Leasing Cars in Retirement

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Frisco Kid
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Leasing Cars in Retirement

Post by Frisco Kid » Fri Sep 14, 2018 8:27 am

Wanted to get others thoughts on leasing cars in retirement in lieu of triggering an additional taxable event by spending down investments. Thinking $350 or so monthly for three years within mileage allowances, wash and repeat. Pluses are covered maintenance and investments continue to grow.
Please chime in with your thoughts on the minuses................. thanks in advance.

UpperNwGuy
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Re: Leasing Cars in Retirement

Post by UpperNwGuy » Fri Sep 14, 2018 9:01 am

I am eager to hear the responses, too, because I'm retired and need a new car soon. I am not, however, interested in hearing theological responses such as "leases are always bad" or "car loans are always bad."

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wabbajack
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Re: Leasing Cars in Retirement

Post by wabbajack » Fri Sep 14, 2018 9:06 am

What's most important to you in car ownership? If you want the lowest monthly payment and don't want to deal with anything that goes wrong beyond taking it to the shop, leasing is a no-brainer. It also makes much more sense to lease if your annual mileage is between 5k - 15k.

FWIW, I wished I had continued to lease instead of buying. I don't care about equity in cars, I drive them for fun and have a short attention span. They are a necessary transportation expense and also a "fun" expense for me. Now that I actually own something, I have to worry about stuff going wrong instead of just returning it to the dealer and let them figure it out.

RickBoglehead
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Re: Leasing Cars in Retirement

Post by RickBoglehead » Fri Sep 14, 2018 9:18 am

Many threads on this. Leasing vs. buying is almost always a bad financial decision. However, holding vehicles for shorter periods, wanting to always be in a new vehicle, not wanting to have to sell or trade in a vehicle, and concern about selling assets (and incurring taxes) to pay for a vehicle all come into play.

A car loan for 4 or 5 years can be had for under 4% today, even close to 3%. Can you beat that in the market?

I am waiting for a 2019 Fusion Hybrid to come in within a few weeks. I was going to lease a 2018 (that never got manufactured) because the rebates from Ford were over $11,000. On the 2019 there are no rebates for leasing yet. So as of now, we'll be buying, using Ford's financing to maximize rebates, paying it off days later. Still debating about refinancing it at 3.24% (if I recall correctly) or paying in full.

Nate79
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Re: Leasing Cars in Retirement

Post by Nate79 » Fri Sep 14, 2018 9:25 am

Not sure how much different leasing vs buying (by financing) would be different from an asset spend down perspective, especially if you get long enough financing. Leasing is just another form of financing. Sure the monthly payments would be less somewhat vs a long financing term but I don't think it is that much different. Leasing is still more expensive overall vs buying and keeping long term.

Frisco Kid
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Re: Leasing Cars in Retirement

Post by Frisco Kid » Fri Sep 14, 2018 10:05 am

Op here.....keywords are IN RETIREMENT. All purchases in our case would trigger a large taxable event, looking at how leasing might offset that or not......

Chip
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Re: Leasing Cars in Retirement

Post by Chip » Fri Sep 14, 2018 10:14 am

Frisco Kid wrote:
Fri Sep 14, 2018 10:05 am
All purchases in our case would trigger a large taxable event, looking at how leasing might offset that or not......
Not if you take out a loan.

vested1
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Re: Leasing Cars in Retirement

Post by vested1 » Fri Sep 14, 2018 10:18 am

I was always opposed to leasing when I was working. My attitude has changed since my wife and I retired almost 3 years ago. Our cars are old, a 2000 GMC truck and a 2007 Rav4. The truck is running great but the RAV4 has become less reliable.

We are in the midst of delaying SS/paying off the mortgage, so additional lump sum expenditures with tax consequences are unpalatable. If either vehicle conks out with a high estimate for repair we will lease. This is a strategic choice, an aspect of my personality that my daughter recently commented on.

