Finance, Boats, Retirement how do you decide?

Hey all,

I know this has been discussed in specific ways (how much boat can you afford kind of threads), but I'm interested in a broader, more general discussion about how people approach understanding how boats (well trawlers?) fit into their financial plans.

I'm in my mid-40's and have been very fortunate. I started my career working for Crowley Maritime in Jax, Oakland, and Seattle. Left that to become an engineer, and somehow, as much by luck as by skill, anded up as a senior executive in engineering. What I suck at is finance.

Currently I live on Lake Champlain and just have a little Swift 30 trawler. Which is the perfect 5-6 month per year kind of boat for a family of 3 and a couple of dogs. Occasional longer trips out to the Atlantic, stuff like that.

But as my daughter gets older and ready to move out, my plan is to go liveaboard. We'll look to buy something bigger and more solid like a Kadey, maybe one of the bigger tugs, whatever. So some questions:

How do decide how much you can afford as a function of savings and income? or retirement? It's not like a house which likely appreciates. Do you just sorta look at a boat as a complete write-off in the sense of long-term finance? How do you budget living expenses? Fuel? Maintenance? and feel comfortable that you're within your income or retirement targets?

Do you have rules of thumb? I spend x percentage of my monthly on y? something else? Would love advice as my wife and I start getting ready to change things up a bit.

So I guess I'm sort of asking: How do you approach your overall finances with regards to owning or even living on a boat and make sure you're not going to far? or not far enough (and end up annoyed because you didn't buy a comfortable enough home)? Stuff like that. Any advice appreciated.

Also mods. If this should be in the finance forum, maybe move? Apologies if so.
Lastly. First post. Thank you all for this great resource. I've learned a lot reading this forum

Greetings,
Welcome aboard.

I look at my boat no different than my land based home in that it has zero value unless I sell it.

Because of that my boat is not part of my financial plan. It is simply a trapped asset my son will have to deal with some day.

My approach has always been, boats are a luxury item, not a necessity. All my boats were loan free purchases and not dependent upon income flow, except for maintenance, moorage and insurance. If income flow stopped, boat got sold, usually at a loss.
Also, once I make the boat mine, thereafter if I work on it more than use it, it goes up for sale.
On this cycle (pun) the boat is getting the greater attention with use and I keep looking at the parked Harley wondering if it is time to sell it, only rode it 1K last year. I don't like luxuries to sit unused, I am not a collector.

newt said:

Hey all,

I know this has been discussed in specific ways (how much boat can you afford kind of threads), but I'm interested in a broader, more general discussion about how people approach understanding how boats (well trawlers?) fit into their financial plans.

I'm in my mid-40's and have been very fortunate. I started my career working for Crowley Maritime in Jax, Oakland, and Seattle. Left that to become an engineer, and somehow, as much by luck as by skill, anded up as a senior executive in engineering. What I suck at is finance.

Currently I live on Lake Champlain and just have a little Swift 30 trawler. Which is the perfect 5-6 month per year kind of boat for a family of 3 and a couple of dogs. Occasional longer trips out to the Atlantic, stuff like that.

But as my daughter gets older and ready to move out, my plan is to go liveaboard. We'll look to buy something bigger and more solid like a Kadey, maybe one of the bigger tugs, whatever. So some questions:

How do decide how much you can afford as a function of savings and income? or retirement? It's not like a house which likely appreciates. Do you just sorta look at a boat as a complete write-off in the sense of long-term finance? How do you budget living expenses? Fuel? Maintenance? and feel comfortable that you're within your income or retirement targets?

Do you have rules of thumb? I spend x percentage of my monthly on y? something else? Would love advice as my wife and I start getting ready to change things up a bit.

So I guess I'm sort of asking: How do you approach your overall finances with regards to owning or even living on a boat and make sure you're not going to far? or not far enough (and end up annoyed because you didn't buy a comfortable enough home)? Stuff like that. Any advice appreciated.

Also mods. If this should be in the finance forum, maybe move? Apologies if so.
Lastly. First post. Thank you all for this great resource. I've learned a lot reading this forum

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Good questions posted here....

"feel comfortable that you're within your income or retirement targets?"
"How do you approach your overall finances with regards to owning or even living on a boat and make sure you're not going to far? or not far enough (and end up annoyed because you didn't buy a comfortable enough home)?"

