Boat Financing After Retirement

[Liming II]

After a lot a great input from members that this may not be an ideal time to buy a cruising catamaran, especially since we won't be able to use it until around March of 2022 (retirement date). we are rethinking our plans. We are thinking about keeping our current powerboat, getting it from WI to Green Turtle Bay in KY later this summer and make long weekend trips thru the fall and winter to KY. Then start the Great Loop after we retire. After hurricane season next year we would start our catamaran search.

Our goal is still to buy a cruising catamaran and become more proficient at sailing, then sail full time. My question to the group is this: has anyone had experience financing a boat after you are no longer bringing in a paycheck? What was the process and did you have any ah ha moments that you would have changed? Our financial advisor assures us that we can make it work, but she is not a boater and has never dealt with this situation. I'd like to get some opinions from the experts.

Thanks,

Mike

[Sidney777]

2 to 5 yr satisfactory income from your assets. Or deposit of asset in lender account to be used as collateral for the loan. (Probably not something you want to do.) But.....

[desodave]

Might vary a lot depending on your financial institution and how long/how much business you have done with them. We bought the boat just before I retired but with my wife still to work for about seven years after that - boat paid off just after her retirement. Our retired experience, ie, looking at buying a new boat this year, was that the institution was much more concerned about our income stream than before. This was with a Canadian credit union that we have done all of our business with for over 40 years. I think many (especially smaller) institutions are a bit paranoid about pandemic effects on their outstanding loans. I'd have a chat with your financial institution.

[Shrew]

Originally Posted by Liming II

Our financial advisor assures us that we can make it work, but she is not a boater and has never dealt with this situation. I'd like to get some opinions from the experts.

Why would your financial advisor need to be a boater? She understands income and expenses. She could care less what you spend your money on. Only whether you have money to spend or not, and projections for how long you can do so.

[goboatingnow]

Personally I wouldn’t want big borrowings into retirement.

[NPCampbell]

Originally Posted by Liming II

My question to the group is this: has anyone had experience financing a boat after you are no longer bringing in a paycheck?

The decision to finance a boat is no different than financing any other depreciating asset in retirement. If your retirement funds are primarily in tax deferred accounts or your investments yield a return higher than your loan then it's just good fiscal sense to finance. This is based off the assumption that you have enough funds to cover any future housing, medical or food needs.

People are going to argue that financing is risky in retirement because what happens if your investments dry up? The counter to that is what would happen if you were living in a house and you relied on your retirement income for food and medical? What would happen if you required a nursing home? The average private pay nursing home is around $7000 per month. If your funds dry up you are moving to a Medicaid facility. End of story. You do the best you can to moderate the risk and that's all you can do.

In my case, I want to buy a 45-50 foot catamaran. 90% of my retirement funds are tax deferred. There is no way I am drawing down enough money in one year to buy a $750,000 boat. That would put me in the 37% tax bracket + FICA, etc. That would be plain stupid. I can afford to buy several of those boats but I would never pay cash because of the tax liability and the fact that my investments typically make more than the current financing rates.

[Shrew]

Originally Posted by NPCampbell

90% of my retirement funds are tax deferred. There is no way I am drawing down enough money in one year to buy a $750,000 boat. That would put me in the 37% tax bracket + FICA, etc. That would be plain stupid. I can afford to buy several of those boats but I would never pay cash because of the tax liability and the fact that my investments typically make more than the current financing rates.

Plus consider the cost of money. The interest you make on the principal offsets the interest you pay on the note. If you're returns are higher than the interest rate, you're borrowing cheap or potentially free money, paying yourself back and never touching your principal.

If I'm paying 4% on a note, and making 7 percent returns....why the hell would I want to decimate my principal. I can always sell the boat if I need to.

I honestly feel like those who insist on CASH ONLY don't completely understand money.