We don't care about driving the newest car or how driving our beaters makes us look. We need to get from point A to point B in a reliable fashion. In 3.5 years our financial plan will come to fruition, barring unforeseen circumstances. If we need to replace a vehicle during that time, the convenient timing of a lease would fit like a glove. After our plan is complete we will be able to more easily afford a purchase if it makes sense from a strategic standpoint.

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Raybo
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Re: Leasing Cars in Retirement

Post by Raybo » Fri Sep 14, 2018 10:18 am

There are no numbers in your post. It will be hard to make a recommendation without a few important numbers. Consider buy versus lease same car.

How big a tax hit do you take to buy it ourright?

How big a tax hit do you take to finance the same purchase (get a loan for the car purchase)?

How much does it cost to lease the car versus buying it?

Maybe assume the car lasts 6 years, say 2 three year leases, what is the difference in cost to lease 2 cars for three years versus buying car and paying taxes versus financing new car with loan. Maintenance will be an added cost but you can buy extended maintenance packages to deal with most of that.

The first level answer should be in there somewhere.
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btenny
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Re: Leasing Cars in Retirement

Post by btenny » Fri Sep 14, 2018 10:45 am

I am long term retired. Back in 2013 I leased a new Subaru Outback to save $$on taxes. If I paid cash of $36k so i would have not have to withdraw about $20k of that from my ira and pay 25% taxes or sell stocks and pay capital gains. So I leased it for 39 months at 1% interest plus fees and then bought it out after 3 years. I was also leasing to see if I liked the car and how fast car technology would change. It was a good deal for me at the time.

Dick D
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Re: Leasing Cars in Retirement

Post by Dick D » Fri Sep 14, 2018 10:55 am

We have always paid cash for my cars which we normally keep for 12-15 years. We just purchased a car, but I think that this will be the last car that I will purchase. In the future I will lease for the following reasons: 1) age - you no longer take it for granted that you will be able to drive for 10-15 more years. 2) As you age it is good to have all the latest safety features. Given the fact that I am now 73, we will replace our second car with a lease. Financial issues are not a consideration.

randomguy
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Re: Leasing Cars in Retirement

Post by randomguy » Fri Sep 14, 2018 10:55 am

Frisco Kid wrote:
Fri Sep 14, 2018 8:27 am
Wanted to get others thoughts on leasing cars in retirement in lieu of triggering an additional taxable event by spending down investments. Thinking $350 or so monthly for three years within mileage allowances, wash and repeat. Pluses are covered maintenance and investments continue to grow.
Please chime in with your thoughts on the minuses................. thanks in advance.
Minuses are you are paying interest and higher depreciation. If your investments outperform the interest rate of the loan on the lease(i.e. think about it as leverage), you can come out ahead leasing. But you are likely to be well behind buying the car and paying off the loan from cash flow as you are going to pay a ton more of depreciation with 3 new cars over 10 years than 1 and the maintence on the one isn't likely to be enough to make it up. There are a lot of situation specific issues (i.e. avoiding ACA cliffs, maybe your taxes will drop in a couple years, death,...) that can tweak the numbers but if leasing wasn't a win while you were working, why would you expect to be a win when your retired?


As far as leasing being a good deal or not, go to leasehackrs.com. There are some leases that are much better than buying. And a ton that are much worse.

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BrandonBogle
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Re: Leasing Cars in Retirement

Post by BrandonBogle » Fri Sep 14, 2018 11:01 am

I apologize, but I fail to see how "in retirement" adds a dimension beyond the usual lease vs. buy discussions. Regardless of finances, there are perks to leasing and perks to buying. If the concern is liquidating assets to pay for a car (new or used), there are loans you can get on cars (new or used). So "how to pay for the car" is a wash discussion between leasing and buying, so you are back to the regular discussions of which to do.

DNeal
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Re: Leasing Cars in Retirement

Post by DNeal » Fri Sep 14, 2018 11:11 am

Wife and I have been retired for 3 1/2 years. Our driving has reduced considerably. No separate commutes to work and often times we are together and not using one of the cars. We are looking at purchasing a Hyundai or similar manufacturer with the longer warranties. 10 year or 100,000 warranty would last us the 10 years. Something to consider.

