Finance, Boats, Retirement how do you decide?

[bowball]

If I compared everything against the opportunity cost of my investments I wouldn’t do anything. Everything is expensive in comparison to that. But what’s the point if you don’t enjoy life along the way? I assume I’ll loose most of the value of my boat.

 

[tiltrider1]

Klee wick, you bring up a most interesting thought. I usually buy boats that are in distress. This means I usually spend considerably more than normal maintenance. If you counted my labor at $20 an hour I probably spent more on maintenance than for the boat. Fortunately for me it’s not work, it’s entertainment. Now we flip to the purchase side. When I bought my current boat I was well invested in the market and property. I decided to finance the boat, as I was expecting a large payoff in three years. Even when I got that pay off I chose to reinvest it as I could do no wrong in the market. Now my cash flow is greater than my investment appetite so I will pay off the boat in 2022. I don’t normally believe in financing boats but I have an average return of 28% for the last 10 years. Add to this that I have chosen to live on the boat this last 6 years. I haven’t run the numbers but if you credit me for the investment income I gained by not paying cash my boat might be free. Let’s not talk about how I felt from 2007 to 2012.

 

[SteveK]

Thanks for posting this Klee wyck. This is some really helpful math...for those in what I would consider the higher-end of the trawler world. I'd be interested to see real world calculations for a more modest (older) GB 36 single and the like.

GB36 with twins, my total cost breakdown over three years
R&M is 14%
Fuel is 3%
Upgrade existing or new addition 17%
Moorage & Insurance 18%
Boat cost 48%

The mathematicians will notice boat cost ~= cost to own

 

[O C Diver]

I think it's a bad idea to finance a deprecating asset or one you expect to deprecate in value. About the only time I would finance a boat is to secure the one I want as I close on the one I'm selling to cover the purchase of the new one.

Ted

 

[tiltrider1]

I think it's a bad idea to finance a deprecating asset or one you expect to deprecate in value. About the only time I would finance a boat is to secure the one I want as I close on the one I'm selling to cover the purchase of the new one.

Ted

Normally I would agree. However for the last 8 years the S&P has averaged over 15% and bank loans for boats has been 5%. It just didn’t make any sense to sell anything and pay the taxes. Right now I am scared of the market. I am shifting to more conservative investments and in doing so I am paying off all debts.

 

[SteveK]

Normally I would agree. However for the last 8 years the S&P has averaged over 15% and bank loans for boats has been 5%. It just didn’t make any sense to sell anything and pay the taxes. Right now I am scared of the market. I am shifting to more conservative investments and in doing so I am paying off all debts.

You know if someone has assets that can be cashed in then they should say so, as I agree then financing is part of the investment plan. However I think most that are financing do not have liquid assets. So it is not the same question.

 

[kthoennes]

Normally I would agree. However for the last 8 years the S&P has averaged over 15% and bank loans for boats has been 5%. It just didn’t make any sense to sell anything and pay the taxes. Right now I am scared of the market. I am shifting to more conservative investments and in doing so I am paying off all debts.

Same here, on every point. Big portion of my portfolio has been in an S&P index fund. The recent return is amazing. Quadruple the rate we had on the boat loan - but now the boat is paid, we're paying down remaining debt as fast as we can, and upgrading the boat as fast as we can in case everything crashes, or super high inflation hits and a new alternator (and everything else) costs a billion dollars. I keep thinking the govt can't keep printing oceans of Monopoly money forever. But it's going to be very hard to move out of the S&P and watch that rate of return drop to a single digit alternative.

 

[O C Diver]

Normally I would agree. However for the last 8 years the S&P has averaged over 15% and bank loans for boats has been 5%. It just didn’t make any sense to sell anything and pay the taxes.

I absolutely understand.
Lets play devil's advocate. The economy, market, and boat values tank. The market drops in half. The boat market tanks because of the economy and you can't sell your boat for half of what you owe on it. You lose your job. Dockage, insurance and the boat loan continues to bleed your cash assets. If you own a house with a mortgage, you're hemorrhaging cash. It's 2008 through 2010 all over again.

