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Old 13-07-2017, 09:03   #1
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Retirement and boat purchase dilemma

So after many years of hard work, in May of 2020 I turn 62 and wish to retire from this rat race on a sailboat and cruise until I can't anymore. Don't we all... But I have some serious issues I have to work out, and not liking the options. I have looked on many places for answers and not liking what I have found figured I would ask this community for their take, knowing that I might not like some of your answers either... but lets see.
So some background. I am 59 with a good income, wife is 55. She is not expecting to retire for another 8 years or so. I don't smoke, don't drink, recently switched to a health diet and losing weight. Family genetics say I won't live much over 70. But that is a guess of course. I am a medical professional, I have seen more people die than I care to remember. I know that you can't take it with you. I have little in the bank, most is in retirement funds, and figure will have roughly 300K by then. We own 2 homes, 1 is rented out, the other we live in. Wife has a teachers retirement which when she retires will give her a good income. I am looking at 1700 a month in social security when I retire. More if I wait, but not looking to do that. Most of my current income is either invested in 403b plan, or our monthly budget, plus taxes of course. Both kids will be over 18 when I retire.

So the dilemma is how to/ what to purchase as a liveaboard cruising boat and how to pay for it. I expect that I can live for around 1200 month with maintenance costs figured in, and a bit more for health insurance on my wife's plan, say 1400 tops. So the budget is doable with my SS income. I am looking at several types of boats. The ones I like are from a Morgan 383 or 384 for 45K to 60K to something like a Westsail 43 or a Kelly Peterson 44. We do have a lot of friends and some family that might come visit from time to time, hence the larger boat. Plus I like the option of carrying larger fuel and stores. The westsail/kelly peterson would be more like double the cost, so 90-120K. Both boats I figure will need refit costs of aprox 25% of value or 12k to 25K, but could be more. I have experience with working on boats and feel comfortable doing a lot of it, but would not want to spend much time on it. Say a year at best, AFTER a first cruise of 5 months or so.
My plan was to take the distribution out of the retirement account and buy a well found boat and use the rest as cushion. Eventually my wife will hopefully join me full time, but spend summers with me. But that will cause a large tax burden... the other option I see is to finance it, but for that I would have to sell one of the houses for a downpayment, or to take the money from the retirement account as a down payment and finance the rest. OR just get the Morgan or a less expensive boat, and refit gradually.
Now we are talking about something I have always wanted to do, and No staying at home, working more, sitting in the park, going fishing IS NOT A OPTION for me.
So would like to hear your thoughts on this, what would / did you do, and why was it a good/bad idea.
Thanks.. I know it was long winded. Sorry.
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Old 13-07-2017, 09:50   #2
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Re: Retirement and boat purchase dilemma

It's not clear on your income, as you do not mention how much positive cash flow you have on the rented home. Likewise, are you planning to keep the primary home and will it be paid for? Is your wife's TRS going to help or is that keep out separate?

Generally, as a financial adviser, I always recommend not paying off a house/live aboard boat unless you have a large emotional tie to having it paid off or your credit score is too low for a low interest loan. Why? "Cash is king." Let's say you're able to get a loan for 6% (let's pick a 10 year loan) and a conservative portfolio returns 4% over 3-5 year time periods. If you purchase a $100k boat, you'll pay about $9k in interest between the 4% gain and 6% interest and assuming $20k down payment. Throughout the 10 years, you'll take the $89k from your income first the needed extra from your savings/investments. If a change-in-life event occurs that requires immediate cash, you'll have some (less in the later years, but much more in the early years than if you paid cash). Then you don't need a "fire-sale" on the boat and might have a little more time to recoup a higher sell value. Effectively, you're paying ~2% (it's not exactly 6% minus 4%, but 2% can be used for rough analysis) for shifting the liquidity risk to the bank/loan company. Is that worth it? It's up to you.

Likewise, since most of your investment is tax-deferred, taking a $100k withdraw will possibly change your tax rate and you'll pay more in taxes of the amount above taking the monthly payments out over time.