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Watty
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Re: Leasing Cars in Retirement

Post by Watty » Fri Sep 14, 2018 11:34 am

Chip wrote:
Fri Sep 14, 2018 10:14 am
Frisco Kid wrote:
Fri Sep 14, 2018 10:05 am
All purchases in our case would trigger a large taxable event, looking at how leasing might offset that or not......
Not if you take out a loan.
+1

I bought a car this year with a car loan to keep my income low enough to still get the ACA healthcare subsidy. I would have preferred to have paid cash but I would have needed to make a large taxable withdrawal from an IRA to do that.

I would not recommend it but if you need to keep the payments as low as possible for tax reasons then seven year car loans are available. That may be lower than the lease payments. I got a five year loan that I plan on paying off early once I get Medicare and do not need the ACA subsidy anymore.

One big problem with a leased car in retirement is that your situation might change and you would still be stuck with the lease. There have been lots of posts with situations like a mother in law having a stroke and being in a nursing home six months after getting a car lease. I don't recall there being any real good ways for them to get out of the car lease. If you die while having a leased car then your heirs would still need to deal with the lease.

Nissanzx1
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Re: Leasing Cars in Retirement

Post by Nissanzx1 » Fri Sep 14, 2018 11:36 am

Call me crazy, but the last thing I'd want in retirement is a car loan or lease. With the cost of healthcare, it only reaffirms my position...

delamer
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Re: Leasing Cars in Retirement

Post by delamer » Fri Sep 14, 2018 11:48 am

Frisco Kid wrote:
Fri Sep 14, 2018 8:27 am
Wanted to get others thoughts on leasing cars in retirement in lieu of triggering an additional taxable event by spending down investments. Thinking $350 or so monthly for three years within mileage allowances, wash and repeat. Pluses are covered maintenance and investments continue to grow.
Please chime in with your thoughts on the minuses................. thanks in advance.
Not to derail the thread, but is it universally true that standard maintenance is free for leased cars over the term of the lease?

I have seen similar statements in other threads, but I can’t seem to confirm that via an online search.

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wabbajack
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Re: Leasing Cars in Retirement

Post by wabbajack » Fri Sep 14, 2018 12:00 pm

Watty wrote:
Fri Sep 14, 2018 11:34 am
One big problem with a leased car in retirement is that your situation might change and you would still be stuck with the lease. There have been lots of posts with situations like a mother in law having a stroke and being in a nursing home six months after getting a car lease. I don't recall there being any real good ways for them to get out of the car lease. If you die while having a leased car then your heirs would still need to deal with the lease.
Actually this is a plus for a lease. Please explain how having a loan instead would be easier to deal with.
Assuming you purchased the same car, it would be much harder to get rid of a loan and you would take a much larger financial hit because you would have paid more taxes and depreciation. You can always resell (transfer) the lease, similar to how you would sell a car.

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djpeteski
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Re: Leasing Cars in Retirement

Post by djpeteski » Fri Sep 14, 2018 12:04 pm

Frisco Kid wrote:
Fri Sep 14, 2018 8:27 am
Wanted to get others thoughts on leasing cars in retirement in lieu of triggering an additional taxable event by spending down investments. Thinking $350 or so monthly for three years within mileage allowances, wash and repeat. Pluses are covered maintenance and investments continue to grow.
Please chime in with your thoughts on the minuses................. thanks in advance.
My mom leases and I kind of agree with her. She lives off of pension and social security income and leaves her 401K money in tact. She has a severe psychological aversion to spending down savings. She negotiates a good deal and gets a new car every three years. Part of her "very busy" retirement life style is taking the car in for its free service. She hates taking her RMDs.

Is it the most efficient? Nope. Does it matter? Nope.

