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Old 10-06-2016, 06:12   #1
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Retire debt free or get a boat loan

We are in the closing stages of our working lives and are going to get a boat for 6 months in the Caribbean and then return home from July - Dec.
The issue is I was going to pay cash for the boat but my financial planner is telling me to finance the boat to help with taxes since my house is paid off.
Have any of you guys had the same issues or which would you recommend?

Thanks
C
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Old 10-06-2016, 06:23   #2
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Re: Retire debt free or get a boat loan

Money is cheap right now, that being said I like to pay cash for everything now. Debt is something we should limit in retirement. If you are going to rent your house, that money could pay your boat loan. We all have to make our own decisions/choices.I sir, am choosing to retire debt free. Good luck to you!
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Old 10-06-2016, 06:51   #3
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Re: Retire debt free or get a boat loan

Im certainly no financial advisor but but it seems to me the advice that has been given may be sound. Of course we dont know the whole story here, making a monthly payment with a low interest rate, would leave more money to gain more interest, thereby preventing loss of income over the length of the loan. At tax time, your tax burden is lifted too.
The net result is that while its debt, its good debt.

But you have to weigh how your money is invested against the terms of the loan. It maybe a monthly "wash" where the monthly gains only pay for the monthly losses (the interest) but the end of year tax break may make that worth while.

If you are poor, like I am, you would pay cash for the boat simply because there in no net gain. The interest from the relatively low cost of the boat will not off set the interest on a loan for the same amount.

Ah forgive my simple ramblings. Have your guy outine the details for you and explain how his advice makes sense to him. Dont let him get away with "you can save on your taxes", you need more info!
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Old 10-06-2016, 07:49   #4
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Re: Retire debt free or get a boat loan

Without knowing your other financial assets / operations one cannot say which option makes better sense.

On its own (without considering otherwise financial operations & obligations) cash is always the best option unless interest rates are negative.

So what your advisor is saying suggests you either have some assets that pay more interest than there would be interest on your boat loan or else your boat loan amt or and interest can be deducted from some other financial flow you have, thus reducing tax on the other flow and better than balancing the interest on the boat.

Mind all such schemes must be considered on 'what / if' analysis: interest rates /and, or/ taxes may change on either or both of your financial operations. In some cases this may work for you, in other cases you may end up with negative flows (more debt).

If you do not 100% understand what your advisor is saying, hold on and get this understanding first. Ask questions till you are 100% sure you understand the structure and the possible outcomes.

If still not sure, go cash.

Avoid uncertainty. You want to retire, not to spend time worrying.

b.
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Old 10-06-2016, 08:16   #5
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Re: Retire debt free or get a boat loan

Get a new financial advisor. Financing a non-income producing depreciating asset is a bad fianancial decision. Staying debt free is a good one.
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Old 10-06-2016, 09:12   #6
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Re: Retire debt free or get a boat loan

If the boat has sleeping accomodations, a head, and a galley, then it can qualify as a second home, and therefore you can deduct the interest paid from your taxes.

Beyond that, you have gotten professional advice from someone who knows your financial situation. No offense, but I would trust and accept that advice, rather than seek the opinions of a bunch of strangers on an internet forum.
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Old 10-06-2016, 09:17   #7
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Re: Retire debt free or get a boat loan

Quote:
Originally Posted by gcaskew View Post
The issue is I was going to pay cash for the boat but my financial planner is telling me to finance the boat to help with taxes since my house is paid off.

C
Makes sense for him because the more money he is managing for you the more money HE makes.

If you have the cash financing the boat only makes sense if:
- the tax break from the income deduction from the interest on the boat (say 20% of the amount of the interest, so you still lose the other 80% of the money paid as interest)
PLUS
- the amount of money you can made with the principle cash you used
MAKES
- more than the interest paid

Look at it another way - say the boat loan is 6% interest. It only makes sense if you can make more than 6% on the money you use to buy the boat.

