Long Term Boat Retirement Plan - Are These Numbers Right?

[BlueBuddha]

Hi all, I would like to hear your opinions about the numbers/plan below. The wife and I are obsessive planners and very disciplined. We like planning way ahead (we have successfully maintained a 10 year travel plan for many many years) and we are now starting the process of planning for retirement. The goal is to retire at 55 and move into a boat with no boat payments (owned outright) while also charting frequently and as cheaply as possible from now until retirement.

Assume the following:
- Current age 45
- Planned retirement age 55
- Want to retire to a mid size (39-40) Cat that is fully paid for (no debt) in the Caribbean.
- Want to continue charting every year as much as possible until retirement.
- The plan below does not affect our current retirement savings plan, house payments, etc. Before we got bitten with the liveaboard bug we were on track to retire at 55 with sizable savings and no mortgage on our house. We do not want to do anything that impacts our current track. Thus, we do not want to use ANY of our current savings to purchase a boat and we do not want to allocate any of our standard future retirement savings for the boat purchase (I told you we're disciplined!). Our self-imposed rule is that if we want to do this, we will have to make changes to our current life style for the next 10 years in order to make our boat retirement plan happen. So here is the plan:

During the next 5 years (age 45-50):
1. Charter 1-2 weeks per year at a cost of $10,000 per year (assumes sharing costs with friends for most charters)
2. Invest/save additional $1500 per month at a conservative 5% return. These are 1,500 that are currently being wasted in unnecessary stuff. 5% is way below what we have achieved during the last 15 years (even during the recession).

At the end of 5 years (age 50) we would have spent $50,000 chartering and would have a "boat purchase kitty" of about $100,000.

In 5 years (age 50):
- Use $100,000 for down payment on new Mooring Leopard 390 or 400 at $500,000.
- Put boat in guarantee revenue plan with Moorings for 5 years.
- During those five years, pay an additional $3,000 per month to the loan in order to be debt free by the end of the program. The 3K will come from the original 1,500 savings plus reductions in our vacation budget since now we would be charting more for relatively free during times we used to be in other types of vacations.
- Cruise 4 weeks or so each year and private sell 2 weeks. Put funds from private sale (total of $40,000 est?) into boat maintenance kitty for when moorings program ends.

In 10 years (Age 55):
At the end of the 5 years mooring program we would take the boat out of the program. We will fully own the boat worth $250,000 (50%). We would rent our house (fully paid by then), move into the boat, and use the house rental income for boat living and maintenance expenses. Between the maintenance kitty and our rental income we would not have to touch our retirement savings for living expenses or boat related issues for many years.

In sum, by age 55 we would have paid a total of $330,000 (50K charter, 100K down payment, 180K extra principal payments) to:
1. Chart 1-2 weeks/year for 5 years
2. Chart 4 weeks/year for another 5 years
3. Own a 5 year old boat worth $250,000. Although the boat would be ex-charter, there would be little surprises since we would have been highly involved in the yearly maintenance/assessment of the boat.
4. Have $40,000 or so in maintenance kitty

The plan above assumes we like the Leopard 39 or 40, but during the next 5 years we will be chartering many other boats, including some Lagoons, so we may decide that Moorings is not the best option if we want a different boat.

THE ALTERNATIVE:
The most obvious alternative is to buy a 5 year old boat in cash when ready for retirement. I've seen various posts saying "If your goal is to have a 5 year old boat in 5 years then buy a 5 year old boat in 5 years instead of buying a new one via the moorings program" This makes sense, so I wanted to see how the numbers would look in my situation.

The numbers for the alternative:
- Continue charting 1-2 weeks per year for 10 years (age 45 to 55) = $100,000
- Save/Invest $1500 per month for 10 years in order to have $250K for cash boat purchase.

By age 55 we would have paid $350,000 for
1.Chart 1-2 weeks/year for 10 years
2. Own 5 year old ex charter boat worth $250,000 with possible surprises since we would not have been involved in its maintenance during the charter years.
3. No maintenance kitty

So this alternative costs more money, leads to fewer charter weeks before retirement, and results in no extra maintenance kitty. If I wanted a maintenance kitty, then the total costs would increase to $390,000.

Please note that we are not "rich", at least not based on the Republican's definition of rich. We just have very solid jobs, no kids, live way below our means, and are very disciplined with our money. I say this because alternatives that involve just writing a check for many thousands of dollars for x or Y without careful multi-year planning and saving are not feasible.

That said, what other alternatives would you suggest? Are there any obvious issues I'm missing that would make my original plan unfeasible?

Thank you so much for any feedback!

[skipmac]

In general I would agree with the buy a 5 year old used boat in 5 years instead of buying a new boat now in a charter program. This assumes you buy a 5 year old boat that was not a charter boat.