If it makes her happy, well she earned it.

alfaspider
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Re: Leasing Cars in Retirement

Post by alfaspider » Fri Sep 14, 2018 12:06 pm

delamer wrote:
Fri Sep 14, 2018 11:48 am
Frisco Kid wrote:
Fri Sep 14, 2018 8:27 am
Wanted to get others thoughts on leasing cars in retirement in lieu of triggering an additional taxable event by spending down investments. Thinking $350 or so monthly for three years within mileage allowances, wash and repeat. Pluses are covered maintenance and investments continue to grow.
Please chime in with your thoughts on the minuses................. thanks in advance.
Not to derail the thread, but is it universally true that standard maintenance is free for leased cars over the term of the lease?

I have seen similar statements in other threads, but I can’t seem to confirm that via an online search.
No, it's not universal. It's possible you could have to pay for wear items like brakes and tires depending on how you drive.


As far as leasing vs buying: Leasing is a good idea on residual-subsidized cars (many EVs and entry level luxury cars), if there is a business tax driver, or if you know you will want to replace the car at the end of 2-3 years. From a pure financial standpoint, it's far cheaper to buy and hold onto a car for 10 years than to lease, but you of course then don't get a new car every 3 years. Leasing can be a better option than buying and trading in a new car every three years.

One distinct downside to leasing is that it forces you to make a decision on your car at the end of 2-3 years (or whatever the term is). If you own the car, you can make a car choice when you are ready to- not when a lease term is up.

Finally, it's worth noting that leasing is tax disadvantaged in some states (Texas is one of them). In some states, you pay tax on the value of the entire vehicle, not just on the lease payments. In some cases (especially with some EVs) it can more than double the cost of leasing compared to a state that only taxes the lease payments.

boogiehead
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Re: Leasing Cars in Retirement

Post by boogiehead » Fri Sep 14, 2018 12:24 pm

delamer wrote:
Fri Sep 14, 2018 11:48 am
Frisco Kid wrote:
Fri Sep 14, 2018 8:27 am
Wanted to get others thoughts on leasing cars in retirement in lieu of triggering an additional taxable event by spending down investments. Thinking $350 or so monthly for three years within mileage allowances, wash and repeat. Pluses are covered maintenance and investments continue to grow.
Please chime in with your thoughts on the minuses................. thanks in advance.
Not to derail the thread, but is it universally true that standard maintenance is free for leased cars over the term of the lease?

I have seen similar statements in other threads, but I can’t seem to confirm that via an online search.
No it depends on the make of the car. BMW currently has 3yr/36k miles covered for standard maintenance, although I heard they will be eliminating this soon. Audi on the other hand requires you to pay extra if you want standard maintenance as part of your lease. I recommended that my parents who leased their first car ever after retirement because of the following reason: First they get the latest safety features (i.e. lane change warning, 360 backup camera, etc...), they mostly drive around the neighborhood so a low mileage lease made sense and was cheaper 7500 miles per year, they don't have to worry about the car breaking down and will only have to do standard maintenance during that time period (i.e oil change). Financially speaking... it probably cost them more, but still within their budget, however I believe the overall safety and convenience factors makes it worthwhile.

Admiral
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Re: Leasing Cars in Retirement

Post by Admiral » Fri Sep 14, 2018 2:27 pm

Frisco Kid wrote:
Fri Sep 14, 2018 8:27 am
Wanted to get others thoughts on leasing cars in retirement in lieu of triggering an additional taxable event by spending down investments. Thinking $350 or so monthly for three years within mileage allowances, wash and repeat. Pluses are covered maintenance and investments continue to grow.
Please chime in with your thoughts on the minuses................. thanks in advance.
Your post needs more information. Are you trying to decide on paying, say, $299 a month on a lease versus taking out, say, $35k from an IRA that will be a taxable withdrawal to pay for the car in full? Where is the $299 coming from?

If this is not the comparison you're making, then you're talking about a monthly lease payment versus a monthly finance payment. Where is THAT money coming from? If it's lease vs finance, the dollar figure per month may be a $200 delta (lease is cheaper) but the tax hit would be immaterial.

