When is it OK to loosen up a little?

[sandrark]

Hmm. I'm struggling a little. So perspective would be useful.

Situation:

- DH and I married 15+ years, no kids.
- Contributing 18% + to retirement accounts - maxing out 403(b) and SEP-IRA each year. Substantial amounts accumulated here over the years of disciplined investing.
- House refi'd into 20 year mortgage a year ago, decent interest rate.
- Cash in the bank.
- No car loans.
- My employer is a state agency, with a pension, and if I retire as estimated at 58, income from the pension alone (35 years of service) will be ~ $100K per year.
- We do charitable giving as well, and contribute to the nieces' and nephew's 529's.

We have always paid cash for everything (except the house).

We decided this year that we want to buy a used boat. We've boated for 15 years, owned our own jet skis for 10, and use them regularly. We bought a home on the water because of this hobby. Many of our friends have kids, and it's not possible to put the kids and the parents on the jet skis easily or safely for a day on the water, so a small boat is in our plans for this summer...

So now we're faced with a question - do we liquidate $20k or so out of cash savings, or get a low interest loan? (Our credit scores are extremely high, we discovered when we refi'd, so the borrowed money would be "cheap").

I am uncomfortable with reducing our emergency fund and cash on hand. And I am equally uncomfortable reducing our rate of retirement savings to accommodate an aggressive re-payment to our cash accounts, since that is one of only three tax breaks we get (interest deductions and charitable deductions being the other two).

If we were to get a loan, it would be mostly paid for out of a COLA that was just announced, and effective March 1. Difference between the COLA and the loan payment would be ~ $100 per month, for three years, which we can easily absorb.

Note that DH requires a boat with electronic fuel injection, since many CA lakes no longer allow carbureted engines. And as a small business owner, he's requested "not another project." So I got him to agree to a used boat, over the new he'd prefer, because he agrees that the depreciation is brutal. Note also that he's very knowledgeable about mechanical and engine-type things, so he can assess condition better than most. Finally, we will hire a professional boat mechanic to go over any prospects.

What would you do and why?

[disneysteve]

I am uncomfortable with reducing our emergency fund and cash on hand.

What would you do and why?

I certainly wouldn't spend the emergency fund on a boat. That's not an emergency.

I assume "cash on hand" is other savings beyond the EF that isn't earmarked for anything particular. I would apply that money toward the boat. Isn't that why you are saving money? So that you can spend it on something meaningful to you.

The other option, and obviously I don't know the situation, but I think your own life comes before that of others. Did you make any promise to family regarding paying for college fore nieces and nephews or are you just doing that on your own? If you have a committment to keep, that's fine. If not, I'd stop or at least cut back on that and free up money toward the boat. Once the boat is paid for, you can choose to go back to funding the 529s if you wish.

[greenskeeper]

My employer is a state agency, with a pension, and if I retire as estimated at 58, income from the pension alone (35 years of service) will be ~ $100K per year.

no offense to you, but this is another reason the government is in such piss poor financial shape.

[MonkeyMama]

Personally, I'd save up for the boat for 3 years and pay for it in cash. To speed up the time frame, I'd consider stopping 529 contributions and selling other toys. Pick up other income if it is *that* important.

Reducing retirement contributions is tricky, as may give you a great current tax benefit. So might not be very useful to reduce retirement contributions anyway. Though this might make sense if you are comfortable with retirement savings, which you seem to be. Especially for a very one-time thing.

If there is anything we need or want, we need to come up with the cash for it. Period. It keeps us (usually) from making stupid purchases. I don't think there's anything wrong with buying a boat, and going used sounds very smart. BUT, to me it sounds impulsive as you have about a 3-month time frame to execute? Listen to your gut - it's telling you to slow down and be careful with this. There is a reason you are having reservations. Even waiting just one more year might give you more peace and confidence about this purchase.

[sandrark]

Personally, I'd save up for the boat for 3 years and pay for it in cash. To speed up the time frame, I'd consider stopping 529 contributions and selling other toys. Pick up other income if it is *that* important.

The kids are 10, 7 and 6, and the parents have had several financial hits, which means that they're behind. My contributions gives them great financial peace, so I don't want to stop it.

Reducing retirement contributions is tricky, as may give you a great current tax benefit. So might not be very useful to reduce retirement contributions anyway. Though this might make sense if you are comfortable with retirement savings, which you seem to be. Especially for a very one-time thing.

The tax break is a big deal, since we're in the 28% bracket.

If there is anything we need or want, we need to come up with the cash for it. Period. It keeps us (usually) from making stupid purchases. I don't think there's anything wrong with buying a boat, and going used sounds very smart. BUT, to me it sounds impulsive as you have about a 3-month time frame to execute? Listen to your gut - it's telling you to slow down and be careful with this. There is a reason you are having reservations. Even waiting just one more year might give you more peace and confidence about this purchase.

We've waited 2 years, and don't want to wait another 2-3 - our friends and family have kids now. In the past 2 years since we moved in, nstead of buying a boat, we have dealt with bringing the house up to less dated systems - furnace repair, replaced the 25 year old fridge and dishwasher, deck and stair repair, painting, tree trimming, water heater replacement...we're now at a point where the systems are in good shape.

I'm tired of being prudent.

[sandrark]

no offense to you, but this is another reason the government is in such piss poor financial shape.

Dude, I've been paid under market for 24 years. I kept the job because I had decent health care coverage (I have chronic, low-grade health issues). Even with this the first COLA that I have personally received (after years of furloughs, no merit funds, higher costs on health care premiums and retirement contributions) since 1999, I'm STILL 12% under market, at least.