The main reason, charter boats get a LOT of use compared to most privately owned boats, especially the engines. The engine use is even more than a lot of other systems on a charter boat because charterers have limited schedules and tend to run the engines a lot more than most private owners. I guess you could factor in rebuilding or replacing the engines when you take possession.

Otherwise sounds like you have put together a very detailed and workable plan.

[Paul L]

No comment on the chartering issue. Just make sure you also allocate the costs of a re-fit before you cruise. Maybe 50K.

[BlueBuddha]

Thank you two. Both of you bring very important points that are actually interconnected! For some reason it didn't occur to me that the alternative (buy 5 year old boat at 55) could be a non-charter boat. A non-charter boat may already be refitted for cruising, so it may require less refitting funds.

While the numbers are still higher for the alternative, the "savings" of the original plan could be wiped out if extensive refitting is needed. So this makes both options almost equivalent (cash wise). The original plan still has the benefit of more charting time, but the alternative plan has the benefit of a potentially better boat and more style options.
I will definitely consider both as I move forward.

The good news is that I'm still 5 years away from having to make a decision. The plan until then will be the same: continue saving for the purchase kitty and continue charting different boats to get more clarity on what type of boat we want to buy when the time is right.

Thanks again!

[Kenomac]

There's another way. Instead of spending years paying towards a boat you don't have and cannot use (future used boat) or making payments on a boat others are enjoying more than you... and is set up for charter instead of owner arrangement (no master cabin), why not use the boat purchase money you'd set aside to pay off your house years earlier, then buy a boat using the rental income from the house?

You can refinance at the time to extract the down payment amount for the boat, then use the extra to make the payments. You'll end up full time cruising many years earlier, and have the option of buying a used low mileage boat. Let your future tenants pay for your boat and real estate taxes. Plus, (assuming the tax laws don't change much), you'll be able to depreciate and write off the interest payments on the rental house. Personally, I'd diversify and purchase a multi-family house or commercial property with multiple tenenats, so as not to put all my eggs in one basket.

Treat your house like a business and not a piggy bank when the time comes.

This method works, we've been doing something similar for over eight years now. Began at age 50 or so, while most of the other people we know slave away at their jobs hoping to someday retire at age 67 on social security and a small pension. Most will never travel and they'll probably remain slaves to their homes even years after retirement.

[BlueBuddha]

Interesting KenoMac. I will have to do some numbers but one thing is that we do not want to start cruising any earlier than 55. But the issues still apply. Maybe put the $1500/m to the house payments, pay house early, then once we are done, take entire original house mortgage payment and save them for down payment on boat. Will have to run some numbers to see if it works out.

[BlueBuddha]

Hi Kenomac, this was a good idea but the numbers don't add up, primarily because our mortgage rate is much smaller than our investment/savings returns. So if we start paying our mortgage early with the money we would have otherwise save for the boat purchase kitty, we would pay off the house 5 years early. We would then take take the full amount of the mortgage and invest/save until age 55. At that time, we would have less $ than if we had simply invested the money from year 1. Refinancing at the time has even more costs (in interest) that we would avoid by simply investing/saving until we want to retire. I should have known this, since the reason we don't pay the house early right now is because we make more money investing. It was a good idea tough and I will continue exploring alternatives.

[Kenomac]

Do you really believe the stock market will continue to only go up and show positive returns of 5% or more?

We semi-retired fifteen years early primarily due to the fact we were not invested in the stock market back in 2007. Instead we'd spent the previous 10 years paying off our home mortgage while others told us we were being foolish for not investing in multiple homes and the stock market... But we'd already learned our lesson back in 1990 when the economy tanked and we lost over a million dollars in six months. One million was a lot to loose back then, especially when we started from zero in 1980.

Ken

[BlueBuddha]

Originally Posted by Kenomac

Do you really believe the stock market will continue to only go up?

Yes

Just Kidding. Good point. I need to sit down with our financial guy and do some detailed planning. We were invested in 2007. Our running 5 year average has been much higher than 5% except for a single time point after the 07 crash. But I agree with you that the risk is there and probably higher than the probability of another housing bubble. So I'm not totally discounting this idea. I'm going to get the spreadsheets out and run some detail numbers so I can compare apples to apples. Thanks.

[SwissMocha]

I like your plan, BlueBuddha, especially the part from 55 onwards.

I'm in a similar position, about 4 years from retirement and I have thought a lot about my options. Currently I spend about six weeks/year on chartered boats in the med.

The reason why I'm not purchasing right now is mainly the fact, that I cannot commit for a certain make or model. For me it seems an awful long time to decide for a certain boat five years in advance.
Also, as it has been mentioned, whether you purchase a used charter boat in 5 years, or receive full ownership of such boat, it will still be a used charter boat.