Do you not have a taxable account to be used to pay for the car?

lazydavid
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Re: Leasing Cars in Retirement

Post by lazydavid » Fri Sep 14, 2018 2:56 pm

boogiehead wrote:
Fri Sep 14, 2018 12:24 pm
No it depends on the make of the car. BMW currently has 3yr/36k miles covered for standard maintenance, although I heard they will be eliminating this soon. Audi on the other hand requires you to pay extra if you want standard maintenance as part of your lease.
This is true, but to add a twist to it, Audi increases the residual by 1% if you buy AudiCare (prepaid maintenance) at the time of sale. Depending on the value of the vehicle, this can come pretty close to wiping out the cost of the plan. So maintenance is "sort of" included.

jebmke
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Re: Leasing Cars in Retirement

Post by jebmke » Fri Sep 14, 2018 2:57 pm

We just bought a Camry; rebate paid for the down payment and the financing is zero percent.
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MathWizard
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Re: Leasing Cars in Retirement

Post by MathWizard » Fri Sep 14, 2018 3:03 pm

I'll handle this like I do now, save up for the car (ROTH conversions), and then buy it using ROTH money,
rather taking a lump sum in one year against tax deferred. (I don't expect to have a very large taxable
account in retirement. If I do, I would spend it down and leave money in ROTH, and do whatever ROTH
conversions that I could. I'll have plenty of tax deferred, so no worries about dropping below the
15% (or now 12%) bracket.

visualguy
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Re: Leasing Cars in Retirement

Post by visualguy » Fri Sep 14, 2018 3:23 pm

alfaspider wrote:
Fri Sep 14, 2018 12:06 pm
One distinct downside to leasing is that it forces you to make a decision on your car at the end of 2-3 years (or whatever the term is). If you own the car, you can make a car choice when you are ready to- not when a lease term is up.
Correct, and I don't see this mentioned often enough in lease vs buy discussions. It's what I dislike most about leasing, actually... This fixed schedule where you need to get another car at a particular time. It may not be the right time... Maybe you want to be away at that time, or you have other things to deal with, or you want to wait for a new model that's coming, or you want to wait until there are better deals/incentives, etc. Also, if you custom order your car (common with German cars), it's not easy to get it all lined up so that you get the new car at the right time: allocations may not be available, production may be delayed, damage may occur in transit or at the dealership and you have to order another car, etc.

Regarding buying and holding for a long time (10 years, etc.)... This assumes you have a good place to do maintenance and repairs. This cannot be taken for granted. Many places (including dealerships) are incompetent, don't do things right, and cause damage. Again, not something that I see mentioned often, but it's actually a big problem in my experience.

Anyway, there are no clear-cut answers for this. Much depends on the particular deals and circumstances.

MikeG62
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Re: Leasing Cars in Retirement

Post by MikeG62 » Fri Sep 14, 2018 3:31 pm

Frisco Kid wrote:
Fri Sep 14, 2018 8:27 am
Wanted to get others thoughts on leasing cars in retirement in lieu of triggering an additional taxable event by spending down investments. Thinking $350 or so monthly for three years within mileage allowances, wash and repeat. Pluses are covered maintenance and investments continue to grow.
Please chime in with your thoughts on the minuses................. thanks in advance.
DW and I retired three years ago. Have always bought our cars. We have begun leasing now for the following reasons:

1. Driving cars with new/current technology
2. Car under warranty for entire term of lease
3. Tired of selling cars (can be a real PITA)
4. Very hard to keep cars in mint condition - too many people who park righ next to you and don’t care about your property.
5. Less worry about little nicks and dings - after all it’s a lease (of course big dents and dings may cost you on turn in)

I am not saying leasing is cheaper. It is just better for us where we are in this stage of our lives.
Last edited by MikeG62 on Fri Sep 14, 2018 4:34 pm, edited 1 time in total.
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JackoC
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Re: Leasing Cars in Retirement

