Retire debt free or get a boat loan

[The Garbone]

Originally Posted by gcaskew

I would be taking a $250000 lump sum out of my pension. This would still leave me plenty to live well on but would reduce my monthly draw by $1200 for the rest of our lives. Or finance a boat for 15 years and have it paid off and then have the $1200 from the payments till we die, also saving some on taxes.
We will be 53 when we retire soon.
Either way my monthly pension will be hit for $1200 - $1500 a month, but by financing after the boat is paid for the old boat payment amount stays in my account.

Those be some odd numbers.

I will be in close to the same place in 7 years when I am 51. With penalties for being under 65 and limits on what can be put in Roth IRAs don't see 1/4 mill on a hole in the water as a good choice.

At $1200 a month with a house in the world I would be going on a Catalina 30 not a 45 ft catamaran.

I would get a new adviser.

[belizesailor]

Originally Posted by SV Sailfish

The day I fired my Merrill Lynch financial advisor was the happiest day of my life. I told her to go rip somebody else off.

Hey... it's your money, learn to manage it yourself.
And debt free is the only way to go.
Happy cruising!

People forget that so called "financial advisors" who work for brokergage firms are just wolves in sheep's clothing. The are sales staff, their job is to sell you products and services that benefit the brokerage. Pretending to have your best interest in mind just helps to facilitate that.

The only real financial advisor is one you pay specifically for that service.

[denverd0n]

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.

[renaudgil]

Good point. Better to get professional advisè.

[SoundWave]

Originally Posted by denverd0n

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.

1+ on that one.

Sailors like us, holding sundowners, are not yet part of my financial team.
Even at the lowest tax bracket, every dollar not taxed is an effective return in excess of 20%, and that will beat any investment fund going!

[valhalla360]

Originally Posted by SoundWave

1+ on that one.

Sailors like us, holding sundowners, are not yet part of my financial team.
Even at the lowest tax bracket, every dollar not taxed is an effective return in excess of 20%, and that will beat any investment fund going!

The problem is you are paying the bank 100% to avoid paying the govt 20%.

Stuffed under your mattress will beat that return.

[belizesailor]

Originally Posted by valhalla360

The problem is you are paying the bank 100% to avoid paying the govt 20%.

Stuffed under your mattress will beat that return.

Surprising how many people do that...they buy into the fantasy that the real estate brokers and mortgage bankers sell them...and never do the math.

[Stu Jackson]

Originally Posted by belizesailor

Surprising how many people do that...they buy into the fantasy that the real estate brokers and mortgage bankers sell them...and never do the math.

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.

[sailorboy1]

Originally Posted by gcaskew

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.

[ol1970]

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!

[RTB]

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.

Ralph

[thinwater]

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.

[pjeffarch]

Originally Posted by RTB

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.

Ralph

Can one get a 3-month charter, and might it cost about as much as a small yacht?

[Tetra]

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.

[Lepke]

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.