Hidden Expenses: Owning 2 Cars in Retirement Costs More Than You Think
A second car that sits most of the week is one of the quiet money leaks in retirement.
That’s according to Andrew Lokenauth, founder of the blog Fluent in Finance, who said many retirees treat a paid-off second car as free.
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“It sits in the driveway, so it feels harmless,” he said. “The math says otherwise.”
Read on for more about the numbers behind owning two cars in retirement and the hidden cost you’ll want to consider.
The Real, Unchangeable Costs
According to Ali Zane, personal finance expert and CEO of IMAX Credit Repair Firm, each car costs about $5,260 a year on average. The amount includes insurance for $280 a year, maintenance and repairs at $1,500 and registration totaling $400.
“Cars are dangerous not because of their size, but because of their inflexibility,” he said. “Cars are a fixed cost when funds are not.”
A Charge of $50 a Ride
Per Zane, the price of gas and car upkeep, averaged over a year, costs about $50 a week.
“This $50 weekly cost is a trip to the pharmacy” he said. “If gas and car insurance were not paid in a single $280 transaction labeled insurance, then a $50 trip to the pharmacy would make sense”
A Hidden Cost: The Loss of Liquidity
“The retirees and clients I have seen with second cars are not broke, they're just illiquid,” Zane said. “During the year, when funds are directed to a car that simply sits in the driveway, it cannot go to an emergency fund.”
He said this is how retirees end up putting a $2,000 repair on a credit card at 24% APR.
“This is where a $5,000 expense can be funded, but at a much greater cost. I have seen a second paid-off car create more than just a second paid-off car, more than once.”
How To Decide
Zane has some simple advice. Monitor costs and usage for two months before selling.
“If it's under two trips a week, sell it and put the money in a high-yield savings account,” he said. “Most of the retirees I work with saved $15,000 to $20,000 of liquidity in year one, when savings and the sale are factored in. If it's being used four or five times a week, there's no reason to sell, but you should still shop the insurance. A lot of retirees are still paying commuter premium insurance for a car that only drives 3,000 miles a year.”
“If you need two cars when you’re retired, you may be able to justify the expense," said Melanie Musson, an auto industry expert with AutoInsurance.org, "but if you rarely need a second car, it’s hard to justify the associated costs. You could grab an Uber and save money on the rare occasions when you can’t coordinate a shared ride with your partner.”
Marguerita Cheng, certified financial planner (CFP), CEO of Blue Ocean Global Wealth, said that you should consider where you plan to live for retirement when you’re thinking about having more than one car.
“As retirees rightsize and move to continuing care retirement communities, they may also incur additional monthly fees for two parking spaces,” she said. “Alternatively, if they decide to move to an apartment or condo, they may incur either additional monthly fees or fees to purchase a parking space. I am super mindful of ensuring that the advice is appropriate for their age and stage of life.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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