your accountant and lawyers to ensure your estate plan and tax strategies are in place.
We’re On Standby
Your priorities and goals will inevitably change over time as you face new milestones, both expected and unexpected. We work with you for the long-term, monitoring your investments & superannuation, making updates to your strategies as needed.
Finding Balance
Just as in aerodynamics there is a balance to maintain a proper centre of gravity for an optimum coefficient of lift,
it's also important to balance life’s many financial decisions.
Should I live for today and forget tomorrow?
Should I stress about tomorrow and stop enjoying my current lifestyle?
We believe there is a balance between living for today and preparing for tomorrow.
With the proper balance and speed, an aircraft creates the optimum coefficient of lift.
The correct Lift over Drag curve provides you maximum range with minimum turbulence.
At Newcastle Advisors we will work with you and your family to determine your Maximum Coefficient of Life.
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