Retire debt free or get a boat loan

[daletournier]

Originally Posted by witzgall

I shared an office with a guy that had just gone to a financial seminar, where he learned that he should take a mortgage out on his paid off house, and invest it in the stock market. He did. The year? 1999. Can you guess the outcome??

Chris

I've seen this a number of times. People losing 30 years of gains through speculating. Banks allowing home owners to use their homes as ATM's has been a bad thing. It allowed everyone to be an " investor?" Also allows people to buy a whole lot of stuff they don't need with money they really don't have. I just hope everything keeps going up forever, or alot of morgages are going to be underwater!

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[valhalla360]

Originally Posted by Kenomac

Yeah right....

Tell that to all the mega and super yacht owners who document their boats in the British Virgin Islands and have them available for charter use when they're staying at one of their villas.

They take advantage of every possible tax and business scheme.... which is how they got to be rich. Not by trying to save pennies in interst payments.

Think small = Live small.

There are a number of problems with this theory.
- Most are actually owned by the company and the CEO just uses it. It's not necessarily more profitable but a great way to hide extra compensation.
- "Rich People" (using the term very loosely) who are deep in debt also tend to go bankrupt frequently. Some recover but most wind up struggling for a long time before getting back to middle class status.

This isn't to say, they ignore tax implications but tax avoidance as a primary motivator for business rarely works out well.

[valhalla360]

Originally Posted by AD28

I don't think it's been mentioned, but there is something to be said for risking someone else's money on a purchase that is as, shall we say, friable, as a boat.

You owe the money regardless of what happens to the boat. Your best case scenario is bankruptcy.

Then again, if you take out a mortgage, I can guarantee they will require you to maintain full insurance coverage with the bank 1st in line for any payouts.

[Cadence]

I don't think any of us pros know enough about his situation to advise him. Has his retirement been taxed of is it pretax. What is it's return on investment, etc. etc. Even if we knew we probably wouldn't be qualified.

[barnakiel]

Originally Posted by Kenomac

Cheap money = 4% or less on a home mortgage in the US. Borrow against the house to pay for the boat. Then you're only paying $10k per year to use someone elses money plus getting the advantage of a home mortgage interest tax deduction. Use your $250k to invest in something that will return better than 3%, any return better than that and you'll be dollars ahead.

https://www.treasury.gov/resource-ce...spx?data=yield

With 10 yr govts at 1.64 and 30 yr govts at 2.44 would you not agree it may be somewhat difficult for anything less than a pro banking sector dealer to lock into a hedged tap paying you over 3%, after tax?

Because I can't believe you are considering an uncovered/unhedged position into anything with risk profile different from the am home loan (home mortgage).

You are correct to say anything more than X will bring in dollars, but we must match the risks or else hedge them out. And we must find that investment paying more than X up first, preferably one that is inversely related (negatively correlated) with that mortgage loan ...

IMHO impossible, without more risk exposure, to an average joe. Difficult to impossible for a pro invetsor too, given the need to hedge this much extra risk.

b.

[daletournier]

Originally Posted by barnakiel

https://www.treasury.gov/resource-ce...spx?data=yield

With 10 yr govts at 1.64 and 30 yr govts at 2.44 would you not agree it may be somewhat difficult for anything less than a pro banking sector dealer to lock into a hedged tap paying you over 3%, after tax?

Because I can't believe you are considering an uncovered/unhedged position into anything with risk profile different from the am home loan (home mortgage).

You are correct to say anything more than X will bring in dollars, but we must match the risks or else hedge them out. And we must find that investment paying more than X up first, preferably one that is inversely related (negatively correlated) with that mortgage loan ...

IMHO impossible, without more risk exposure, to an average joe. Difficult to impossible for a pro invetsor too, given the need to hedge this much extra risk.

b.

Well said. Monetary policy is absolutely bazaar at the moment, NIRP, QE , ECB buying 80billion a month of corporate bonds and possibly in the future helicopter money. Where does one put his money? Defense is the game right now. There are 14 countries with negative interest rates? What does that say? IMHO we are in unprecented times. Look at sovereign debt, personal debt, corporate debt, unfunded liabilities, the size of the derivative market,
P/E of S&P......The numbers are out there if you look. Look at bank balance sheets. This is not a time to buy a boat using debt.