A number of years ago I had a large position in a good company that was 95% capital gains. They were acquired by a European company, unfortunately an all cash purchase (instead of getting stock in the European company, I had to pay a large capital gains tax). If I remember correctly, the acquisition was in the billions. Here is the point. Even though the deal was done on paper, the deal was delayed more than 6 months because of federal regulators reviewing it. The European company generated the cash and moved it to the USA. Then the market did a reset and the exchange rate went bad for the European company. It made no difference since the cash had been generated and moved to the USA through a much better earlier exchange rate. The European company acquired a good company for the agreed value because of a prudent financial plan.

If you eventually have to pay for something, financing it and betting on the market may not end happily, especially if it's a deprecating asset in a discretionary income market.

Ted

 

[Bacchus]

Thanks for posting this Klee wyck. This is some really helpful math...for those in what I would consider the higher-end of the trawler world. I'd be interested to see real world calculations for a more modest (older) GB 36 single and the like.

For my modest (compared to many here) Mainship 34HT
Initial purchase @ 4 yrs old (didn't want projects anymore) ~$175k
Seasonal slip $3k winter storage $2k maint + improvement projects avg $2-3rk/yr

Avg Boating cost / year (less fuel) approx ~5% for a newer, low hrs boat.
Even the projects were discretionary improvements vs must do maint / repair for the most part.

 

[Hippocampus]

Know the gentleman who posts his annual expenses. First we met when he was slipped next to me in Cove Haven. Then would run into him time to time cruising the east coast. Last in Norfolk prepping for passage. His expenses aren’t to relevant to you. He is about your age but still working and with a young family. He’s pretty much entirely coastal and has logistical support from family whose houses are coastal. He’s on a Hunter with fairly simple systems. He’s a great guy but suspect his expenses will be materially different from yours.

We used our last boat cruising internationally. At that time interest rates were higher and ROI lower. Still it’s made sense to “play with other peoples money “ as we had a ROI higher than boat loan interest. Was set up that if that shifted funds were set aside to buy out that loan at the drop of a hat without effecting income stream for maintaining life style.
Since then built a dirt dwelling and bought another boat. Did both as total cash deals. At present have no loans on anything. Not cars, boats nor house. Why the 180 turn in thinking? Issue is risk tolerance. If you’re leveraged to any degree you incur risk. Wife and I decided we always want a house and a boat until they throw dirt in our faces. Neither of us can easily return to work. Both of us haven’t done the needed continuing education necessary to maintain our licenses (M.D. & R.N.). To relicense would be onerous. Have engineering and other professional friends where licensing isn’t the issue but if they stopped working for a decade returning to their field would be most difficult due to the evolution of knowledge and practice. Some continue to consult to keep a hand in and stay current. Many stop even that activity as having your whole life outside the boat on autopilot is very attractive. Your only concern is cruising issues. Otherwise life is an occasional call or email to the financial advisor.
So think that needs to be a factor. Will you and your significant other be able to return to work after years of a hiatus? If so you can comfortably carry more risk. A bigger or newer boat. A boat loan. More extensive cruising. If not then you need to decide if you’re a boat nut. How important is it for you to have a boat? A house?
We decided both are important. The dirt dwelling sat empty. If rented we couldn’t return to it when we wanted. Sometimes the boat just sits when we return to the house for family or other things. That being the case with low carrying costs regardless of what the market and the fed does our lives are unaffected. No loans and positioned to cover expenses even if not used. This allows no pressure to liquidate as well. No concern that one will need to sell in a down market. Yes, it’s important to diversify but even doing that doesn’t totally protect you. Suggest with your financial advisor calculate your core “nut” (real estate taxes, personal taxes, utilities, boat maintenance/storage, all insurances etc.). Calculate your guaranteed income stream that you know you will get regardless of what the economy and markets will do. Factor in a cost of living increase that’s conservative. They better balance if you don’t want to be stressed about finances. We dealt with by lowering exposure from loans. Yes there’s perfect logic in playing with other peoples money. If I was richer I would have continued to do so. But once I knew I and the bride were fully and truly retired the logic of lowering the nut made better sense.

 

[ksanders]

I think Tiltrider has broached a important concept in that ones risk acceptance decreases with age.

When you are younger with more time to recover you feel safe doing things like keeping a house or boat mortgage at 5% while earning 10% on your investments. If the market tanks you will have time to recover.

As you age your tolerance for that risk diminishes, both in reality and also in simply your perception.

When I bought my boat in 2011 I did not have the quarter million I needed for it and initial refit in anything other than home equity and tax defered retirement plans, and I think that nearly 100% of boat buyers at my then age of 49 would have a similar asset mix.

