It’s that time of year again when boaters swarm their favorite bays, lakes, rivers and oceans. Many a would-be skipper may be considering whether a boat fits into their retirement plan. “It’s a lifestyle; they don’t golf, they don’t have a cottage, they’re out on the water every weekend,” says Patrick Simasko, an elder law attorney in Mount Clemens, Mich.
That said, buying a boat is a major commitment with a fair share of headaches. Someone who doesn’t put in the research might not realize what they’re getting into.
Whether you are considering your first boat purchase or have been on the water your entire life, here’s what to know about buying a boat.
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1. When buying a boat, set your budget first
Before falling in love with a vessel, review your savings, monthly cash flow and other expenses to determine what you can afford.
If you finance, lenders generally limit boat loan payments to 15% of your gross monthly income. Someone with $20,000 of monthly retirement income could spend up to $3,000 per month on the boat.
Loans for smaller, older boats might only allow repayment terms of less than a decade. Bigger boats worth over six figures can be financed over 20 years with terms more like a mortgage than a vehicle loan. A boat loan calculator can show how much you might owe for financing based on the amount, loan term and interest rate.
2. Beware of using taxable retirement funds
Paying for a boat out of qualified funds from your traditional individual retirement account (IRA) or 401(k) is costly. The whole amount will be taxable immediately, possibly pushing you into a higher tax bracket for all your retirement income.
The large withdrawal could also create extra taxes on your Social Security income and surcharges on Medicare premiums. “The payment better not come from qualified funds, or taxes will chew them up,” says Damon Winter, a financial planner in Lake Oswego, Ore. Instead, cover the lump sum purchase through your after-tax savings or use long-term financing.
3. Spend time to find the right fit
A boat purchase is not something to rush, especially if you're new to the hobby, cautions Winter. “Spend six months to a year researching by going out with other boat owners or renting a boat.” Companies like Boatsetter and Getmyboat operate like Airbnb but for boats, letting you easily access short-term rentals.
You could then go to boat shows or dealers to see what’s available. Buying used is also possible. Search through listings on websites like Boats.com or Boat Trader. Another option is to meet people through your local marina who might be selling, as the relationship can help you get a fairer deal, says Winter.
If you buy used, invest in an inspection from a professional surveyor before committing. “I had an associate who flew to San Diego to see a boat that looked great in the ads. The inspection discovered it needed another $20,000 in repairs,” says Winter.
4. The extra expenses add up
Paying for your boat is just part of the cost. You must also pay for annual maintenance, which runs about 10% of your purchase. It costs roughly $10,000 a year to maintain a $100,000 boat. Salt water causes damage more quickly than fresh water, so expect to spend more if you’re out on the ocean.
On top of maintenance, you’ll also owe for dockage, gas, cleaning and insurance, plus all the fun supplies like food, drinks, fishing gear and water sports equipment. “As the saying goes, a boat is really a big hole in the water that you dump money into,” warns Simasko.
5. Don’t expect to make money on your purchase
Boats are depreciating assets, the same as cars. Most lose value quickly, especially in the early years. The typical brand-new boat loses about 10 to 15% of its value in the first year alone. If you take out a boat loan and sell before paying it off, the proceeds might not be enough to cover the entire balance, so you’ll still be partially in debt.
Some boats are harder to sell than others, which is something else to check as part of your research. “ Sailboats are often problematic to sell. You see a lot of them stuck in storage yards,” says Simasko.
6. Boat insurance protects you
A boat insurance policy covers damage to your boat from an accident and other causes like fires, theft and lightning. While homeowner’s insurance may provide a small amount of protection for your boat, the amount is usually minimal. For instance, it may only cover up to $1,500 of damage due to theft, fire and lightning, but nothing for a boating accident.
You can also set up liability protection if you crash into someone else. Only Arkansas and Utah require boat liability insurance, though it’s smart protection to add even if it’s not required. Otherwise, you could be held financially responsible for any damages or injuries that you cause in a boating accident, putting your savings at risk.
Since many boaters are not legally required to have insurance, you could add uninsured motorist protection to your policy in case someone without coverage hits you.
7. Go above and beyond to stay safe
Most states require you to take a boat safety training class before you can head out on the water. Even if you live in one that does not, this training is valuable and can lead to insurance discounts.
If you’re new to boating or buying a bigger boat that’s harder to drive, it could be worth taking lessons with a captain. “The more training, the better,” says Drew Zadrozny, managing director for boat insurance at Travelers.
From there, be sure to play it safe on the water: Drive cautiously, limit alcohol consumption and don’t let just anyone take the helm. You should also carefully research where you’re going, as some areas are much riskier than others due to currents, tides, rocks and commercial shipping lanes.
8. Prepare for the off-season
In much of the country, boating season only lasts a few months a year. During the off-season, where will you store your boat?
The main options are outdoor in marina slips, an outdoor self-storage parking unit or your driveway versus indoor storage in a dry-storage boat facility or indoor self-storage or your garage. Indoor options are usually more expensive but better protect your boat, while outdoor options are easier and cheaper.
When your boat isn’t on the water, you should still keep your boat insurance in force to cover damage outside of accidents, like fire or vandalism. If you took out financing, your lender will likely require year-round coverage. However, you may qualify for an offseason premium discount. “Carriers could offer a layoff period with credits for when you aren’t using your boat,” says Zadrozny.
You’ll need to provide your insurer with the dates when you aren’t using the boat. Make sure not to go out on an unseasonably nice day during this stretch, as you won’t be covered for an accident.
9. For some, a boat becomes a home
The boating season never has to end. Some retirees choose to sell their homes and live full-time on the water, essentially the water version of an RV.
There are challenges to figure out, such as a much smaller living space, higher costs for food and utilities, year-round marina fees and more boat maintenance. You also have logistical issues, such as figuring out how to collect mail when you’re always on the move. Still, a boat large enough to live on allows passionate sailors to travel the world and stay on the water fulltime in warmer climates like the Caribbean.
10. Develop your future exit plan
You might love boating more than anything, even on bad days when the weather is miserable or the boat breaks down. But does the rest of your family feel the same way?
If you’re the main boat enthusiast, develop an exit plan. Consider selling when you can still handle everything, or identify a friend or family member who will take over the boat when you can’t. “Typically, it’s the husband who’s the boater and he’s doing all the work. If he gets sick or dies, then the wife ends up stuck with it. Your loved ones will appreciate planning ahead,” says Simasko, the elder law attorney from Michigan.
Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.
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