As terrible as it for your finances, owning two cars is often unavoidable.
Take two working parents, add kids and you have a strong convenience-based case for paying the many costs of owning and maintaining a pair of vehicles. Add a home in the suburbs and the argument gets even stronger.
But owning two cars stops making so much sense later in life. In retirement, you can save a bundle by going down to one vehicle.
This is the conclusion that Sylvia Thys, associate financial planner at Caring For Clients, came to recently when drafting a financial plan for a couple looking ahead to retirement. In the initial conversation, one of the two was insistent about building continued ownership of two cars into the financial plan.
“When I talked to her, she really wanted to keep her independence,” Ms. Thys said. “She really wanted to make sure she would have her own car, even in retirement.”
Then Ms. Thys showed her client the benefits of going down to one vehicle in retirement. By adding the money saved to their investments, the couple would have two extra years of living in their home before it had to be sold to generate retirement income. Their net worth would increase by a future value of $678,000 at age 95.
“I found there was a lot more money for them,” Ms. Thys said. “When they saw the difference, they said, oh my god.”
This couple currently has two cars, both financed with loans that in total cost about $1,000 a month. According to J.D. Power, the average monthly car payment in Canada in June was roughly $660.
The spouses in this couple typically buy new cars every 10 years and spend $30,000 to $35,000 a vehicle. Ms. Thys said an average annual investment return of 4 per cent was used in her analysis.
In addition to financing costs, there’s the cost of insurance and maintenance. Insurance depends a lot on your driving record, the vehicle you drive and where you live, but let’s estimate a cost of $1,200 a year for a senior couple. As for maintenance and upkeep, car expert Lou Trottier suggests you expect to spend $1,000 on average every year.
If a couple is going to go down to one car from two, it’s important to make the right vehicle choice. Mr. Trottier, who writes the Lou’s Garage column for The Globe and Mail and owns a repair shop called All About Imports in Mississauga, suggests starting retirement with a new vehicle rather than keeping an older one for the sake of cost saving.
Mr. Trottier said he has older clients who worry about the reliability of their vehicles if they take long driving trips. “If the early golden years are your most active, I believe you should be in the most comfortable car you can afford, with comfortable meaning reliable,” he said.
Car or SUV? Mr. Trottier said SUVs with four-wheel drive may cost a bit more to maintain than conventional two-wheel drive cars. But he finds his older clients prefer to step up to get into the driver’s seat of an SUV rather than lower themselves into a car. An SUV may also suit retirees who expect to be chauffeuring their grandchildren around.
Should you treat yourself to a premium vehicle if you go down to one vehicle in retirement? Mr. Trottier warns that luxury brands, particularly European ones, can be expensive to maintain over the years.
Mr. Trottier said you can expect to get 10 years of use out of a car that is lightly driven and well-maintained, and quite possibly more. Well-maintained means having maintenance and oil changes performed on schedule. “That’s so critical,” he said.
Having two cars in retirement may be a necessity for couples who both need the independence of having a vehicle at their disposal. One way to ease the transition to a single vehicle is to use rentals, taxis or ride-sharing services such as Uber or Lyft to fill the gap.
Ms. Thys, the associate financial planner, said she’s pretty much sold on the idea of couples getting rid of a second vehicle when they retire. ““They should always go to a one-car family if they can.”
Editor’s note: This couple has two cars, both financed with loans that in total cost about $1,000 a month. A previous version said $1,000 a year.
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