To get the boat financing was the only logical option.

But.... That was a decade ago. Now I'm looking at a 60th birthday in a couple months and my situation has changed.

It was frankly much easier for me to make a retirement decision if I could remove all debt. So that is what I did.

I can tell you that no matter what you are making in the market it is a good feeling to think that you do not have to worry about the next down turn. You do not have to worry about paying bills because you simply do not have any.

My thoughts are that at some point you cannot change your retirement income by much, but you can for darn sure change how much money you need to live by eliminating debt.

 

[bnoft]

As for Buffett not owning a boat, remember he lives in Nebraska; not much coastline there.

 

[backinblue]

Omaha borders the Missouri river

 

[backinblue]

KS, in some respects you are correct, however as I am not about to enter retirement I am less worried about money then when I was younger. I am more likely to make a large cash purchase now because I feel confident I won't run out of money. 10-20 years ago I would never do that as I was too afraid of not saving enough for later in life.

 

[ksanders]

KS, in some respects you are correct, however as I am not about to enter retirement I am less worried about money then when I was younger. I am more likely to make a large cash purchase now because I feel confident I won't run out of money. 10-20 years ago I would never do that as I was too afraid of not saving enough for later in life.

Yes you are correct. You reach a point where you say what you have is enough.

Not so many retirees would be willing though to carry debt and hope their investment returns exceed the interest carrying charges.

At some point you have enough and it's just not worth the trouble.

 

[SteveK]

Kevin, You financed a boat to live aboard. I think that also makes a difference. As we age having a dirt home and boat financed is the unwise risky proposition.

 

[OldDan1943]

If you can get 5% in the stock market and the boat loan 5%, it's wash.
If we consider the boat loan a constant of 5%, anything close to 5% in the market make the makes the remaining amount pretty cheap money. Plus if your boat qualifies and it doesn't take much to qualify, you can declare the boat a 2nd home and write off the loan interest. All this without disturbing your money making assets.
In the market, I am doing well. Alas, I have been heavily in the market for over 30 years and selling any assets, capital gain at 25%. Of course IF I wait till I die, my estate will have to pay about 50% on everything beyond $500K, I think. Those who get the remains of my estate will no doubt spend it on wild women and booze or maybe booze and wild women. I just hope they dont buy a boat. :lol:

 

[backinblue]

“I spent most of my dough on booze, broads and boats and the rest I wasted.”

― Elmore Leonard, LaBrava

 

[BandB]

Just as one individual data point around the subject of this thread:
I never looked at this while I owned the boat, but in some year-end exercises today I ran across the deposit from the Klee Wyck transaction and thought it might be interesting to do the math. The subject comes up here from time to time.

For general landmarks, I owned the boat for ten years and paid around a quarter million when I bought it.

I looked at capital cost which I considered to be purchase cost minus proceeds of sale+ large maintenance and improvement spending+ the time value of money at 4%.
That cost over the ten years was $371k or an average of 37k/year

Non- fuel operating costs consisted of moorage, insurance, license, tax, and registrations. That total was around 160k or 16k/year.

Fuel and fluids/routine maintenance (bottoms, fluid changes, batts, etc) total around 84K so about 8.5k per year.

These are rough numbers, but the all-in cost of owning KLEE WYCK for ten years then was around 600k total, 60K per year, or 5K per month.

I will grant you that we were not careful, and we moored in a high rent district, but I always cringe when I see this 10% of purchase price as annual ownership cost over the life of your ownership. I think more like 20% could be more realistic.
For a frame of reference, the difference between purchase price and sales price was only 13% of total ownership cost and fuel was only 3.4% of total cost.

It was worth it....

I've never liked using an arbitrary percentage or giving anyone one. The 10% number initially was 10% of new purchase price and only worked on new boat, but not so well, even there. Then you get into the entire question of depreciation and most are not including it. Now, you on the other hand, wrote off the entire cost while the boat still has much residual value.

I'm always willing to give newcomers the categories I budget and guidance on how to do so, but they must develop their own numbers. Cruising styles make a huge difference.

