VIDEO: Ford v RetirementRetirement Budgeting Financial Planning Investing
Welcome, everyone, to the sequel of Ford versus Ferrari. It's Ford versus retirement. It's maybe not a sequel, but anyway, my name's John McNamara. I'm with Highball Advisors and we're at the railroad retirement whiteboard today. We're going to talk about the effects of automobile purchases on your retirement. Big issue and it's something that I think is very important. I don't want to get judgemental in this video, but I just want you to start thinking about what effect purchasing these vehicles or financing these vehicles are going to have on the long term of your retirement and how you achieve retirement.
First off, I love new cars. I love everything about them. I love the smell of new cars, I like the way they drive, the way they look in the showroom. They're great. What I don't like about them is how they affect people's retirement, the expense, the payments that come with it. I'm just going to walk through this scenario here. We have buying. We want to buy a new car. I take in an individual who says, I've got to have a car every three years. I want a new car. I want a new car every three years.
Let's take the Ford F-150, a beautiful truck. I love Fords. I have a Ford. If you get a new F-150, it's like $40,000. That's what it's going to cost you, and you've got to finance that. What I did here is I said, $40,000, I've got to finance at 5%, I put down 20%. It's a three year loan, because I'm trading in and every three years, because I'm one of those guys, I've got to have a new car, so three years.
My monthly payments, almost a thousand dollars, $959, and it's three years of ownership. Then at the end of those three years, believe it or not, that $40,000 vehicle is $20,000. In three years, those first three years, you're losing almost 50% of the value of the vehicle.
Then you have the individual that, hey, the way they look at cars is, I've got to get from A to B. I don't care who sees me in it, I just want a safe, reliable vehicle. That's all right. I don't get fascinated by the bells and whistles, I just need a car. I've got to get to work, I've got to drive the kids here, there. They get just a used car and let's say they'll get a used car or truck. It's $20,000 and they'll finance at 5%, three-year-term, their monthly payments, $479, they're going to own it for 10 years.
Obviously, somebody owns a vehicle for 10 years and they're buying it used, it's probably going to be, at the end of the cycle, it's 12, 13 years old. The way vehicles now are, you can drive these vehicles for 200,000 miles, and I'm sure some of you out there have vehicles way past 200,000. Versus the new vehicle, the maintenance isn't going to be that high. A lot of that's covered under warranty, but all the depreciation is already out of the vehicle when they've bought it. So that's one thing.
Let's just continue about, because what we're really trying to get to here is the effects that it has on retirement, not, oh, should I buy a new or used. I don't even want to talk about leasing, because don't get me started. Over the 30 years of the car, just a total cash outlay is $233,000. This is for 30 years, over $233,000, because it's $40,000 but, every three years you're trading in your car, you're getting $20,000 back and you got to go finance another $20,000 and the cycle repeats itself 10 times for 30 years.
So $233,700 versus a person who buys a used car, that's three times the person's got to do this, so that's $63,732, give or take interest rates, I get that. It was interesting. Actually, the inflation in cars, I was checking this out, really isn't much at all. Since 2000, they said the inflation on vehicles, it's like 0.57, so I didn't really even factor inflation. You can, it's really not that important.
Let's look at how it affects retirement, just want to give you some idea. Let's say you're the new car guy, need it every three years. This guy over here needs it every three years and I'm making these payments. Let's say, all of a sudden, the light hits them and they go to a used car strategy. He takes that money instead, what he'd be paying there, and pays it over here. Takes that money and then for the next 30 years, instead of making those payments, he's paying it into a retirement cow, into a Roth IRA or something along that line.
Thirty years at 8%, and where you get 8%, that's just basically the S&P. Since 1957, it averages about 8% a year. I know, the markets go up and down, but just say 8% over those 30 years. At the end of 30 years, he's sitting in a Roth IRA, perhaps with $642,000 tax-free. Imagine, let's say you start in the railroad at 30 years and you're retiring at 60, a 60 and 30 guy, and at retirement, now you have an extra $642,000, and that's one car. That's one car. That's significant.
Some people have two, three cars, you're bumping up against $1 million that you could have in retirement. Like I say, the numbers are what the numbers are. You can tweak them a little bit either way, but it's just to get you guys thinking about purchasing these vehicles and the effect that would have on retirement. A lot of us just get distracted by, oh, what's the monthly payment? I can afford the monthly payment, it's just part of your general cash flow. It really has a knock-on effect in your retirement from the railroad. That's the purpose of this, hopefully I haven't offended anybody. Hopefully, maybe some of you think a little bit about it, like I say.
You know what would be great at the end of the 60 and 30 when you retire and you have this money, go out and buy yourself a brand new car, because you've deserved it. You saved up all the money, you've worked hard for it. Hope you found this helpful. Please reach out to me if you have any questions, John@highballadvisors.com. Subscribe to my YouTube channel, I appreciate that, down on the bottom right hand of your screen. In the meantime, stay safe, stay on track and take care. So long, everybody. Bye.
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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved.from Highball Advisors, and all rights are reserved.