Monday, August 18, 2014

How Much Do You Pay Per Year for Your Car?

One of the advantages of being retired or semi-retired is that you may not need a second car anymore for commuting to work.  This can be one of the primary savings when you retire.  But how much can you really save?

There are good studies online from AAA and others on the cost of a car per year or per mile, but I thought I would do the math myself with this spreadsheet.  We are currently getting by with one car and an occasional rental car after having two cars for the last 30 years, so I have some experience.

Depending on what you assume, the cost works out to about $7000 per year or about $0.60 per mile.  There are other estimates on the web of about $6000, but this does not really change the magnitude of the cost to a family.    If your estimated living expenses in retirement are $100K, this represents a 6% to 7% saving per year or $165,000 (present value) savings over a 25 year retirement.  Aside from the money aspect, you are also being kind to the planet by saving on energy and pollution and kind to your neighbors by not clogging the roads.

But I need a second car, right?  You might need two cars if you and your spouse are regularly going to separate locations that are not easily accessible by other means.  However, with the advent of the "sharing economy", there are lots of alternatives to owning a car:

  • The old reliables: bicycles, public transit, taxis, car rentals
  • Car sharing services like Zipcar
  • New wave taxis like Uber and Lyft
  • Bike sharing services like Citibike
So think carefully about that second car in the driveway.  You could save a lot.

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