Monday, July 31, 2017
Transportation costs in retirement
I present a workshop on Life without driving for seniors in BC, to help people make the decision to retire their car. One of the best reasons for retiring your car is the expense of driving a car.
Transportation accounts for 16% of annual spending by Americans 65 and older, according to the Bureau of Labor Statistics. Only housing takes a higher percentage of annual spending. That means transportation spending exceeds medical spending and taxes.
Keep in mind, these are aggregate statistics so the percentages may be different for you.
Transportation costs include vehicle purchases, finance charges, gasoline, oil, insurance, maintenance, repairs, public transit, taxis, rentals and leases and the list goes on
Of course, many of us purchase our last car before we retire, or many of my friends did, so the largest annual transportation cost for those 65 and older is gasoline and insurance.
The cost of buying or leasing a new vehicle often surprises retirees. They don’t buy a new car every year, so it often isn’t factored into retirement spending plans. Many also remember their parents owning the same cars through their senior years and assume they, too, won’t need new transportation.
If we are lucky and healthy, our retirement can last for over 30 years, so the purchase of a new or used car is a strong possibility. There is a possibility that you also could be driving less than you drove during the career years.
In your retirement planning, the best way to incorporate transportation costs is to turn vehicle purchases into an annual budget item.
One way to do that is to determine the monthly cost of leasing a vehicle similar to what you now have or would like to have next. Include that amount in your monthly spending estimate.
Another method begins with estimating how often you will replace a car in retirement.
Let’s say you’ll replace every five years and it costs $20,000 today. If you assume 3% inflation in the vehicle price, it will cost a little over $26,000 in five years. Divide $26,000 by 5 to arrive at $5300 per year. Divide by 12 to arrive at $442 for your monthly cost of acquiring a vehicle.
You might not spend the money until you need the vehicle, and you might pay in a lump sum. But adding the cost of your spending estimate through one of these ways ensures you’ve accounted for new vehicles in your spending plan, and created a cushion so that the money is available when you need to buy a vehicle.
Some people approaching retirement are paying leases or auto loans, so they should assume those costs will continue as part of their monthly expenses in retirement. But factor in inflation. The cost of buying or leasing a vehicle is likely to increase over the years.
Vehicles are important to retirees. They’re important emotionally as a sign of independence. They’re also important as a practical matter, because 79% of those 65 and older live in areas where cars are a necessity or close to it, according to a group called Transportation for America.
After budgeting for transportation costs, consider ways to reduce the cost of transportation in your retirement spending.
As people age, they also take fewer trips and drive less. At some point, you might consider eliminating a car from your life, even when you don’t live in a center city area that has everything within walking distance.
There are often options such as taxis (and similar businesses), public transportation, and car pooling with friends. There might also be a bus or shuttle service for seniors through your local government or a charitable organization.