Yet another "can I afford it"?

[phisher4]

I'm reaching out to the internet masses to make me feel better about a potential purchase. While my wife feels this is somewhat silly, I really respect the boglehead community's opinion!

The statistics:
1.5M allocated for retirement, divided between taxable and pre/post-tax accounts, invested 60/40.
220K in cash and I-bonds
Income averaging ~550K/year, but variable. Lowest is 300K/year and highest is 600K/year.
Total expenses of 120K-140K/year
I'm 40 and want to retire in about 10 years with a 3-4% withdrawal rate (i.e. ~3-3.5M saved)

The question:
How big of a car can I purchase with my goal of early retirement in mind? I have always driven frugally, and my current cars are worth $9K and $6K. I'm thinking of a model S (80-100K), BMW 5 series (~50-60K), or a Volvo XC90 (~50-60K). I'm happy to take more opulent or more frugal suggestions. I'm looking forward to your opinions.

Thank you for reading my post. I appreciate all of you!

[bottlecap]

There is no question that you can afford it. Although I haven't run numbers and just assume that your retirement projections are accurate.

JT

[jabberwockOG]

I'd get one at least 37 feet long given claimed income and assets : )

[denovo]

I I'm thinking of a model S (80-100K), BMW 5 series (~50-60K), or a Volvo XC90 (~50-60K). I'm happy to take more opulent or more frugal suggestions. I'm looking forward to your opinions.

Thank you for reading my post. I appreciate all of you!

You can afford it. My concern is your choice of cars is not very good. Volvo, snooze fest. Drive something fun. Tesla, pff. What a nightmare. BMW, too predictable.

[bloom2708]

You can afford a nice car.

The problem/issue is what it does to your ongoing expenses. A bump up to a Tesla carries higher insurance costs, maintenance (likely at some point) and then continued "nice" car purchases.

It isn't the one time purchase, it is the ongoing lift in spending that will have to be sustained. You have a great salary. It must be somewhat recent or you would likely already have the $3+ million. I know taxes take out a nice bite.

Can you drive a Tesla for 10 years and then go back to a Subaru Legacy, Honda Accord or Toyota Camry?

[Sandtrap]

2019 Toyota Supra (designed with BMW).

[delamer]

Seems that a great compromise with your wife would be to buy a used, 2 or 3 year old version of one of your preferred vehicles.

[Green Street]

2019 Toyota Supra (designed with BMW).

I second this

[GAAP]

Part of the answer to your question is: how much are you saving per year for early retirement and how much will this affect that? It sounds like you could be saving anywhere from 160K to 460K a year (or you could be blowing it on toys) -- hard to tell. On the assumption that you're saving it, you can afford the car.

However...

You plan to at least double your retirement portfolio in 10 years -- apparently on in nominal terms. At even a 2.5% inflation rate, that's equivalent to about 93K today. I strongly suggest you work in real dollars, not nominal. A real equivalent to $3M with 3% inflation would be about $4M. Retiring at 50 also means you should probably be funded at 120% of that (or limit yourself to 3% withdrawals). Put it all together with the upper end of your expenses, and you're looking at more like $4.7M.

Today's Shiller PE would estimate a 10-15 year US stock real return of about 3% and an All-Country estimate of around 4% real. Long Term bonds are probably around 1.8%. You'll need to be saving most of your surplus income to hit your targets in 10 years.

All of the above are off-the-cuff numbers, so use at your own risk...

FWIW, my more general answer to the question "can I afford it" is that since you're asking, the answer is no -- but probably for emotional reasons more than financial in your case.

[Sidney]

If you buy the car, and your equity drops 50% in the next 12-18 months, will you still feel good about it?

[Nissanzx1]

Geeze with that kind of income, you should get whatever you want. You are killing it!

[livesoft]

Total expenses of 120K-140K/year
I'm 40 and want to retire in about 10 years with a 3-4% withdrawal rate (i.e. ~3-3.5M saved)

I see a couple of problems with this.