 

[SteveK]

If you can get 5% in the stock market and the boat loan 5%, it's wash.
If we consider the boat loan a constant of 5%, anything close to 5% in the market make the makes the remaining amount pretty cheap money. Plus if your boat qualifies and it doesn't take much to qualify, you can declare the boat a 2nd home and write off the loan interest. All this without disturbing your money making assets.
In the market, I am doing well. Alas, I have been heavily in the market for over 30 years and selling any assets, capital gain at 25%. Of course IF I wait till I die, my estate will have to pay about 50% on everything beyond $500K, I think. Those who get the remains of my estate will no doubt spend it on wild women and booze or maybe booze and wild women. I just hope they dont buy a boat. :lol:

That sucks. Keep it under 500K, donate the rest now to TF

 

[OldDan1943]

That sucks. Keep it under 500K, donate the rest now to TF

Soo-Valley, you have heard of the phrase, "Not even in your dreams." If you have not heard it before, now you have.

 

[catalinajack]

If you can get 5% in the stock market and the boat loan 5%, it's wash.
If we consider the boat loan a constant of 5%, anything close to 5% in the market make the makes the remaining amount pretty cheap money. Plus if your boat qualifies and it doesn't take much to qualify, you can declare the boat a 2nd home and write off the loan interest. All this without disturbing your money making assets.
In the market, I am doing well. Alas, I have been heavily in the market for over 30 years and selling any assets, capital gain at 25%. Of course IF I wait till I die, my estate will have to pay about 50% on everything beyond $500K, I think. Those who get the remains of my estate will no doubt spend it on wild women and booze or maybe booze and wild women. I just hope they dont buy a boat. [emoji38]

Oldman, not $500K. The estate tax exemption for those croaking in 2022 is over $12,000,000. As for financing a boat, or anything for that matter, if invested money returns more than the interest rate on borrowed money, it is a no-brainer to borrow rather than paying cash regardless of whether the underlying asset decreases in value. And if a cash purchase is to be made by having to withdraw money from a tax-deferred account, now that would be downright crazy.

 

[Hippocampus]

As previously posted. I did just that. Played with other peoples money on several boats. But things change depending upon how important having a boat is to your quality of life and your income stream. My income is my investments. I’m fully retired. Due to licensing requirements there’s no chance I’m ever going back to work. My ROI greatly exceeds current loan interest rates but I still paid cash to built my house and buy my boat. It’s important to me and my wife we always have a boat and a house. Having paid cash regards of what my portfolio does we know we will always have both and have sufficient funds to enjoy both. There’s virtually no chance we will outlive our money nor decrease our quality of life.
There’s something to be said for decreasing your obligations/your monthly nut. When doing the multifactorial analysis to determine the boat purchase budget we assumed no income stream(in fact 40% lose of net worth of portfolio with negative net yields from selling assets) and all expenses being draw from capital and obligate payments from long term investments (bonds, pensions annuities etc.) Social security isn’t enough to consider. The foundation of having this level of peace of mind is eliminating all loans and mortgages. Considered the boat as having no worth but rather a 10% of purchase price annual draw in the calculation. So my descendants will get less money. That is true. But I don’t have to worry about money as long as I live.

 

[ksanders]

As previously posted. I did just that. Played with other peoples money on several boats. But things change depending upon how important having a boat is to your quality of life and your income stream. My income is my investments. I’m fully retired. Due to licensing requirements there’s no chance I’m ever going back to work. My ROI greatly exceeds current loan interest rates but I still paid cash to built my house and buy my boat. It’s important to me and my wife we always have a boat and a house. Having paid cash regards of what my portfolio does we know we will always have both and have sufficient funds to enjoy both. There’s virtually no chance we will outlive our money nor decrease our quality of life.
There’s something to be said for decreasing your obligations/your monthly nut. When doing the multifactorial analysis to determine the boat purchase budget we assumed no income stream(in fact 40% lose of net worth of portfolio with negative net yields from selling assets) and all expenses being draw from capital and obligate payments from long term investments (bonds, pensions annuities etc.) Social security isn’t enough to consider. The foundation of having this level of peace of mind is eliminating all loans and mortgages. Considered the boat as having no worth but rather a 10% of purchase price annual draw in the calculation. So my descendants will get less money. That is true. But I don’t have to worry about money as long as I live.

You hit the nail on the head.

Paying off your boat, or your house for that matter provides peace of mind that no matter what happens you are good to go.

This is expecially important to retired folks, as many like you cannot just re-enter the workforce due to sometimes nothing more thasn skills becoming stagnant.

 

[drb1025]

I retired with a house and a boat and no debt. I can’t afford to have monthly payments.