Post by JackoC » Fri Sep 14, 2018 3:46 pm

BrandonBogle wrote:
Fri Sep 14, 2018 11:01 am
I apologize, but I fail to see how "in retirement" adds a dimension beyond the usual lease vs. buy discussions. Regardless of finances, there are perks to leasing and perks to buying. If the concern is liquidating assets to pay for a car (new or used), there are loans you can get on cars (new or used). So "how to pay for the car" is a wash discussion between leasing and buying, so you are back to the regular discussions of which to do.
I think it's been touched on but maybe not explained explicitly. OP seems to assume it's lease v pay in cash. Paying cash *in retirement* could mean taking money from IRA's greater than RMD, or liquidating appreciated assets in taxable accounts and paying capital gains tax you would not otherwise. But a couple of posts have noted that you could buy a car with a loan and also avoid negative tax consequences.

Borrowing money in retirement to avoid >RMD IRA withdrawals or capital gains recognition can make sense. It's just that in the case of cars you can borrow two ways, a loan to buy it or the implicit borrowing of a lease. Tax isn't a strong reason for one over the other, generally.

So yeah, then between borrow to buy and lease it comes back largely to the same old discussion of buy v lease for anyone else, with retirement possibly cutting either way (retired so don't want to be responsible for a car particularly after it's new, or retired so now have more time to take care of a car after it's new, etc).

Also for the idea of borrowing to lower taxes, depends on whether you'd fund the purchase with extra IRA withdrawal or appreciated asset liquidation, how appreciated, tax rate, borrowing rate etc.

visualguy
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Re: Leasing Cars in Retirement

Post by visualguy » Fri Sep 14, 2018 4:00 pm

MikeG62 wrote:
Fri Sep 14, 2018 3:31 pm
DW and I retired three years ago. Have always bought our cars. We have begun leasing now for the following reasons:

1. Driving cars with new/current technology
2. Car under warranty for entire term of lease
3. Tired of selling cars (can be a real PITA)
4. Very hard to keep cars in mint condition - too many people who park righ next to you and don’t care about your property.
5. Less worry about little nicks and dings - after all it’s a lease (of course you big dents and dings may cost you on turn in)

I am not saying leasing is cheaper. It is just better for us where we are in this stage of our lives.
I think if the cost isn't a concern, then leasing is overall better regardless of the stage of life... It becomes a more interesting question when you take the cost into account.

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Watty
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Re: Leasing Cars in Retirement

Post by Watty » Fri Sep 14, 2018 4:11 pm

wabbajack wrote:
Fri Sep 14, 2018 12:00 pm
Watty wrote:
Fri Sep 14, 2018 11:34 am
One big problem with a leased car in retirement is that your situation might change and you would still be stuck with the lease. There have been lots of posts with situations like a mother in law having a stroke and being in a nursing home six months after getting a car lease. I don't recall there being any real good ways for them to get out of the car lease. If you die while having a leased car then your heirs would still need to deal with the lease.
Actually this is a plus for a lease. Please explain how having a loan instead would be easier to deal with.
Assuming you purchased the same car, it would be much harder to get rid of a loan and you would take a much larger financial hit because you would have paid more taxes and depreciation. You can always resell (transfer) the lease, similar to how you would sell a car.
If you have a car with a loan you can take it to some place like car max and sell it at any time. You will not get as much as if you sold it yourself but you could be done with it in an afternoon.

I have never tried to set up a lease transfer but you would be competing new car dealers who are trying to lease new cars so it would be much more complicated to try to price it right and I would think that there are a lot fewer people looking to take over leases.

inbox788
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Re: Leasing Cars in Retirement

Post by inbox788 » Fri Sep 14, 2018 4:28 pm

MikeG62 wrote:
Fri Sep 14, 2018 3:31 pm
1. Driving cars with new/current technology
2. Car under warranty for entire term of lease
3. Tired of selling cars (can be a real PITA)
4. Very hard to keep cars in mint condition - too many people who park righ next to you and don’t care about your property.
5. Less worry about little nicks and dings - after all it’s a lease (of course you big dents and dings may cost you on turn in)
Reasons not to lease:
1. Getting older means harder time adjusting to change and new things. More technology means more distractions. What's that strange new beeping sound?
2. Manufacturer defects are covered and fixed under the warranty, but car can be in the shop more.
3. Tired of buying cars every 3 years (can be a real PITA). Own a car long term and only visit the dealership once every 10 or 20 years.
4. Older beat up car, don't care who parks next to you. Other cars avoid parking near you.
5. Dealer nickle and dimes you when you turn in cars with defects. Some are more forgiving, but there are those that ding you for every possible wear and tear item including tire and brake pads.