As I understand, when you purchase with Moorings, you can pretty much charter from any Moorings base in the world. But that ist still a limited number of places you can go and charter. Personally I prefer the freedom of chartering wherever I want as long as there is a charter base.

One more thing to mention, when I look at the used boat market, it's a buyers market. And that is not going to change soon, there are far more boats for sale than there are buyers. I think in five years time, when I'm ready to buy, that will be to my advantage. I will have enough time to look around and choose the right boat. And in ten years time it won't be different for you.

Best luck for you!

[19 and counting]

We were once told that you shouldn't buy your retirement "home" until you actually retire and boy are we glad we listened. You can not appreciate how much things can change in the next ten years. We retired to cruise on a fully paid for boat and went for about a year. Family and homesickness made us want to be able to visit our home off and on to reconnect but with it rented out that was impossible so it caused a lot of sadness. We were 55. Now we are back into boating having sold a couple of island cruisers and gone back to a bluewater boat, we won't have to rent out the house this time thank goodness. We have family living in the same neighborhood to watch out for us. One hip replacement and a fully torn rotator cuff/dislocated shoulder during this period. Those are the things you can't control, they just happen and it turned out our young adult kids were not ready to be disconnected when we were 55, now 8 years later everyone is stable and it's going to be a lot easier. Knowing we can fly home and reconnect for awhile or get out of areas where you don't want to spend hurricane season or debilitating heat are party to important planning. I'd enjoy your current lifestyle and then when you hit 55 you can decide where to go next. You may decide as you said, that you want a different cat than you think, or that you want to go to other areas, and the boats you are considering will only get less costly as they age, you can contemplate that when you are ready to chose one, see how they have aged, what they do need and what you need. Save your money in a boat fund and then you can see the magic of money talks, bs walks!

[BlueBuddha]

Thanks 19! Yes, there are some really compelling reasons to simply put money into the boat fund until 55 and the decide what we want. We might well go that route. Thanks for the feedback.

[nautical62]

Having owned a boat in the Moorings for 7 years, that's probably how I would do it. The bottom line is you need to objectively crunch the numbers, but I have little doubt that buying, and getting guaranteed income, while avoiding chartering costs, will put you ahead of paying to charter fees for 5 years and then buying a used boat at the end of that 5 years.

I find many responses to questions about charter management focus on one or two factors without objectively evaluating the big picture. Sure a charter boat gets used more for example, but one needs to weigh that against the income, the fact you are not paying charter expenses, are not paying for insurance, dockage, maintenance, etc.

In my case, I ended up paying about half the price of the boat which was about what 7 year old boats were selling for at the end. The difference however is I got to use it 5 weeks a year for 7 years without paying chartering fees.

The negative of buying a charter management boat, is you are committing to your decision earlier. If your interests, health, boat preference, finances, etc. change on you, during that 5-year charter owned period, you have less flexibility.

[BlueBuddha]

Thanks Nautical, yes the numbers always seem to come better for the charter ownership option. I also imagine that the degree of use varies by where the boat is and the type of boat you choose. I also read that some of this extra use may compensated by the extensive maintenance program of Moorings and if the owner is very active in checking the boat closely and demanding fixes every time he/she uses them.

The one issue that I need to account for is the reffit that the charter boat would require to make it into liveaboard. That may nullify the financial benefit of the charter program (not accounting for the value of the extra charter weeks). The other issue that I'm concerned about is the selection of boat. We'll be chartering various models during the next 5 years so by then we will have a better sense as to whether we are committee to a Leopard or weather we want something else so much to justify the opportunity loss of the discounted charter weeks.

Good thing I have plenty of time to keep considering my options. Thanks!

[skipmac]

Originally Posted by nautical62

Having owned a boat in the Moorings for 7 years, that's probably how I would do it. The bottom line is you need to objectively crunch the numbers, but I have little doubt that buying, and getting guaranteed income, while avoiding chartering costs, will put you ahead of paying to charter fees for 5 years and then buying a used boat at the end of that 5 years.

So are you saying that you were able to realize a positive, net income during those 7 years, over and above the down payment and monthly payments for the boat? Plus you got free time on the boat on top of that?

The other question is how much was still owed on the boat at the end of the Moorings contract but I guess that would totally depend on how much down and the terms of the financing the buyer makes with the lender.

Originally Posted by nautical62

I find many responses to questions about charter management focus on one or two factors without objectively evaluating the big picture. Sure a charter boat gets used more for example, but one needs to weigh that against the income, the fact you are not paying charter expenses, are not paying for insurance, dockage, maintenance, etc.

If you would be spending a lot on charters during the contract period that would also make the deal a lot sweeter. But if you are chartering then you can't also count the savings for insurance, dockage, maintenance and other expenses that come from owning a boat.