Best method to view solutions for these questions:
1. Calculate your comfortable retirement needs
2. Ensure you have the comfortable plan covered well
3. Whatever is left in addition to the retirement plan can be spent on anything else.

If you should have questions about the best way to figure out a retirement plan there are various other sites that could/would help greatly.

Unless you have a lot of steady retirement income, say from patents, rentals or royalties you really don't want a big boat payment. None at all is best for retirement.

I may be wrong, and if I am I'm sure the other, more experienced members will tell me in short order but here goes. I think the type of boat you are looking for will cost you about the same to purchase as a decent home in your area. I would further go out on a limb and say that it will cost you about the same to live on as that similar house.

The ten percent rule carries a certain amount of credibility here. (10% of the cost of the boat is about what it costs to maintain and use, annually)

good luck, welcome aboard

pete

Welcome aboard. As to what to spend on a boat, what works for me may not work for you. So I tend not to give advice on that since everyone’s situation is different. Good luck and enjoy the search.

Pete Meisinger said:

I may be wrong, and if I am I'm sure the other, more experienced members will tell me in short order but here goes. I think the type of boat you are looking for will cost you about the same to purchase as a decent home in your area. I would further go out on a limb and say that it will cost you about the same to live on as that similar house.

The ten percent rule carries a certain amount of credibility here. (10% of the cost of the boat is about what it costs to maintain and use, annually)

good luck, welcome aboard

pete

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I'd agree with the 10% for years 3 onwards. I've found that the initial costs to cater to our personal preferences much higher than a house for my newly purchased boat.

She doesn't like the fridge? He's OCD about the rat's nest wiring? These cost much more than a house.

I'm a big believer in Cash Flow and keeping a cushion.
If you have a quality cash flow that will easily include a boat payment then it is OK. Many people in retirement keep their boat only for a few years due to a variety of reasons.


I reluctantly sold my big boat after making two 6 month trips thru B.C. to SE Alaska and was wife's turn for something else. The people I sold it to were excited to move aboard full time and a year later something changed and boat was for sale again.
The point being--I made monthly payments for 2 years and didn't have to commit a large sum of money at one time and the difference between boat costs for 2 years and my sale price was the cost of a total 12 month adventure.

Wow. Great advice all around. Thank you all.

Every time I talk to my CPAs about paying off the boat loan, they get real excited and I hear a collective concert of NO NO NO.
It is the only the only interest write-off I have.
I realize it would be a one year tax event but the CPAs all say NO NO NO.

OldDan1943 said:

Every time I talk to my CPAs about paying off the boat loan, they get real excited and I hear a collective concert of NO NO NO.
It is the only the only interest write-off I have.
I realize it would be a one year tax event but the CPAs all say NO NO NO.

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How is a boat loan interest considered a write-off?

We bought our boat and paid the loan off in just a few years and also have paid off the house. Could I afford better/bigger yup but don't want to have debt as I move towards retirement

w8n4sun said:

How is a boat loan interest considered a write-off?

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My and no doubt your boat satisfies the IRS's definition of a 2nd home. Hey, the IRS writes the rules. I just follow the rules.

Years ago, I learned most boat owner's keep their boats less than 5(?) years and then buy a bigger boat or get out of boating so why spend your assets if you are going to change something in a short period of time.

OldDan1943 said:

My and no doubt your boat satisfies the IRS's definition of a 2nd home. Hey, the IRS writes the rules. I just follow the rules.

Years ago, I learned most boat owner's keep their boats less than 5(?) years and then buy a bigger boat or get out of boating so why spend your assets if you are going to change something in a short period of time.

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Do you still itemize your deductions (schedule A)?

My wife and I always itemized our deductions, but when they changed the tax code a few years ago, we found it more beneficial to start taking the standard deduction.

Jim

Is your mortgage and retirement plan funded? If so, then work out how much boat loan you think you can afford.

Unless you plan on doing passages, I wouldn't focus on a passage making boat (e.g. Kady Krogen, Nordhavn, etc)

JLD said:

Do you still itemize your deductions (schedule A)?

My wife and I always itemized our deductions, but when they changed the tax code a few years ago, we found it more beneficial to start taking the standard deduction.

Jim

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To take advantage of some of the other rules, I still itemize as per the recommendation of my CPAs.

OldDan1943 said:

Every time I talk to my CPAs about paying off the boat loan, they get real excited and I hear a collective concert of NO NO NO.
It is the only the only interest write-off I have.
I realize it would be a one year tax event but the CPAs all say NO NO NO.

