Who remembers the ad from 1994 about the average family having 2.3 children? It may be stretching the memory a little, but we clearly remember the little boy in the ad who certainly wasn’t a fan of being ‘the .3’. In the ad, he complains of never fitting in the backseat of their family car. Enter the Ford Laser – the car which all families must buy in order to fit all three kids! For a blast from the past, check it out here: https://youtu.be/jNNIJBiSyA
This example of the ‘.3 kid’ average is not exactly practical – and it’s like us saying you need 1.1 cars in retirement. But sometimes, our needs are not black and white. So let us explain. A few years ago, Dallas’s friend from the UK, Andrew, moved over to Australia for a few months. He lived with Dallas, and they worked together at the same office. For these few months, having one car was enough for them both – it was rare that they both needed it at the same time. But it did happen occasionally – hence the need for 1.1 cars.
We find that the same can be said for couples in retirement. If you only have one car, it can feel like a real inconvenience when you need it but it isn’t there. But when you have two cars, often one of them spends 90% of its time sitting in the garage or the driveway.
If you’re starting to think that having two cars is too much, but one is not enough, here’s what we propose. In your first year of retirement, sell one car and put the cash into a separate account. Link the account to Uber – or any taxi service. Then go about life as usual in that first year – but use the Uber account guilt free on that rare ‘.1’ occasion. If you’re spending $50 each week and it’s going to cost you $2,600 over a year, then perhaps you do need a second car. But if not, the running costs of owning that additional car may not be worth it.
We’ve talked about the maintenance costs of owning property – but what about cars? On average, this is what a car will cost you over a year.
Naturally, these are very rough figures and will vary based on many different factors. On top of this, there’s the big one: depreciation. If you buy a new car for $50,000, then sell it 5 years later for $25,000, that’s a $5,000-a-year rate of depreciation. Again, this will vary. But together with the above costs, you could be looking at around $8,000 a year. Of course, if you have an older car, the depreciation won’t be quite so much – so make sure to compare your new Uber costs to the amount of cost to you personally.
The above figures are significant for retirees. At Money Over 50, we find that most of our clients spend $70,000-80,000 a year in their retirement. Again, this varies greatly – between clients, but also between each year. So if one vehicle is costing you $8,000 a year, that is 10% of your yearly living costs – and selling one car could be an excellent way to save money.
So often we hear the saying ‘rent money is dead money’ – but like this Uber example, when you sit down and work out the figures, sometimes it becomes blatantly obvious that owning something isn’t always the right choice – financially.
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Dallas Davison, Michael Hogue and Ali Hogue.