Car Buying Tips You’ll Thank Yourself for in Retirement

It’s easy to emphasize the here-and-now over something that may not affect you for decades to come. But when that “something” is as significant as your retirement, this lifestyle shift calls for some level of planning early on. This phenomenon is a huge reason why Americans are currently facing a retirement crisis.

In January 2020, FinanceBuzz released survey results revealing that 35% of Americans do not have any money saved for retirement. Millions of people are at risk of relying solely on Social Security Income once they retire. [1] When the average retiree only receives $18,000 in Social Security Income annually, most people will not be able to maintain their standard of living in retirement. [2, 3]

Interestingly, the average American planning to retire at age 65 estimates that they will need $1.9 million saved up to retire comfortably, according to a 2020 Charles Schwab study. [4] Yet, data shows that people in the 60-64 age group only have an average of $221,451.67 saved for retirement. [5]

How much you need to save to reach your retirement goals depends on many factors, which should be assessed through an individualized retirement plan, however, most experts say that you will need an average of $1 million saved to retire at age 65. [6] rebel Financial’s Lead Advisor Tony Jones says that, for a 25-year old to achieve this, they will need to start by saving around $300 per month, or $3600 per year. Comparing this amount to the $8849 an average American spends annually on car buying and driving expenses ($9282 for new car ownership), it’s clear where our priorities lie. [7, 8] If we’re spending so much money on cars, why do we think we can’t afford retirement?

To some, there’s a stigma around used car buying, which has become more taboo in recent years. Since it’s 2021 now, most pre-owned vehicles are a lot more reliable than previous models of the past. Simply put, today’s cars are better than they were decades ago, justifying why car prices are higher today than ever before (both new and used). Edmunds found that the average used car will cost $20,000, while new cars are priced at $37,000, based on 2019 data. [9] Obviously used cars aren’t perfectly equivalent to new cars, with the main difference being cost and, more importantly, depreciation. 

New cars lose the most value in depreciation within the first year of ownership. Even by the time you drive off the lot with your brand new car, you’ve already lost 9-11% of what you paid for it. [10] The reason it’s cheaper to buy a used car, even if it’s in near perfect condition, is because the bulk of the depreciation costs have already been incurred by its previous owner(s). But we get it. New cars are just better, right? 

That belief explains why the average new vehicle ownership length is only 71.4 months, or about six years. Taking this into account, the average person will own 13 cars over their lifetime. [11] Depending on how much you drive, the life of your vehicle may differ, but the average lifespan of new car models is between 11 and 12 years, according to Autotrader, which is almost double that six-year ownership average. [12] 

To give ourselves credit, this average has increased compared to fifteen years ago, where the average new vehicle ownership length was only 54 months. While this does factor in inflation and the fact that our cars last longer now, it doesn’t necessarily mean that we’re maintaining our interest in our new cars for longer. Instead, the most probable reason this length has increased is because we’re buying more expensive cars, that we may not be able to afford, and financing them for longer.

Since 2009, seven-year car loans have become significantly more popular. In 2019, seven-year car loans accounted for 31.5% of all car loans, compared to the less than 10% that they made up of the total in 2009. At the same time, five-year car loans have decreased about 15%. Six-year loans remain the most popular, bringing some parity to the situation, considering this matches the six-year ownership average. Still though, 33% of new car purchases, even with a trade in, rollover $5,000 in debt from the previous loan. If one-third of car financing is already underwater when it starts, the rising popularity of longer car loans is a recipe for disaster. [13]