I've you're going to give up driving, or someone makes you, neither the end of one lease or 36 months later may be good timing, but forces you to make a final decision that much harder. I plan on owning the last car I give up and handing over the keys on my own schedule.

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tennisplyr
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Re: Leasing Cars in Retirement

Post by tennisplyr » Fri Sep 14, 2018 4:29 pm

Been leading since 1995, am retired. I like having a new state-of-art car every 3 years with virtually no repairs to speak of. I'm not a huge numbers cruncher so I'm not concerned with the difference between leading v owning....hey people rent homes and live in them. I may buy a car I'm leasing now because I really like and don't drive that much. I feel safer for me and my family. Give it a try for a few years, you can always buy it at the end...at least you know who drove it.
Last edited by tennisplyr on Sat Sep 15, 2018 6:46 am, edited 1 time in total.
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Re: Leasing Cars in Retirement

Post by S&L1940 » Fri Sep 14, 2018 5:43 pm

Dick D wrote:
Fri Sep 14, 2018 10:55 am
We have always paid cash for my cars which we normally keep for 12-15 years. We just purchased a car, but I think that this will be the last car that I will purchase. In the future I will lease for the following reasons: 1) age - you no longer take it for granted that you will be able to drive for 10-15 more years. 2) As you age it is good to have all the latest safety features. Given the fact that I am now 73, we will replace our second car with a lease. Financial issues are not a consideration.
+1
Current car is closing in on its teens still has years to go? current driver (me) in early 80s still have years to go?
Aging out, how long can I continue to drive? That is why our next car and any others to follow will be leases.
2-3 year deals, we are way below 10k miles a year, added costs, worth it!
Future: Maybe a self driving car would extend our driving experience? Or better yet, get friendly with a local Uber or Lyft driver.
Don't it always seem to go * That you don't know what you've got * Till it's gone

JW-Retired
Posts: 6880
Joined: Sun Dec 16, 2007 12:25 pm

Re: Leasing Cars in Retirement

Post by JW-Retired » Fri Sep 14, 2018 6:25 pm

Frisco Kid wrote:
Fri Sep 14, 2018 8:27 am
Wanted to get others thoughts on leasing cars in retirement in lieu of triggering an additional taxable event by spending down investments. Thinking $350 or so monthly for three years within mileage allowances, wash and repeat. Pluses are covered maintenance and investments continue to grow.
Please chime in with your thoughts on the minuses................. thanks in advance.
Your thread is timely! We are in the market for a new car soon and I hadn't given a thought about leasing until this thread. We have been in the habit of keeping cars 10+ years (it's 20 for our commute car we now drive very little). One of the reasons for that is I just detest buying cars. :oops:

Is leasing more like off the shelf pricing or is there haggling with that too?
JW
Retired at Last

delamer
Posts: 5813
Joined: Tue Feb 08, 2011 6:13 pm

Re: Leasing Cars in Retirement

Post by delamer » Fri Sep 14, 2018 6:27 pm

JW-Retired wrote:
Fri Sep 14, 2018 6:25 pm
Frisco Kid wrote:
Fri Sep 14, 2018 8:27 am
Wanted to get others thoughts on leasing cars in retirement in lieu of triggering an additional taxable event by spending down investments. Thinking $350 or so monthly for three years within mileage allowances, wash and repeat. Pluses are covered maintenance and investments continue to grow.
Please chime in with your thoughts on the minuses................. thanks in advance.
Your thread is timely! We are in the market for a new car soon and I hadn't given a thought about leasing until this thread. We have been in the habit of keeping cars 10+ years (it's 20 for our commute car we now drive very little). One of the reasons for that is I just detest buying cars. :oops:

Is leasing more like off the shelf pricing or is there haggling with that too?
JW
You can and should haggle the price with a lease too.