Remember also that you only deduct the boat loan interest if you itemize because you are paying more than the standard deduction. If the amount you are paying for home taxes (since your house is paid off) plus the interest on the boat (deductible as mortgage interest) is less than the standard deduction; you wouldn't get to deduct from your income.
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Old 10-06-2016, 11:39   #8
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Re: Retire debt free or get a boat loan

A very wise and wealthy man told me 15 years ago that some of the worst decisions he has ever made were doing things to avoid taxes. I have 100% been debt free now for 15 + years.

Not knowing your personal financial situation I would say that Belizesailor put it best...don't finance anything that is a depreciating asset. My personal rule which might be a little stingy is never have depreciating assets make up more than 5-10% of your total net worth if you plan on staying financially independent.

Happy retirement & hopefully we will see you out there!
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Old 10-06-2016, 11:46   #9
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Re: Retire debt free or get a boat loan

I wouldn't listen to an advisor that recommends that I take on debt.

The borrower is a slave to the lender. Who wants to be a sailing slave? No one, that's who.
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Old 10-06-2016, 11:56   #10
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Re: Retire debt free or get a boat loan

A boat isn't a great investment. Not sure of your sailing experience, but have you considered leaving your money safe and doing some charters in the Bahamas and Caribbean instead? Don't forget repairs, maintenance, insurance, depreciation, and dockage when you are away from the boat. The initial purchase is just the beginning of pouring money into a hole in the water.


We've been retired and cruising for four years. Retiring debt - free is the only way to go.

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Old 10-06-2016, 12:07   #11
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Re: Retire debt free or get a boat loan

I arranged my life to have no monthly bills. It makes life easier when you travel. I pay insurance by the year and don't buy things unless I can pay up front.
If I am somewhere remote, as I usually am, I don't have to worry about getting mail, email, or online banking. I have a sat phone if someone really needs me.
My mail goes to a commercial mail box. They hold it, box it, and send it to me when I stay somewhere long enough to get mail. I use a debit card for 99% of my expenses.
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Old 10-06-2016, 12:11   #12
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Re: Retire debt free or get a boat loan

A lot of emotion-driven answers.

Is your investment rate of return greater than the interest rate? That is primarily how you decide where the money should be. If a significant portion of your investments are in something safe and slow like bonds (probably should be), then paying cash is probably better, just be careful which assets you sell.

You pay tax on investment income and you get a deduction for interest paid. The difference is generally minor and where the money is invested is far more important.

The second home argument generally does not matter, since a home equity loan is generally the cheapest sort. I did that for my current boat because the timing was wrong for the assets I needed to sell, but that said, I then paid off the loan in 4 years. In other words, it does not have to be an either-or decision. Make certain the loan can be paid off early without penalty and you can have it both ways. Additionally, a home equity loan keep the lender out of insurance and survey questions.
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Old 10-06-2016, 12:15   #13
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Re: Retire debt free or get a boat loan

Depends on who will inherit your debt? If the loan is manageable why not? There is no prize for dyeing debt free. Go see the world.
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Old 10-06-2016, 12:25   #14
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Re: Retire debt free or get a boat loan

It might be useful to know if the "cash boat" and the "loan boat" are one in the same?

If they are the same and if the interest paid on the loan can offset the taxable income earn't from other sources, then it could be sensible.
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Old 10-06-2016, 12:27   #15
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Re: Retire debt free or get a boat loan

Since you are going "home" every July I assume you have a house and it's paid for. I would also assume the loan would be secured against the house and not the boat. That would give a much lower interest rate.
Since you are questioning which way to do this I also assume you have the funds to just pay cash.
If all those assumptions are correct then I would listen to your financial advisor, that is what you pay him for. To make your money work for you. That's much better than having to work for your money.
If your investments are yielding better interest than you are paying on the loan, then you are actually increasing your net worth. Plus pulling enough funds out to purchase the boat will cost a lot in tax for this year instead of spreading it out over several.
If it worries you then start moving extra money into an accessible account that still generates interest so you can pay the loan off if rates go up.
That all said, I'm not a financial guru, but I do follow the advice of one and it has helped me.
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