What's the biggest obstacle to an early or comfortable retirement? Your car, which sucks up money that could multiply many times over in a good retirement account.
Unless, of course, you are already limiting your driving costs to the bare minimum.
"Kicking the habit of purchasing expensive cars early in life can not only save extra money per month, but may also allow someone to retire earlier," says Ryan Kwiatkowski, director of marketing at Retirement Solutions in Naperville, Illinois.
For many Americans, that goes against the grain: "I work hard and I deserve a nice car." "I need a nice car for work." "An expensive car will have more turn-in value." "An expensive car will last longer."
"People want to be seen in new cars in their neighborhood," says Jay Srivatsa, CEO of Future Wealth in Los Gatos, California. "It is a sign of success. ... it gives an immediate boost to one's standing, (while) saving for retirement is largely invisible to others."
The challenge, he says, is to kick the need to be seen in a late-model car and "and start to feel comfortable with your 10-year-old Accord."
If you don't need an expensive late-model car for a reason that pays -- to take customers shopping for luxury homes, perhaps -- owning one pricy model after another can be a retirement killer. Replacing each car for style, fear of maintenance costs, or just to keep up with the Joneses is a major no-no, according to experts in retirement planning and car ownership.
"The first problem with car ownership is that it is a depreciating asset, while retirement money, if invested properly, is an appreciating asset," says Srivatsa.
Imagine you could invest $300 more per month by reducing various car costs. How would that affect you over a 40-year driving career to retirement at 60?
That savings could produce a nest egg large enough to provide about $23,000 in annual income, equal to $10,700 today, assuming a 7 percent average return, 2 percent inflation and a 2 percent annual savings increase to keep up with rising costs. And it assumes that retirement income would continue until you were 100.
In 2015, the average American car owner with a loan had a monthly payment of $483, according to Experian, the credit-reporting firm. Obviously, a family could save $300 a month by owning one car instead of two, but the savvy owner could also spend less by owning two cheaper vehicles with high gas mileage and lower insurance costs.
Today, the average buyer of a new car keeps the vehicle for nearly six years, the used-car buyer for just over four years, according to Kelley Blue Book, the car-data firm. But the averages mask a lot of variation, with some people trading every couple of years and others preferring to buy used and keep the car until it dies.
Experts say that among the three car-driving options -- buying new, leasing new or buying used -- the cheapest is buying a used vehicle.
"The longer you own your car, the more you'll save by buying versus leasing," says David Walters, a planner with Palisades Hudson Financial Group's Portland, Oregon.
Leases are set up like loans, with an interest rate built in, he says, and the lease rate is usually higher than on a loan to buy.
A serial leaser never gets free of monthly payments.
Also, the lease charge includes an assumption about how much value the vehicle will lose over the lease period, and new cars lose the most in the first few years. So having one lease after another means suffering heavy new-car depreciation over and over.
Some experts do feel leasing is best for certain people, like elderly drivers on fixed incomes who want the lower monthly payments leasing offers, won't drive more than the allotted amount, want to avoid repair costs and want all maintenance covered.
But if buying is better than leasing for you, should you buy new or used? Studies by Edmunds.com, the car-information firm, show that a new typical mid-sized sedan sells for about $27,000 and loses $7,419 in value in its first year -- more than it does in the next three years combined. That means the best strategy is to buy a car in the sweet spot -- after the initial plunge in value.
"What this means for the frugal shopper is that buying a car in its second year, and owning it for three years, saves a boatload of money," Edmunds said in a January report.
Most one -or two-year-old cars are still on warranty and, even if not, are unlikely to have heavy repair costs, and the car will still have lots of turn-in value if sold when it's four years old, Edmunds says.
Value plunges again in the fifth and sixth years, when maintenance costs tend to jump because the car is no longer on warranty, the paint is fading and the manufacturer calls for extensive 60,000-mile servicing. This second steep depreciation varies with the model. Luxury cars drop a lot, pickups not so much. Value plummets as the 100,000-mile mark approaches, because many buyers view that as over the hill.
"This scenario of buying a one- or two-year-old car is perfect for shopping the certified pre-owned car market," Edmunds says. "Most manufacturers' CPO programs provide excellent used cars and extend the factory warranty. You can buy the car at a deep discount from the new-car price and save money on depreciation, and you don't have to pay extra for a warranty."
It may be even cheaper in the long run to keep the car for the duration, until repair costs are overwhelming.
"Once you own the vehicle (free of payments) is when you enjoy the biggest savings," says Ron Montoya, senior consumer advice editor at Edmunds.
Scott Smith, a planner with Olympia Ridge in Rochester Hills, Michigan, recommends three-year-old cars. "At that age a car will have depreciated a great deal but is still new enough that if you are a good shopper you can find a quality vehicle," he says. Then he recommends keeping the vehicle for five to seven years, because today's cars are pretty dependable for 10 years or longer.
Deciding how much money to put into repairs can be tricky, he acknowledges, but boils down to how long the old car can be expected to last. "If the (newer) car will last longer than the repaired old one, and the money is a break even, you go with the newer car," he says. This is where it can pay to have a mechanic you trust.
"Even if you are making repairs on it, its probably cheaper to do that rather than buy a new car," Montoya says. "Let's say your repair is $3,000. You can't get a new car for $3,000."
The car is a goner, though, when it's not safe or you can't shake worry about being stranded, he says.
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