First, inflation.

Second, health care costs from age 50 to whenever. You will probably need $5 M saved to be able to keep up your life style and the car(s) you will get accustomed to driving.

But maybe your spouse works and has health care benefits for both of you and will keep working, so this may not be a big concern for you.

Perhaps a new rule-of-thumb is not to buy a car that costs more than your health insurance payments?

[phisher4]

The collective wisdom and perspective of the folks that populate this group continues to astound me. Thank you...

I'm a bit perplexed by the recommendation to budget 120 percent of current spending while in early retirement. While healthcare costs will increase, many other costs will decrease, including childcare, home maintenance, cleaning services, etc. I would be particularly interested in what others think. Perhaps I've been wrong all along on my early retirement calculus...

[czr]

Whoa, $9k and 6k cars with that income and those assets? Time to live a little. Besides BMW also test drive Audi like an a7 for sedan, Q5, Q7, etc. Two year old used is an option but they heavily subsidize lease vehicles and it includes maintenance so if you plan to keep it only 3 years and mix it up that is not a bad route.

[livesoft]

Cleaning services decrease in early retirement? I don't think you are going to give up the maids because you are early retired.

Health care is subsidized by employers, so when you end up paying for it yourself, that subsidy goes away.

Yes, child care should go away, but I didn't think you were paying for that at age 40 anymore, but my bad as we had toddlers at age 40. But then again, I had 2 kids in college when I stopped working.

[dirtlaw]

Seems that a great compromise with your wife would be to buy a used, 2 or 3 year old version of one of your preferred vehicles.

This is what I would do.

[Jack FFR1846]

Acura NSX. You get the benefit of electric without the range anxiety of an electric. Cooler than anything Musk has ever dreamed of.

[cherijoh]

I'm reaching out to the internet masses to make me feel better about a potential purchase. While my wife feels this is somewhat silly, I really respect the boglehead community's opinion!

The statistics:
1.5M allocated for retirement, divided between taxable and pre/post-tax accounts, invested 60/40.
220K in cash and I-bonds
Income averaging ~550K/year, but variable. Lowest is 300K/year and highest is 600K/year.
Total expenses of 120K-140K/year
I'm 40 and want to retire in about 10 years with a 3-4% withdrawal rate (i.e. ~3-3.5M saved)

The question:
How big of a car can I purchase with my goal of early retirement in mind? I have always driven frugally, and my current cars are worth $9K and $6K. I'm thinking of a model S (80-100K), BMW 5 series (~50-60K), or a Volvo XC90 (~50-60K). I'm happy to take more opulent or more frugal suggestions. I'm looking forward to your opinions.

Thank you for reading my post. I appreciate all of you!

When you say "total expenses", does this include taxes or not? I'm assuming NOT - a common mistake for people who are still working and who are 10 or more years from retirement. So in all likelihood you have miscalculated the size of the nest egg that you would need to cover after-tax expenses of $120K - $140K. Remember, any funds coming out of tax-advantaged plans will be taxed at ordinary income tax rates (federal + state). Plus capital gains may or may not receive favorable tax treatment from your state.

Also as another poster pointed out, you will need $X in 2028 dollars, but you are counting your current nest egg and expenses in 2018 dollars.

I may be wrong, but the subtext I getting from your post is that you think you will be able to coast to your retirement goal and therefore you should be free to splurge on your dream car. But given your goal to retire at 50, your very high salary, and the tail wind from which you have benefited in the last decade, I would have expected a larger nest egg at this point. I think there is a good chance that your portfolio will take at least a 20 -25% hit due to a stock market decline sometime in the next decade. So IMO you will still need to make substantial contributions towards your retirement.