However, because of a plethora of things that are unique to you and your wife, of which I have zero knowledge, I always recommend finding a competent, trustworthy adviser in your area to do a real plan for you. If your plan is important for you, a couple of hundred dollars to get a personalized review and guidance should be worth it. It's peanuts to the money needed for your plan.
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Old 13-07-2017, 10:07   #3
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Re: Retirement and boat purchase dilemma

A boat can be a home that qualifies for the IRS home mortgage tax deductions. But you can't have three of those. So as the man said, find a financial adviser or at least a good CPA or EA to look at tax consequences for keeping/selling paying off, etc. the "homes" as well as how the change in income could affect your tax brackets and taxes. And there is a limited no-penalty amount, depending on what type of IRA(?) you have, to spend part of it on a "home" as well. Other issues involving insurance, social security, etc. may give you both surprises and bumps unless you are aware of all possible issues--so again, get professional advice. If it is part of a CPA doing your annual taxes...it is probably deductible as well.(G)
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Old 13-07-2017, 10:24   #4
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Re: Retirement and boat purchase dilemma

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And there is a limited no-penalty amount, depending on what type of IRA(?) you have, to spend part of it on a "home" as well.
Unfortunately, this no-penalty withdraw is only for a first-time home buyer.

However, fortunately, the OP is close to or older than 59 1/2 which is when all withdraws are penalty free.
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Old 13-07-2017, 10:46   #5
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Re: Retirement and boat purchase dilemma

@leboyd is absolutely right to recommend professional help before moving money around because of the risk of doing this wrong. If you're unsure about the color to paint your house and just wing it, the most you're out is a few days repainting. If you're just guessing on financial or medical planning, the downside is pain and dreams lost. Financial planning does not have to be expensive, and just answering the questions is a great first step, which you seem to have started - what is your time horizon, how much saved, etc.. If you're really opposed to professionals, then try some on-line tools, such as the AICPA's: Retirement Planner - 360 Degrees of Financial Literacy
or AARP's: AARP Retirement Calculator - Savings Plan, 401K, Pension, R... - AARP

As to retiring on a boat, have you looked at this related CF post? People who think cruising will be lollipops and unicorns... - Cruisers & Sailing Forums
Don't want to be a downer, but is this something you really want, or would a smaller boat near a land home be better?
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Old 13-07-2017, 10:53   #6
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Re: Retirement and boat purchase dilemma

leboyd-
There are some federal programs where 'first time home buyer' is, oddly enough, defined as someone who hasn't bought one in at least two years. As opposed to what you and I would call "first time" meaning "never yet".
So my suggestion to consult an EA/CPA on these matters, rather than debate what the IRS might be using as a guideline this or next year. And depending on whether the OP bought those homes in his own name, or with his wife, or whatever...again, he'd have to call the IRS or ask the professional. If he bought them, perhaps she could buy the boat.
Did I mention, he ought to see a professional?(G)
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Old 13-07-2017, 17:58   #7
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Re: Retirement and boat purchase dilemma

Alright, I'll take a stab, without knowing the RE details. This isn't going to work.

That's the bad news. The good news, is that you may be able to make this work, with compromise.

You can work longer, save more money and plus up the SS or, buy a smaller boat. I would do both, frankly.

The financials presented here will not support the purchase, refit, maintenance and ownership costs of a 40-footer.

You want a Westsail? Get a 32. That's plenty of boat for a couple and can be had in good shape for 30K. It'll take you around the world if that's what you want to do. It'll be tight with guests, but so what? That's temporary and FWIW, the guests you envision will materialize much less often than you think they will. Shore lives get in the way, no matter how badly others may want to join you.

If I was in this situation and committed to action, I would do everything in my power (work overtime, get a second job, sell stuff I don't need) to raise down payment money for a Good Old Boat in the lower 30-foot range. I'd borrow the rest from the bank, fully employed. I'd do this now, not three years out. I'd sail her half the year and put her on the hard for upgrades the other half and repeat.

