Let me share a little secret with you – you don’t have to buy a new car when you retire.
Okay, plenty of people do spend a fair chunk of their retirement payout on a shiny new vehicle (usually something like a Corolla; a white one) but I think it’s a terrible idea.
Here’s why.
Other than buying a timeshare in a resort, there’s probably no better way to destroy your savings than buying a new car. Seriously, they are wealth-killers.
New cars are lovely, I get that. If you’re upgrading from your 2003 Camry, you’ll find all sorts of little luxuries, like heated seats, 12-inch touchscreens, and gadgets that go ‘ping’ to wake you up when you drive in the wrong lane.
That’s all great, but it comes at a cost. Let’s stick with the Corolla theme and take a look at the brand-new Corolla SX, which you can drive away for about $34,840 (although if you’re after heated seats, you’re looking at the $39,547 model). You’re also up for an extra $500 for any colour other than white.
But once you’ve driven it out of the showroom, it’s not a $34,840 car anymore. After a few years, no matter how well you care for it, it’s worth … okay, let’s look at the data.
According to Redbook.com.au, which provides online car valuation services, if you try and trade [in] your three-year-old Corolla, you’re going to be offered between $12,500 and $14,500. After five years? About $10,000.
At this point, you might argue something like – “As if I’d sell my Corolla for ten grand. It’s as good as new, and it’s got decades left in it.”
Which is a fair comment. My response would be: “Why didn’t you buy a five-year-old Corolla, to begin with? As you say, it will be as good as new, with decades left in it. Plus, you’ll save about $25,000.”
Now there will be all sorts of objections to this idea of buying a second-hand car. Let’s head some of them off at the pass:
If you buy a second-hand car, you’re just buying somebody else’s problems
Make sure you aren’t on your second marriage if you ask this one. Besides, it’s rubbish. People sell cars for all sorts of reasons, often because they think it’s time to buy a new one. We’re talking cars that are a few years old, not a 1991 Commodore for $400 on Gumtree.
What if it breaks down? I need my car to be reliable
Modern cars are far more reliable than your old Holden Camira. If you look after them, they rarely break down. If you’re worried, spend $99 and get Roadside Assist.
If I buy a new car, then when I’m too old to drive, I’ll give it to one of my grandchildren.
Sorry grandad, but I doubt anyone’s going to get excited about a hand-me-down 30-year-old Corolla.
I need something safe
Absolutely. Go for something with an ANCAP five-star safety rating. Like a five (or 10) year old Corolla.
I really enjoy driving. Why shouldn’t I treat myself to a retirement present?
Okay, but why does it have to be new? If you’re a silver-headed revhead, you’ll get more bang for your buck buying something second hand.
This is all old news for some people, who worked out long ago that new cars are a waste of money.
Then there are the seriously frugal. You know the type – they write down every cent they spend in a notebook and get extra mileage by using teabags twice.
For those people, I’ve got great news – if you live in a city or major metropolitan area, you probably don’t need a car at all. If you run the numbers, the average retiree is financially better off using rideshare services like Uber and getting groceries delivered.
Would I do that myself? Nah.
Cars represent freedom, which is what retirement should be all about. If you can’t do your own thing, like heading off on a road trip from time to time, what was the point of working for all those years?
Cars are great. Just don’t blow your retirement money on a new one.
This is an abridged extract from The Naked Investor’s upcoming book – “Three Chickens and a Dog (Planning the Perfect Retirement)” and was published first here.