So sorry, I'm taking just a little umbrage.

Believe me, it's not a ridiculous calculation - I can never get 100% of my salary in retirement, at 58 I will have 35 years of working in a public school system, and the multipliers have been adjusted downwards 2x in the past 10 years.

Yes, it's a choice I made. But it's a choice I made, after being TOLD what the pension formulas were, as a tradeoff for taking less in current income.

For those of us who have served honorably, it feels like bait and switch. Which is why my personal savings rate is so high.

[sandrark]

I certainly wouldn't spend the emergency fund on a boat. That's not an emergency.

Agreed.

I assume "cash on hand" is other savings beyond the EF that isn't earmarked for anything particular. I would apply that money toward the boat. Isn't that why you are saving money? So that you can spend it on something meaningful to you.

Yeah, but with DH self-employed, he has a chunk of change set aside (that he rarely uses) as a buffer. The anxiety of taking the cash on hand/buffer is high for me, not so much for him. He's willing to write a check tomorrow.

The other option, and obviously I don't know the situation, but I think your own life comes before that of others. Did you make any promise to family regarding paying for college fore nieces and nephews or are you just doing that on your own? If you have a committment to keep, that's fine. If not, I'd stop or at least cut back on that and free up money toward the boat. Once the boat is paid for, you can choose to go back to funding the 529s if you wish.

On my own. But the kids know about it, and it's a HUGE relief for my sibling, who lost a job, moved cross country, had to short sell a house...and so the college savings is behind. We're only doing $2K per year per kid in a Coverdell account, and I don't want to stop it.

What can I say - I'm a committed saver, and "cheap" debt to me is less worse than helping my family, or maxing retirement.

It feels a little surreal - most of our friends think it's not even possible to max out retirement accounts like Roths, let alone SEP-IRAs, Roths AND a 403(b)....

[~bs]

Dude, I've been paid under market for 24 years. I kept the job because I had decent health care coverage (I have chronic, low-grade health issues). Even with this the first COLA that I have personally received (after years of furloughs, no merit funds, higher costs on health care premiums a. retirement contributions) since 1999, I'm STILL 12% under market, at least.

So sorry, I'm taking just a little umbrage.

Believe me, it's not a ridiculous calculation - I can never get 100% of my salary in retirement, at 58 I will have 35 years of working in a public school system, and the multipliers have been adjusted downwards 2x in the past 10 years.

Yes, it's a choice I made. But it's a choice I made, after being TOLD what the pension formulas were, as a tradeoff for taking less in current income.

For those of us who have served honorably, it feels like bait and switch. Which is why my personal savings rate is so high.

Yeah im with you on this one. People see the numbers and instantly get jealous/ accusatory but they dont realize that youre paid under market wage in return for the pension. All pensions are different, but mine requires an 8% employee contribution, and you do not have an option to opt out even if you wanted to. They get upset when they hear how the funds are underfumded by the city or state. However, that is not the fault of the pensioner who worked and contributed for 30 years. Its the fault of the state that mismanaged, under contributed, and used the money suposed to go to the fund towards othwr purposes. Things like social security and pension plans CAN be viable and self sustaining. Its bad policies and theft from the funds that turn them into black holes.

[~bs]

I'd personally save for it to buy in cash. Even with low interest rates, I never really cared for borrowing when I didn't have to. And boats aren't exactly good investments either, entirely a luxury item, and should be treated as such. At least other luxuries like cars have some utility to them.

[riverwed070707]

How much cash do you have on hand? How much after subtracting 6 months worth of expenses? What percentage would the $20k boat use up? Given your overall financial picture, if you can keep 6 months of expenses in resrves and still buy the boat outright, that's what I'd do. Alternatively, if it makes you really uneasy, put 50% down and finance $10k -- small loan and you could knocik it out quickly if you needed/wanted to.

[sandrark]

How much cash do you have on hand? How much after subtracting 6 months worth of expenses? What percentage would the $20k boat use up? Given your overall financial picture, if you can keep 6 months of expenses in resrves and still buy the boat outright, that's what I'd do. Alternatively, if it makes you really uneasy, put 50% down and finance $10k -- small loan and you could knocik it out quickly if you needed/wanted to.

Thanks for this, River. I do tend to slide towards All or Nothing thinking in these areas.

We could pay cash for the boat and still have 6 months + in savings. I'm just used to 6 months + 4 months as cushion, so 10 months at a minimum.

I like the idea of the 50% down and 50% financed, with a quick payback. That's a great way to think about it.

[PetMom]

Fully agree your type of retirement plan appears great but it is true: it is taken out of your paycheck and it is a good bit of money - no way to get out of it.

You don't get much if any cola raises. A merit raise but the general costs are going up in all areas: food, gas, water, taxes, insurance (which you also have to have) goes up so much that some have a slight lowering of their monthly take home (those with kids have a higher premium).

Understand your retirement that appears so cushy but what you go through to get it is not - and you have to stick out the amount of years at the same place - going around in other careers is not an option.

The boat situation. We used to have boat and loved it - that same boat new now would cost $17,000 much higher than when we got it over a decade ago and then sold it for $3,000.00.

Now we miss it and discuss getting back into the hobby of boating.

Then I go over the cost of it. Just not something I want to do. So now we are talking a little paddle boat with oars (no gas costs, lower insurance, no boat storage unit, etc...).