How much are you actually contributing each year towards your retirement? In other words, how many months of retirement savings would any of these cars represent? Have you factored in the increase costs of insurance, the potential need to buy premium gas for the BMW or the Volvo, and the lack of infrastructure to support the Tesla? (if there are issues do you have an alternate car that you could drive while yours is in the shop waiting on parts?) Where would the money come from to pay for the car?

[GAAP]

The collective wisdom and perspective of the folks that populate this group continues to astound me. Thank you...

I'm a bit perplexed by the recommendation to budget 120 percent of current spending while in early retirement. While healthcare costs will increase, many other costs will decrease, including childcare, home maintenance, cleaning services, etc. I would be particularly interested in what others think. Perhaps I've been wrong all along on my early retirement calculus...

120% gives you room to manage when (not if) your portfolio value drops dramatically. To use a VERY rough example, the current Shiller PE around 30 means you have a fairly good chance of seeing long-term (10-15 year) returns averaging about 3% -- but it also means that you have a fairly good chance of seeing a drawdown at some point of around 30%. If you have a 30% drawdown and 60/40 AA, and if bonds don't really change, then your portfolio will lose about 18%. At that point, you are faced with reducing your income withdrawals, your expenses, or both.

You quoted a 3-4% range of withdrawals to meet expenses. If your portfolio is big enough to get your withdrawals at 3%, and if you only actually withdraw at 3%, then it can also drop by 25% before it needs to affect your income.

Your budget will get more accurate as you get closer to the date -- 10 years out is really hard to do. With kids, it's even harder since they change so much in 10 years. For healthcare, I use 2x CPI.

--
Note in advance: I did say "very rough" estimate...

[smitcat]

The collective wisdom and perspective of the folks that populate this group continues to astound me. Thank you...

I'm a bit perplexed by the recommendation to budget 120 percent of current spending while in early retirement. While healthcare costs will increase, many other costs will decrease, including childcare, home maintenance, cleaning services, etc. I would be particularly interested in what others think. Perhaps I've been wrong all along on my early retirement calculus...

It depends a lot on the individual budget and the point in time of your life.
If for example your $130K in expenses include most of these:
- mortgage
- higher personal payroll taxes
- childcare
- college savings
- larger transportation costs
- local costs which will be reduced in the future

Your resultant budget for a very nice retirement might be 1/2 of your curent expenses.
But if you current expenses are more or less equivalent to your projected costs in retirement then its a whole different game.
Knowing your expenses now and projecting what will be added and subtracted in the future will greatly add to the value of your target.
One question you might want to look at - Why is your portfolio value now seemingly very similar to what it was 15 months back?
The answer to that might shed some light on this decision.

[researcher]

Income averaging ~550K/year

How big of a car can I purchase with my goal of early retirement in mind?
I'm thinking of a model S (80-100K), BMW 5 series (~50-60K), or a Volvo XC90 (~50-60K).

You make over a half million/yr, and you don't know whether you can afford a $50K car?

[bligh]

Seems that a great compromise with your wife would be to buy a used, 2 or 3 year old version of one of your preferred vehicles.

+1 to this.

[Sasquatch]

You likely worked very hard to achieve that level of earnings. Have a LITTLE fun.

If you like the 5 series at least get the M series. I am more partial to the Audi’s in RS trim. The Audi’s suffer brutal depreciation in the first couple of years. My ultimate dream is the McLaren 12c

[chevca]

Income averaging ~550K/year

How big of a car can I purchase with my goal of early retirement in mind?
I'm thinking of a model S (80-100K), BMW 5 series (~50-60K), or a Volvo XC90 (~50-60K).

You make over a half million/yr, and you don't know whether you can afford a $50K car?

And also, $220k in cash...

What are people actually looking for when they post threads like this? Yes, you can afford it, OP... easily.

[alfaspider]

Income averaging ~550K/year

How big of a car can I purchase with my goal of early retirement in mind?
I'm thinking of a model S (80-100K), BMW 5 series (~50-60K), or a Volvo XC90 (~50-60K).

You make over a half million/yr, and you don't know whether you can afford a $50K car?