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Man, that makes no sense to me, but I'm no CPA.

Say you pay $5,000 in interest in a year, and that's a write off. So it would save you $1850 in taxes if you are in the highest tax bracket.

So, you are paying $5000 to save $1850?

Am I missing something?

There's a guy on CruisersForum who publishes his cruising costs every month for past 4-years. He's on a 40-foot sailboat, spends time in Bahamas, mostly in Florida, and lives a pretty normal retirement lifestyle of eating out several times per month, traveling to see family, etc. His costs vary between $2500/mo and $5000/mo based on maintenance items and upgrade items, but averages around $4200/mo. Boat is paid for. Probably not a bad single number to work from.

You're young and you have kids for college. Depending on big of a windfall you hit, you still need substantial capital appreciation. Unlike a house, boat will not appreciate. A friend of mine bought his house in 2005 for $400k and is about to put it on the market for $1m. Now, he's done a ton of work so much of that is sweat equity, but I've done that amount of work on my boat over a similar period of time and the value hasn't really budged. I'm not saying houses are good investments, but I am saying that sometimes they are a great savings' account. Not so with a boat.

Unless you've really hit the lotto, it's a really hard decision. You will exit a lucrative career just as you enter your prime income earning years. And there's always the unknown of health insurance.

In the end, you will forego a lot of money. If/when you return to a house, you will likely have a much more modest lifestyle than if you had kept working. It really depends on your state of mind whether that's okay.

The flip side is there's no prize for being the richest stiff in the graveyard. Good luck.

Peter

H2O_Doc said:

Man, that makes no sense to me, but I'm no CPA.

Say you pay $5,000 in interest in a year, and that's a write off. So it would save you $1850 in taxes if you are in the highest tax bracket.

So, you are paying $5000 to save $1850?

Am I missing something?

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Maybe?

Being able to deduct the interest on the mortgage (boat loan) is only part of the equation. The other is what is the return that one would get on the money they have not invested into their boat?

If one paying 4% interest on their boat loan, but can make 5% interest investing their money elsewhere, financially it makes sense to finance the boat. Any tax savings would then be icing on the cake!

Jim

1. The previous response about not counting the boat (or the house for that matter) as a monetary or liquid asset for retirement purposes -- yep, what he said. Until we actually sell them, they're simply numbers on our balance sheet, and for that plus $3 I can get a (basic) cup of coffee at Starbucks.

2. The previous response about no longer itemizing after the most recent tax code re-write -- which means we no longer write off boat interest as a second home deduction - yep, me too.

3. And finally, for the poster who said his accountants tell him not to pay off the boat because he'd lose the interest deduction -- yikes man, how much is your interest each year? Our boat was less than six figures but you could multiply our annual interest five or seven times over and it still wouldn't meet the current threshold to beat the standard deduction. It's hard for me to contemplate a scenario where you'd want to keep paying interest on a boat loan just to have a write-off. Subtract the interest cost from the value of the write of (not even including the opportunity cost of not investing it elsewhere) and I'll bet you're "saving" $2.83.

JLD said:

...If one paying 4% interest on their boat loan, but can make 5% interest investing their money elsewhere, financially it makes sense to finance the boat. Any tax savings would then be icing on the cake!

Jim

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Yeah, I know that's always offered as the theoretical scenario to justify continuing to pay loan interest, but when you run the actual numbers, especially in these times of ridiculously low interest rates, and you include the transaction and management fees depending on the investment, and the future cost of taxation on the interest income -- I think it's pretty rare that staying in bondage - ugh, I mean debt-- to make money elsewhere doesn't wash.

JLD said:

Maybe?

Being able to deduct the interest on the mortgage (boat loan) is only part of the equation. The other is what is the return that one would get on the money they have not invested into their boat?

If one paying 4% interest on their boat loan, but can make 5% interest investing their money elsewhere, financially it makes sense to finance the boat. Any tax savings would then be icing on the cake!

Jim

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Got it. Opportunity cost, right? I guess I can see that, but I'm personally a bigger fan of not having debt and interest going down the drain.

