5 Reasons Used Cars Are a Smart Financial Choice for Boomers

Buying a car can be one of the more exciting purchases in life, but the high cost also makes it one of the most important financial decisions. If you overspend, you could be making life harder on yourself than necessary.

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For baby boomers in particular, who may be retired or will soon be entering retirement, it’s important to think about how car ownership affects your finances. In many cases, buying a used car makes more sense at this stage in life.

Here are some of the top reasons used cars can be a smart financial choice for boomers .

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Cars Are Depreciating Assets

For starters, it’s important to remember that most cars lose value over time, so it might not make sense to sink money into an asset like this, at a time when you might want to be focusing more on securing your nest egg.

“Excluding certain classic or high-end vehicles, cars are a depreciating asset and experience the greatest level of depreciation in their early years,” said Jason Dall’Acqua, founder and financial advisor at Crest Wealth Advisors .

“If you purchase a used car with low miles on it, then you are having the previous owner realize much of the depreciation, allowing you to retain more value for your money in the event you sell it in the future.”

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You Might Be Driving Less

If you’re retired, or if your kids have grown up and no longer need to be driven around, you might be driving less than you used to. So, that can tip the scales further in favor of buying a used car, where you can keep costs down without worrying as much about racking up miles to the point the car breaks down.

“Boomers may find themselves driving fewer miles annually and extend the useful life of a used car — spending less in total cost while realizing a similar useful life for the car,” said Urban Adams, wealth manager at Dynamic Wealth Advisors .

Having Lower Costs Can Ease Retirement Stress

A big reason a used car can make sense for boomers is that lowering costs in retirement can make this chapter of life easier. Rather than taking on a lot of debt and a high monthly car payment, you can keep your bills down by getting a used car.

“Used cars could be a smart financial choice for boomers due to the lower upfront price,” Adams said, “so much so that they might be able to pay for the vehicle outright instead of having to finance it.”

Meanwhile, by spending less on a car, you can free up money for other aspects of life you want to enjoy in retirement, or simply worry less about outliving your nest egg.

“When you head into retirement with fewer financial obligations such as an auto loan, you increase your likelihood of a financially successful retirement, have more flexibility in how your money can be spent and reduce the financial stress that debt can cause,” Dall’Acqua said.

You Can Save on Insurance

Another factor that often favors used cars is that you can save money on insurance, thereby lowering your bills in retirement even more.

“Auto insurance rates for a used vehicle might be less costly than for coverage on a comparable new vehicle,” Adams said.

Indeed, car insurance rates drop an average of 3.4% for every year a vehicle ages, according to The Zebra .

There’s an Opportunity Cost to Car Ownership

Lastly, it’s important to remember that buying a new car for more than a used car not only tends to mean paying more up front but also missing out on potential gains elsewhere.

“Keep in mind that any money you put into purchasing a car takes that money away from working for you through investments,” Dall’Acqua said. “Therefore, it is not just the price of the car, but the opportunity cost on what the money could be earning for you if you spent less on a car and kept more invested.”

Room for Exceptions

While it’s often financially wise for boomers to buy used cars over new ones, there are situations where it could make sense to buy a new one.

“If cars bring you greater enjoyment than, say, traveling or dining out, and you can afford to spend more without putting your financial future at risk, then by all means do so,” Dall’Acqua said. “Retirement is a time to enjoy yourself, while still being smart with money and mindful of your long-term needs and goals.”

If you do go this route, though, you want to make sure you’re comfortable spending that money, without assuming you can sell it to recoup your costs.

“When assessing how much you can afford, consider any money that you put into a car as a sunk expense that you are not getting back,” Dall’Acqua said. “Be sure that your remaining assets are sufficient to provide for your financial needs.”

This article originally appeared on GOBankingRates.com : 5 Reasons Used Cars Are a Smart Financial Choice for Boomers