And also, $220k in cash...

What are people actually looking for when they post threads like this? Yes, you can afford it, OP... easily.

People write all these posts about "can afford" when what they really mean is "is it worth it?"

[caffeperfavore]

Sure, you can afford it, but why do you want these cars? Will they make you happier than a more modest car and doing something fun with the leftover cash? What is it that you're looking to achieve here (sportiness, safety, prestige, comfort, room, etc.), because these are all very different options?

I went through a German car phase before buying a Toyota kid-hauler. I'm much happier with the Toyota because I do not care what happens to it. There's a certain freedom in that. Kid barfs in the back - oh well. Someone door dings it - life goes on. I don't think twice about where I park it. It's also dirt cheap to maintain. Another plus, I don't drive like a maniac anymore. Oh, and I also don't feel like a showy, spendy schmuck in certain circles when I pull up.

But if those things aren't a concern, then yes, you can afford it, but maybe you need to clarify your needs/wants first rather than shooting for a dollar range.

[chevca]

Income averaging ~550K/year

How big of a car can I purchase with my goal of early retirement in mind?
I'm thinking of a model S (80-100K), BMW 5 series (~50-60K), or a Volvo XC90 (~50-60K).

You make over a half million/yr, and you don't know whether you can afford a $50K car?

And also, $220k in cash...

What are people actually looking for when they post threads like this? Yes, you can afford it, OP... easily.

People write all these posts about "can afford" when what they really mean is "is it worth it?"

Agreed. And, really something we can't answer for the OP. Afford it?... Yes, usually the OP can. Worth it?... that's going to be different from person to person.

[Big Dutch]

Seems that a great compromise with your wife would be to buy a used, 2 or 3 year old version of one of your preferred vehicles.

+1

[Toons]

" I'm happy to take more opulent or more frugal suggestions."

Honda Civic Touring


https://automobiles.honda.com/civic-hatchback?#

[jimb_fromATL]

If you buy something dependable like a Toyota or Honda or perhaps a Lexus or Acura instead of a much more expensive novelty car or European car, you'll have a lot more money to invest toward early retirement. You'll probably spend a lot less money maintaining and repairing it for a long time too ... and will have even more money to invest toward early retirement.

To put an extra $50K to buy a more expensive vehicle in better perspective, you might want to think about this:

• Assuming investing that $50,000 and earning a conservative estimated average APY of 7% for 10 years it would grow to $98,358.
  
  At a more conservative earnings rate of 4% in early retirement, that extra $98,358 could pay you an annuity of $393.02 per month for 45 years before it was all gone.
  
  So you'd be giving up a potential extra 540 x 393.02 = $212,230 of retirement income in exchange for having a car that cost $50,000 more for now.

Ten years from now, if you still feel that you want a much more expensive car a lot more than you'd like to have an extra $393 per income for life, you could use the extra $98K to buy the more expensive vehicle at that time.

jimb

[TravelGeek]

The question:
How big of a car can I purchase with my goal of early retirement in mind? I have always driven frugally, and my current cars are worth $9K and $6K. I'm thinking of a model S (80-100K), BMW 5 series (~50-60K), or a Volvo XC90 (~50-60K). I'm happy to take more opulent or more frugal suggestions. I'm looking forward to your opinions.

My question is: What is your wife going to get if you get a car 10x the value of your current vehicle?

(implied: is this a slippery slope to a significantly increased cost of living? How much is that worth it to you compared to staying on track to FIRE?)

For me threads like this are all about "priorities" in life. How much value (joy, transportation) does one get out of a certain purchase and how does it impact other goals. Difficult to judge for others since we don't even know how much you would use the car. One thing is clear; the vehicle wouldn't be too expensive relative to your current income (how safe?), but it's not clear how to me how to value the expense.