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[Kenomac]

Originally Posted by daletournier

Well said. Monetary policy is absolutely bazaar at the moment, NIRP, QE , ECB buying 80billion a month of corporate bonds and possibly in the future helicopter money. Where does one put his money? Defense is the game right now. There are 14 countries with negative interest rates? What does that say? IMHO we are in unprecented times. Look at sovereign debt, personal debt, corporate debt, unfunded liabilities, the size of the derivative market,
P/E of S&P......The numbers are out there if you look. Look at bank balance sheets. This is not a time to buy a boat using debt.

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May I ask, what make and model boat do you own? The reason I ask, is that years ago I became tired of financial experts/planners who lived in modest homes due to their modest means telling me how I should invest.

I prefer listening to the wealthy investors.... I want to know more about the decisions they made. With current interest rates for borrowing in the 4% range, how can anyone possibly suggest it's a bad time to borrow if someone is otherwise debt free and has the means to repay the loan?

Again: Those who think small.. Live small.

[daletournier]

Originally Posted by Kenomac

May I ask, what make and model boat do you own? The reason I ask, is that years ago I became tired of financial experts/planners who lived in modest homes due to their modest means telling me how I should invest.

I prefer listening to the wealthy investors.... I want to know more about the decisions they made. With current interest rates for borrowing in the 4% range, how can anyone possibly suggest it's a bad time to borrow if someone is otherwise debt free and has the means to repay the loan?

Again: Those who think small.. Live small.

Hi Ken, absolutely you can ask. I live on a 1984 Freedom 33. Not worth a great deal to be honest. Now you can make assumptions regarding my wealth based on the boat I own if you like but I think you would assume wrong. I'd prefer not to get into a pissing match with you Ken regarding our personal financial situations etc. I deliberately do not upgrade to a more expensive boat ,all though I am tempted weekly, it just dosent fit into my plan at the moment. Im postioning myself financially for what I believe is coming, and that is a major problem in the financial markets. I hope and plan to benefit from it, although I would prefer it didn't happen.
Why do you think money is so cheap?
Now in regards to your polite and non direct accusation that I am poor and somehow ignorant when it comes to financial matters, Id be happy to pm you my tax return for last year, which is based on my passive investments, I retired at approx 38 and are now 47. If you would like me to do this then I would like you to publicly withdraw your subtle accusation. Just because people like myself don't view the world the way you do dosent mean we are all poor and ignorant.
To others that are reading this I hope it dosent come across as arrogant, I will not discuss this with Ken publicly again.

Cheers Dale.

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[Kenomac]

Originally Posted by daletournier

Hi Ken, absolutely you can ask. I live on a 1984 Freedom 33. Not worth a great deal to be honest. Now you can make assumptions regarding my wealth based on the boat I own if you like but I think you would assume wrong. I'd prefer not to get into a pissing match with you Ken regarding our personal financial situations etc. I deliberately do not upgrade to a more expensive boat ,all though I am tempted weekly, it just dosent fit into my plan at the moment........

Your financial plan may be working for you, which is truly great if you're pleased with your lifestyle, however, It's not a plan I'd be interested in and most certainly, neither would my wife.

If the OP is debt free as stated and interested in paying $250k for a boat, I seriously doubt he or his significant other would be interested in your plan either.

Good luck to you, I hope the upcoming Armageddon crisis works out for you financially.

Cheers

Ken

[denverd0n]

Originally Posted by witzgall

I shared an office with a guy that had just gone to a financial seminar, where he learned that he should take a mortgage out on his paid off house, and invest it in the stock market. He did. The year? 1999. Can you guess the outcome??

No need to guess. If he left the money in the stock market then he is now well ahead of where he would have been, had he not done this. Of course, if he panicked, and sold when the market tanked, then he wasn't really following the advice that he got, and he made the mistake that all too many people who "invest" in the stock market make.

(And I put the word invest in quotes, because these people may CALL themselves an investor, but they are not. They are speculating, and trying to time the market. A pretty sure way to lose money.)

[barnakiel]

This kind of argument I have addressed before. It is a silly argument and a false one.

If we were to follow this logic all rich people would be intelligent and all less wealthy ones would be idiots. I cannot see this to be the case when I look at my rich and poor, wealthy and not, friends. I would rather guess that distribution of wealth vs. the IQ is independent. They are a small sample, but a representative one, spanning from billions and yachts to dole and folkboats.

You have skipped over how the rich become rich. There must be more than one way, huh? ;-)

Some examples of people who think small (in your book, not in mine): Thoreau, Sacks, Socrates. They all lived small.

Some examples of people who think great: (again, in your lore):
Homm, Rajaratnam, Madoff. They all lived great.

