How Selling Your Car When You Retire Could Give You $70K When You Need it Most
When I ask people in their 50s what they are most looking forward to in retirement, you would be surprised by the number that say, “Not having to commute!” As someone who spent 2 hours a day traveling between Seattle and Redmond, I totally get this perspective. There is something genuinely soul-sucking about breathing in exhaust fumes, dealing with angry drivers and worrying about whether you are going to make it to your first meeting on time. Good riddance, I say!
So, the question that I want to ask today is this: If we are so tired of driving from point A to point B, why do so few of us give up our cars when we reach retirement age? Do you just keep driving out of habit, even when we don’t need to? Or, have we simply not internalized the massive impact that selling our vehicles could have on our health and wealth?
In another article, I will focus on the myriad benefits of going car-free in retirement. Here, I’d like to talk about just one specific benefit of selling your car when you no longer need it – you could save over $70,000 to protect you in the most vulnerable years of your retirement.
How Long Are You Going to Live? Are You Ready for Life in Your 80s?
Did you know that, according to the U.S. Census Bureau, if you turn 65 today, you likely have about 18-19 more years to live? If I am totally honest, I think that this number is likely way too conservative. As I wrote in this article, I wouldn’t be surprised if the average Baby Boomer lived to 100 or older.
Even if we assume that most of us will only live for 20 years after we retire, this is still a heck of a long time to make our money stretch. And, the sad truth is that our retirement savings will most likely be at their lowest point when we are physically and socially most vulnerable – in our 80s and 90s.
So, what does all this have to do with selling your car when you retire? Let’s dig into this…
When is a 2014 Toyota Sienna Worth $70,000?
According to USA Today, in 2018, the price of the average used car in America rose to $19,657. That’s 5% higher than 5 years ago!
Now, if you reach retirement with relatively low retirement savings, you might have no choice but to sell your car and other similar assets to pay your everyday expenses. But, if your passive income is enough to support you for the foreseeable future, there is another option – to invest the proceeds from the sale of your car for the long term.
Before I go any further, let me be 100% clear that I am not providing financial advice here. I’m not a financial professional and I don’t know anything about your situation. But, for illustrative purposes, if you invested $19,657 in a low fee S&P 500 index fund, you might expect to have as much as $70,000 (assuming a 9.8% annual return, which is what the index has seen over the last 90 years) waiting for you in 15 years. This would be, statistically speaking, 5 years before the end of your life… although, as I said, I think this is conservative.
This means that, on or around your 80th birthday, you could access a significant amount of money to help with your long-term care or health-related costs.
I realize that many people would say that this approach is too risky. They might argue that putting a large amount of your money into the stock market as you reach retirement is foolish at best and suicidal at worst. But, is this really true? If you have 15-20 years to wait for a particular investment to pay off, can’t you afford to trade some risk for a higher potential reward?
The truth is that our life expectancy is getting so long that many of us have no choice but to think about our investment strategies in phases. I personally have a short-term investment portfolio, which I plan on accessing in the next 10-15 years and a long-term portfolio, which I plan on letting grow for longer than 15 years. Whether you do something similar will depend on your personal situation and should be something that you decide with a financial professional.
What is Your Car Really Worth to You?
If you have been driving your whole life, the idea of letting go of your car may be terrifying. As someone who has been without a car for over 10 years, I can honestly say that it hasn’t held me back one bit.
I travel more than I ever have. I ride my bike to business meetings. I enjoy taking long train rides. And, if I really ever need a car, I can always rent one for a day.
I know that my future self will thank me for this decision. Will yours?
Do you think that you could live without a car in retirement? Why or why not? Do you think that it makes sense to look at your retirement savings in terms of multiple time buckets (long-term vs. short-term, for example)? Let’s have a conversation.
Disclaimer: none of the information in this article is intended to be financial advice. You may want to contact a financial professional to get specific financial advice.