[phisher4]

Income averaging ~550K/year

How big of a car can I purchase with my goal of early retirement in mind?
I'm thinking of a model S (80-100K), BMW 5 series (~50-60K), or a Volvo XC90 (~50-60K).

You make over a half million/yr, and you don't know whether you can afford a $50K car?

And also, $220k in cash...

What are people actually looking for when they post threads like this? Yes, you can afford it, OP... easily.

People write all these posts about "can afford" when what they really mean is "is it worth it?"

Yes! I agree completely with your re-phrasing of the question: "is it worth it?"

The happiness that the car brings minus the marginal reduction in retirement savings are major components of this equation, but there are many other great points, including the consideration of lifestyle inflation, the increased cost of car insurance/maintenance, and how to actually calculate post-FIRE expenses accurately. The last point is incredibly difficult to model, given that we have young children and moderate work-related expenses. My inclination is that 120-140K in today's dollars (i.e. 90-100K in inflation-adjusted dollars) would likely be sufficient 10 years from now, but I really don't know.

I'm also hearing a strong minority saying, "to heck with all of it -- you only live once."

Thank you all again and again. We'll be car shopping in the next few weeks.

[TravelGeek]

Thank you all again and again. We'll be car shopping in the next few weeks.

Hope you tell us what you end up buying.

[scottgekko]

Sounds like there is some question regarding your ability to retire comfortably at 50 with the necessary amount of savings. If you go with a BMW or Tesla, you won't want to go back down to a Honda and that only adds to your expenses later on.

You want a fun car that won't cause buyers remorse price-wise? Grab a slightly used 2018 Dodge Charger SRT 392. All the fun you can have with your clothes on for less than $50k.

[3504PIR]

A lot of bogleheads will tell you that you're priorities are misguided and your budget for a car is a luxury you can't afford to execute.

You can afford to do this, but I would only caution you to take your time and spend some time driving the cars you are interested in, in addition to your research. By driving them I mean tell the dealer you want the car for 24 hours or from morning to evening if they balk at the overnight. I went through a similar search a couple years ago and the process, which took about 6 months for me, was eye opening and in the end, the choice wasn't even close.

Good luck, take your time and enjoy your new car once you have it.

[phisher4]

A lot of bogleheads will tell you that you're priorities are misguided and your budget for a car is a luxury you can't afford to execute.

You can afford to do this, but I would only caution you to take your time and spend some time driving the cars you are interested in, in addition to your research. By driving them I mean tell the dealer you want the car for 24 hours or from morning to evening if they balk at the overnight. I went through a similar search a couple years ago and the process, which took about 6 months for me, was eye opening and in the end, the choice wasn't even close.

Good luck, take your time and enjoy your new car once you have it.

What car did you ultimately choose?

[Miguelito]

Seriously?

Just buy the car. Of course you can afford it. You could responsibly buy a 150k car if that is what you wanted. It would not be smart to get one every 2 or 3 years, but yeah, get whatever you want.

[Sasquatch]

You can always rent a few of your top picks for the day. If your in a large metro area the selection is pretty decent.

https://turo.com

[helloeveryone]

I'm reaching out to the internet masses to make me feel better about a potential purchase. While my wife feels this is somewhat silly, I really respect the boglehead community's opinion!

The statistics:
1.5M allocated for retirement, divided between taxable and pre/post-tax accounts, invested 60/40.
220K in cash and I-bonds
Income averaging ~550K/year, but variable. Lowest is 300K/year and highest is 600K/year.
Total expenses of 120K-140K/year
I'm 40 and want to retire in about 10 years with a 3-4% withdrawal rate (i.e. ~3-3.5M saved)

The question:
How big of a car can I purchase with my goal of early retirement in mind? I have always driven frugally, and my current cars are worth $9K and $6K. I'm thinking of a model S (80-100K), BMW 5 series (~50-60K), or a Volvo XC90 (~50-60K). I'm happy to take more opulent or more frugal suggestions. I'm looking forward to your opinions.