Arguments you quoted of the style 'show me your boat' and 'who think small, live small' are called ad personam fallacies and are not valid in search of the truth.

So, at this stage, I hope we can put the 'those who think small, live small' sort of arguments behind us.

Now back to the boats: we are sailing a 27' grp boat that we purchased and prepared for offshore back in 2002 for (in nominal figures) the same amount that can be had for the boat today in the market. Being only about 15k it is easy to sell and should we get unfortunate to sell it for less or lose it, any loss will be neither bank breaking nor a hard pain to swallow.

Now if you have had your boat for more than 10 years by now PLS let us know what value does it represent vs. your original purchase and preparation value. This can shed some light on how the financial decisions of some big boat owners are better than financial decisions of some small boat owners.

Or else you can throw all my sailing, weather, personal or financial ideas that I have shared with the forum over the years on the skip - for we are sailing a small boat and we live in our small way, without any urge to make our boat bigger or our bank account fatter! Apparently, we think small.

This is not to say I do not buy lotto tickets now and then. ;-)

Big sunny kiss from our place full of happy and not necessarily very dumb boat bums! ;-)

barnakiel

[Capt_Flrp]

My financial adviser suggests that taking out a loan so that I can deduct the interest at tax time is extremely erroneous. The deduction is applied to your bottom line on income. Your tax rate is based on where that falls in the charts. What you get in return is your tax rate times the deduction. You spend $1 and get (?) $0.25 in return. Maybe my tax rate is lower than yours? But the real bottom line to you is that you spent a dollar to rent someones money, then "saved" 25 cents when you paid your taxes. Sounds like a net loss of $.75 to me.YMMV.

[lorrie]

Originally Posted by Stu Jackson

Well, that may be true, but the other part of the equation is CASH FLOW.

When we were young (hold cow, how can I 'member that?!?), we were renting. When we got married, we realized that we could get a house for the same amount of monthly outlay as the rent PLUS the tax breaks offered here in the US for mortgage interest. Or maybe even better off, if not equal.

Of course, things/situations at retirement are quite different. But the concepts are the same. If he takes $250K out of his retirement fund, unless it's a certain type of IRA, he most likely wasn't taxed on it when he put it in, but would be now. Many of us us did this, figuring we'd be in a much lower tax bracket when we withdrew the $$ when we were older.

But big chunks of change like this can have a significant impact on taxes. And we don't know his tax situation. Do we?

And reducing future monthly income in the terms that he mentioned can only be addressed if we know what his potential and planned future costs would be based on his planned lifestyle. And we don't know that either. Do we?

That's why decisions and absolutes in answer to the OP are relatively meaningless.

HE is the ONLY person who can answer the question.

You're right, he has to do the math.

Only he can do the math.
He can hire a tax accountant for advise. I was asking my IRA Financial Advisor what my Rate of Return was?
He gave me all kinds of fancy statements that showed everything I put in and my account balances.
I got really pissed and said to him, " this is your business, why cant you just give me a rate of return"?
Since I could not get a answer I added the deposits into the account over time and then totaled up the balances all accounts. Only then did I realize, he couldn't give me a rate of return because there was not any return on my investment. So much for all the fancy explanation.


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[daletournier]

Originally Posted by lorrie

Only he can do the math.
He can hire a tax accountant for advise. I was asking my IRA Financial Advisor what my Rate of Return was?
He gave me all kinds of fancy statements that showed everything I put in and my account balances.
I got really pissed and said to him, " this is your business, why cant you just give me a rate of return"?
Since I could not get a answer I added the deposits into the account over time and then totaled up the balances all accounts. Only then did I realize, he couldn't give me a rate of return because there was not any return on my investment. So much for all the fancy explanation.


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I recieved some very simple advice years ago from a man that I respect, it has been in the forefront of my mind since.
He said" Dale, its not complicated, people go broke because they can't add up"
No truer words. Accountants, financial advisers, the federal reserve all use language in attempt to bolster self importantance, they attempt to sound like they know something you don't, therefore you need them!

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[GulfportBarb]

We are considering paying off our boat loan so that we have the option of cruising with only liability insurance. That would allow us to cruise during hurricane season at our own risk. Don't know if that is a factor for you or not. As far as taxes go, if you are retired and don't have earned income, you shouldn't be paying much in taxes unless you have investment income. Renting out your home is passive income, so you are limited in the deductions you can take but generally speaking, after maintenance and depreciation, you probably won't be reporting too much income if you rent your house for the six months you are out cruising (check out AirBNB and Homeaway). Good luck!