I'd examine my financials at retirement time and maybe (when I'm old enough) take withdrawals from the 401K to pay off the note on the boat. The advice above about financial planners is sound. Get one that works on a fee-for-service basis and not commissions on any garbage he or she may try and sell you.

@bobfnbw , a 40-foot sailboat is a dream-killer for most of us. It's not a requirement and if you are for real, please ignore anyone who tells you otherwise.

Good luck to you.
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Old 14-07-2017, 05:59   #8
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Re: Retirement and boat purchase dilemma

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Originally Posted by Drew13440 View Post
The financials presented here will not support the purchase, refit, maintenance and ownership costs of a 40-footer.
I have to agree. Given the information here, it sounds like you are going to have to make some sort of compromise somewhere. Choosing a smaller, less expensive boat seems like the best/easiest compromise.

Good luck.
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Old 14-07-2017, 06:52   #9
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Re: Retirement and boat purchase dilemma

“Life is what happens to us while we are making other plans.” ...

“It is a mistake to try to look too far ahead. The chain of destiny can only be grasped one link at a time.”
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Quotation: On what gets you into trouble It ain't what you don’t know that gets you into trouble.

It's what you know for sure that just ain’t so.
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Old 14-07-2017, 06:54   #10
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Re: Retirement and boat purchase dilemma

I think you're OK. First off, no bank in the US is going to lend you money to buy an old boat, so get that out of your plans. If you don't believe me, just call ten finance companies or banks, tell them your plan, then quit after ten calls or so of getting the same "no" for an answer. You're either going to have to save or take money out of one of the houses to make a boat purchse with cash.

Then go looking for someone else's failed dream purchase. A ready to sail and cruise 40 footer. Or, do what I do as a 60 year old health professional RN. Work six months per diem at a hospital and save money, then cruise the other six to seven months straight full-time.
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Old 14-07-2017, 07:11   #11
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Re: Retirement and boat purchase dilemma

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Originally Posted by bobfnbw View Post
Now we are talking about something I have always wanted to do, and No staying at home, working more, sitting in the park, going fishing IS NOT A OPTION for me.
So would like to hear your thoughts on this, what would / did you do, and why was it a good/bad idea.
Thanks.. I know it was long winded. Sorry.
Bob, regarding the last paragraph, I have been doing all that for the last 10 years and will continue to carry on until my wife retires in 2 1/2 years.

It is not fun in any way at all. We live in the south east of Canada so our boating is limited to 6 months at best, the other 6 months is blaah, you can read only so many books and then ya give up reading for cruising the internet.

So that's my situation as it sits. My concerns are my health at the time she retires, if I'm able to do the cruising we talk about.

But that's the future; one of my big concerns has to do with alcohol.I joined a card club,but the members usually have a drink with them in a thermos.

Quite often the game host has a well stocked liquor cabinet which some members restock.

I have limited myself to how often I go, but when it's snowing and windy, I find myself attending and then because it is so cold etc. I should reinforce myself against the weather with a number of drinks until I get home and have a couple more, etc.

I'm sorry I have hijacked your thread and I apologize

I'm just trying to advise you of the traps of sitting at home waiting for the time to pass.
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Old 14-07-2017, 07:41   #12
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Re: Retirement and boat purchase dilemma

I see there is much talk about money ... but it seems the OP did not explain about his prior sailing experience.
Practical skills could also be a factor.
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Old 14-07-2017, 08:33   #13
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Re: Retirement and boat purchase dilemma

These dreamer threads all seem to contain the same theme as though it is a complicated decision. It isn't.

Buy a boat, sail it, retire, sail more, start living aboard, if good, sell house, if not, don't.

Have I missed anything?
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Old 14-07-2017, 08:42   #14
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Re: Retirement and boat purchase dilemma

One more comment. Purchase a boat suitable to the needs of you and your wife, your friends and family won't be visiting unless you offer to pay their way. That's just the way it is.
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Old 14-07-2017, 09:07   #15
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Re: Retirement and boat purchase dilemma

Contact us again in April of 2020. A lot can happen between then and now.
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