Thank you for reading my post. I appreciate all of you!

It seems to me you can afford any of those three cars. Perhaps look into 2 years preowned to help decrease the cost but still get a great car that you want and feel good about someone else eating the depreciation.

[UncleBogle]

Sure you can afford it, but do you really need it?

Buying used replacement vehicles, is how you retain your wealth. Warren Buffett still does this.

Ultimately my main concern regarding your car is that it gets me from point A to point B and is safe. Other than that, I couldn't give a lick as to how it looks.

I surmise that I have probably saved about $125,000 over the years buying used vehicles. That allows more money to work for me. And if travel is your thing, the money that you saved can offer the opportunity to take a few nice world trips if you want to.

Just my two cents.

[gougou]

I'm reaching out to the internet masses to make me feel better about a potential purchase. While my wife feels this is somewhat silly, I really respect the boglehead community's opinion!

The statistics:
1.5M allocated for retirement, divided between taxable and pre/post-tax accounts, invested 60/40.
220K in cash and I-bonds
Income averaging ~550K/year, but variable. Lowest is 300K/year and highest is 600K/year.
Total expenses of 120K-140K/year
I'm 40 and want to retire in about 10 years with a 3-4% withdrawal rate (i.e. ~3-3.5M saved)

The question:
How big of a car can I purchase with my goal of early retirement in mind? I have always driven frugally, and my current cars are worth $9K and $6K. I'm thinking of a model S (80-100K), BMW 5 series (~50-60K), or a Volvo XC90 (~50-60K). I'm happy to take more opulent or more frugal suggestions. I'm looking forward to your opinions.

Thank you for reading my post. I appreciate all of you!

Do you have a house? Is it paid off?

Buy hey, you make $550K, you can certainly afford a $100K car.

Current Tesla Model S only has about 300 miles of range. I would wait for the Roadster 2 which has 600 miles of range, or an upgraded model S with at least 450 miles of range. EVs are changing/upgrading very quickly and your purchase today may not retain good value 2 or 3 years later.

[Tammy88]

It is interesting you asked at your income level. . We recently pulled the trigger to buy a new BMW X3, our first luxury car. It is to replace one of our cars that is 16 years old... I didn’t want to buy it but my husband really wanted to so we made a deal that if we paid off the house then We could buy the car. We did pay off the house earlier this year so I honored this request too. I am never a luxury car person but I can see he and my son would get great enjoyment out of it.

We are in a similar age range, and salary range as you but on the lower end, and our retirement portfolio is a bit over 2 M. I also wanted to retire around 50. My thought process is we will only buy 1-2 luxury cars so might as well get it when we are young with kids so more people can enjoy it. I don’t believe I would own another one in retirement and we will try keep it for 10+ years too as long as it runs.

You should check if you are doing everything you can to maximize the tax benefits such as mega back door roth, 529, HSA, back door roth, 401k etc... if there are still remains to sufficiently cover the new car expense, go for it! We still saves a bunch after tax $ each month so I figure I can’t afford everything but I can afford something luxury that he wanted for a long time. HTH!

[3504PIR]

A lot of bogleheads will tell you that you're priorities are misguided and your budget for a car is a luxury you can't afford to execute.

You can afford to do this, but I would only caution you to take your time and spend some time driving the cars you are interested in, in addition to your research. By driving them I mean tell the dealer you want the car for 24 hours or from morning to evening if they balk at the overnight. I went through a similar search a couple years ago and the process, which took about 6 months for me, was eye opening and in the end, the choice wasn't even close.

Good luck, take your time and enjoy your new car once you have it.

What car did you ultimately choose?

Sorry I missed this. We bought a Macan specifically because of the performance when we drove it vs the others like the X5. It wasn’t really close in the end. We took about 4 months doing research and arranging to drive the options we considered which were the Q5, X5, XC90 and Range Rover sport. Still overly happy with the Macan, it’s the best car we’ve ever owned.