 

[BruceK]

Reminded of words in the Prince song "Money Don`t Matter 2 Nite":
"Just when u think u've got more than enough
That's when it all up and flies away".
(Grammar (or lack thereof) is Prince`s, not mine.

 

[Seevee]

I absolutely understand.
Lets play devil's advocate. The economy, market, and boat values tank. The market drops in half. The boat market tanks because of the economy and you can't sell your boat for half of what you owe on it. You lose your job. Dockage, insurance and the boat loan continues to bleed your cash assets. If you own a house with a mortgage, you're hemorrhaging cash. It's 2008 through 2010 all over again.

A number of years ago I had a large position in a good company that was 95% capital gains. They were acquired by a European company, unfortunately an all cash purchase (instead of getting stock in the European company, I had to pay a large capital gains tax). If I remember correctly, the acquisition was in the billions. Here is the point. Even though the deal was done on paper, the deal was delayed more than 6 months because of federal regulators reviewing it. The European company generated the cash and moved it to the USA. Then the market did a reset and the exchange rate went bad for the European company. It made no difference since the cash had been generated and moved to the USA through a much better earlier exchange rate. The European company acquired a good company for the agreed value because of a prudent financial plan.

If you eventually have to pay for something, financing it and betting on the market may not end happily, especially if it's a deprecating asset in a discretionary income market.

Ted

Ted,


You hit the nail on the head. While it can work to have investments that have greater returns than the interest they're paying for a purchase, there ARE some real risks.


What could go wrong?


Well, lots could, just like you said.



I could make a strong argument to pay cash for toys, including cars and planes... ALWAYS. It gives you a safe position in case things go wrong, and they do. You mentioned 2008.



Now if you want to leverage investments but limit it to what you can write a check for, if it goes south. That works quite well, and gives some security. It's pretty hard to leverage in the market without some big risks.



Most of us certainly don't mind reasonable risk for a big benefit, especially if we know the market (or what we're into). Now, I'm not a market person and haven't made a dime there. I'm doing better in real estate and oil which works for me. The market is beyond my comfort level.



For retirement, I could argue having a comfort zone so you NEVER run out of retirement money.


Tiltrider,
More power to you with your investments. But your statement "Even when I got that pay off I chose to reinvest it as I could do no wrong in the market."
would really scare me. Again, I'd say, "what could go wrong?".

Hope your luck is better that thousands of others that I've seen loose their shirt in the market. It does change.

Food for thought....

 

[tiltrider1]

Tiltrider,
More power to you with your investments. But your statement "Even when I got that pay off I chose to reinvest it as I could do no wrong in the market."
would really scare me. Again, I'd say, "what could go wrong?".

Hope your luck is better that thousands of others that I've seen loose their shirt in the market. It does change.

Food for thought....

Remember, I never said do like I do. I am simply pointing out that there is no one right answer. I also never said one should take the risk of having their debt to equity ratio out of wack. Markets turn and have done so 4 times in my investing history, because of this I am a firm believer that one should be prepared for a 50% market drop. Now, I have no more luck than thousands of others. I am more educated and more diversely invested than those thousands.

It’s ok if one doesn’t feel comfortable with my risk tolerance. It’s not really fair to suggest my future is in doubt because of something I can guarantee you will happen, the market will go done and then surprise, it will go back up.

 

[backinblue]

Reminded of words in the Prince song "Money Don`t Matter 2 Nite":
"Just when u think u've got more than enough
That's when it all up and flies away".
(Grammar (or lack thereof) is Prince`s, not mine.

Money flies away when you're doing the drugs Prince did.

 

[Seevee]

Remember, I never said do like I do. I am simply pointing out that there is no one right answer. I also never said one should take the risk of having their debt to equity ratio out of wack. Markets turn and have done so 4 times in my investing history, because of this I am a firm believer that one should be prepared for a 50% market drop. Now, I have no more luck than thousands of others. I am more educated and more diversely invested than those thousands.

It’s ok if one doesn’t feel comfortable with my risk tolerance. It’s not really fair to suggest my future is in doubt because of something I can guarantee you will happen, the market will go done and then surprise, it will go back up.

Tiltrider,
Good point, and true, we don't have to do what others do. I guess I'm not a market guy, but I could understand playing it if one could afford to loose. And, overall, over time the returns aren't bad.
Best of luck.