I guess it's the Dave Ramsey school of thought: would you take an equity line of credit against your home at 4% interest and take that cash an invest it?

kthoennes said:

Yeah, I know that's always offered as the theoretical scenario to justify continuing to pay loan interest, but when you run the actual numbers, especially in these times of ridiculously low interest rates, and you include the transaction and management fees depending on the investment, and the future cost of taxation on the interest income -- I think it's pretty rare that staying in bondage - ugh, I mean debt-- to make money elsewhere doesn't wash.

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Interesting thoughts but there are others as well -
"when you run the actual numbers, especially in these times of ridiculously low interest rates"
It has worked in the past very well, no gurantee of the future of course

"include the transaction and management fees depending on the investment"
Have not paid significant costs for transactgion or management fees since I can remember - do you?

"and the future cost of taxation on the interest income"
Whenever we cannot eliminate taxes we will gladly pay on gains and hope that the taxes are large since then the gains would have been large also.

H2O_Doc said:

Got it. Opportunity cost, right? I guess I can see that, but I'm personally a bigger fan of not having debt and interest going down the drain.

I guess it's the Dave Ramsey school of thought: would you take an equity line of credit against your home at 4% interest and take that cash an invest it?

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"I guess it's the Dave Ramsey school of thought: would you take an equity line of credit against your home at 4% interest and take that cash an invest it?"
Depends on the math - in some cases yes.
Dave is a good source for getting out of debt but rather limited when it comes to other issues.

kthoennes said:

Yeah, I know that's always offered as the theoretical scenario to justify continuing to pay loan interest, but when you run the actual numbers, especially in these times of ridiculously low interest rates, and you include the transaction and management fees depending on the investment, and the future cost of taxation on the interest income -- I think it's pretty rare that staying in bondage - ugh, I mean debt-- to make money elsewhere doesn't wash.

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I think what is important is where the money is.

"the ridiculously low interest rates" make it a great time to borrow money. They also make it a lousy time to have money in a bank account earning little to no interest.

Some folks don't like debt, period. On the other hand, for a lot of folks, taking out a long term loan at 2 - 4% interest makes a lot of financial sense. The most important thing is that folks do what is comfortable for them.

Jim

w8n4sun said:

How is a boat loan interest considered a write-off?

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Second home.

Hey Newt -

Looks like you are a neighbor! I'm over on a lake in NH.

Over the last couple of years I've been thinking about a lot of the same questions you are asking. And funny, I'm a finance guy but worry that my boat chops aren't up to snuff.

I've been thinking about boats like the KK52 or 58. Maybe a Fleming. The new Nordhavn 52 looks intriguing. I would not get new but maybe 10ish years old.

When it comes to the cost of the boat itself, I plan to purchase used and "write-off" 30% of the purchase price from my net worth. Maybe years from now I will sell it and break even but 30% seems to be a reasonable downside when I plan. Who knows, I might keep the boat forever but my wife will only commit to 3 or 4 years and when we sell it we will need money to buy a retirement house somewhere.

I've got a colleague with a 5ish year old Fleming 65. He stores in on the hard 5 months a year. Has a boat yard do most all the work. Keeps the boat in impeccable condition. Spends a decent amount of money on dockage. All in his boat specific expenses run him about $120k a year.

Yes, thats shocking high but given the boat, the seasonal storage costs and the fact that he doesn't do anything to it himself I thought it was pretty reasonable.

I figured worst case my annual boat related expenses on a used kk52 might be about $60k. Right now my property taxes, landscaping repairs etc on my house run me about $30k so $60k didn't seem all that horrible.

My current plan (which has been delayed by COVID ) is to try and charter various boats 4 to 6 weeks a year. Try as many locations and as many different styes of boats as possible. I'm really intrigued by Kleewyck's newest boat a powercat named Domino. It sounds pretty remarkable.

Anyway, its going to be expensive to do it this way but I suspect it will be a lot cheaper than buying the wrong boat!

Hope that helps a little. I've been struggling to decide if we could afford the boat the would keep my wife happy enough to let me live this dream. The more I've looked into it the more I think its viable!!

Granite,

That was a great response. Thank you. Your “write off” thing is kind of part of what I was thinking about.

I’m not looking quite that big. Thinking a Selene/KK/Nordy in the low to mid 40 foot range. I need to be able to easily single it. But I think your math makes a lot of sense.

If you get up near Burlington drop me a line. Grab a beer.

Newt

H2O_Doc said:

Say you pay $5,000 in interest in a year, and that's a write off. So it would save you $1850 in taxes if you are in the highest tax bracket.

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Move to California -- you will be over 50%.