Financial Planning for Generation X & Y Women
 
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Expert Q&A Archive

12/04/2009
Whats the best way to handle car debt going into retirement?
I sometimes struggle with emotional spending. After 14 years, I bought a car that I'm not sure now that I want to take into my retirement years. I bought the vehicle in 2006 with 26K miles on it with the new-car warranty; it is a luxury SUV (Infinity). Beginning in January, I will sign up for my Social Security Benefit and I plan to roll that year's benefit on to the principal to pay off the $24,000 still owed on the vehicle. Is this the wise thing to do; or should I dump the vehicle for a less expensive SUV? I like the higher vehicles because they afford less stress getting in and out of them; I am 65--my plan is to retire next December, I'm in pretty good health and am still a pretty good driver. I am a federal service employee and I am considering (possibly) moving to North Carolina when I retire for a lower cost of living--currently I live and work just outside of Washington, DC.
Joan Koonce, Ph.D:
expert info »
This is usually a personal decision; however, paying off a debt can save lots of money in interest and may be beneficial. The amount saved will depend on the interest rate on the loan. If the money used to pay off the loan is not needed, then it may be a good idea. I would compare the interest rate being charged on the car loan to the interest that could be earned by investing the money, before making the decision. If there is a huge difference in what is being paid and what can be earned, it may be better to invest the money. Each situation is different, and there are a lot of variables to consider. Getting a less expensive SUV may not be the best option, since many of the less expensive SUVs cost $20,000+.
Dorothea Bernique:
expert info »
Luxury vehicles depreciate in value more than others. For that reason, I would hesitate to continue to put money into something that is going down in value more rapidly than normal. This is definitely a personal decision; however, you should consider a vehicle that will maintain its value (Hondas, Toyotas), as well as not cost so much to maintain. The maintenance on the luxury vehicle will be very expensive when it is required. So if you will be trying to decrease your expenses in your retirement years, I would hesitate to hold on to this particular model.
Rebecca Schreiber CFP:
expert info »
It makes sense to hold onto the car, as it is a good-quality car with low mileage and you enjoy driving it. To keep the car loan from haunting you in retirement, be sure to pay off the car before you retire. It may require you to work a little longer than you anticipated or adjust your current spending to pay down the loan faster. Either way, you won't have to maintain this loan on a retirement income.
Gail V. Marquet:
expert info »
I would definitely sell the vehicle and find something else affordable. You can get a nice used SUV for less than you owe. Consider a Ford Escape or something comparable. You still sit higher and they are easier to get in and out of but are a lot more affordable. Watch the taxes in NC. They will be lower than DC, but are still higher than say South Carolina.
Delores Lenzy - Jones, CPA, CIA:
expert info »
Since you're close to retirement, it would be prudent to save as much as you can. Is the Infiniti a need or want? Can another car serve the same purpose? Do you have extra funds outs of Social Security to pay off the $24K? There are decisions that you will need to make regarding where you want to end up financially.
 

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