MikeG62
Posts: 1046
Joined: Tue Nov 15, 2016 3:20 pm
Location: New Jersey

Re: Leasing Cars in Retirement

Post by MikeG62 » Sat Sep 15, 2018 6:41 am

JW-Retired wrote:
Fri Sep 14, 2018 6:25 pm

Your thread is timely! We are in the market for a new car soon and I hadn't given a thought about leasing until this thread. We have been in the habit of keeping cars 10+ years (it's 20 for our commute car we now drive very little). One of the reasons for that is I just detest buying cars. :oops:

Is leasing more like off the shelf pricing or is there haggling with that too?
JW
Start by negotiating the purchase price as if you were going to buy it. Do not walk in and accept whatever lease deal they are offering.

The negotiated price will be the capitalized cost (in lease parlance). This is the one key factor you can negotiate.

The other key factors in the lease will be:

1. The Residual Value (what the financing company projects the car to be worth at lease end),
2. The Money factor (aka the interest/financing rate) - if they don't give you the MF straight up, then compute it by taking the interest rate and dividing it by 2,400,
3. Any manufacturer and dealer incentives (these will ultimately serve to reduce the capitalized cost),
3. The miles per year (here you can typically choose the miles you expect you will drive, such as 8K, 10K, 12K, 15K, 18K miles per year) - the more miles you assume the lower the residual value will be at lease end and the higher your payments, and
4. Any Capitalized Cost Reduction (i.e., down payment) - I'd avoid bothering with down payments (they are simply disguised monthly payments and are used to make you feel like you are paying less to drive the vehicle).
5. Security Deposit - you'll almost always have to make one. Some manufacturers (most high-end/luxury foreign ones) will allow you to make multiple security deposits (usually up to 9 or 10 of them). Each one reduces the MF by 0.0007. Usually it results in a reduction in interest equal to around a 33% return on the amount of each security deposit over the lease term (where else can you get an ~11% annual return guaranteed?). It's a no brainer if the finance arm accepts them (FWIW, I put down nine (the maximum allowed) on my Audi lease last year).

Your payment is simply going to be a combination of three factors: (1) the depreciation during the term you lease the car (difference between the Capitalized Cost and Residual Value), (2) the financing charge, and (3) sales tax. You can calculate it as follow:

1. Depreciation divided by lease term +
2. Interest factor (sum of net Capitalized Cost + Residual Value x Money Factor) +
3. Sales Tax

So negotiate the crap out of the capitalized cost. Start with an internet request for an "e-price" and do this with several dealers in the area. When they respond tell them you are negotiating with several dealers at the same time and you will be going with the one who is willing to be most aggressive with the sales price - they will almost always come back with a better/lower price after that. Tell them they'll have one shot (and one shot only) to earn your business so they will need to be very aggressive right out of the shoot (as they may not get a second chance). Only after this is done do you bring up leasing. I'd ask for the residual values and MF's once I have negotiated the purchase price as well as your choices on miles per year (don't assume that 12K is your only option - that is almost never the case) and security deposits. Use the Edmunds forums for the vehicle you are interested in to get real time prices others are getting quoted for capitalized costs. They will also tell you the residual values and MF's based upon miles selected and location in the US (all geographies do not all get the same deals). There are super posters on that forum who somehow have access to the RV and MF's being offered (as well as what is reasonable to expect in terms of capitalized costs (i.e., discounts from msrp).

And keep any discussion of trade-in's out of the negotiation (until the end, if at all). It won't help you - if they give you more for the trade then they will be less willing to discount the sale price on the new car.

I have negotiated or help negotiate for family and friends many leases. This is how I do it and I have always come out with a deal way better than anything advertised on the dealers website (or in the paper).
Last edited by MikeG62 on Sat Sep 15, 2018 7:25 am, edited 2 times in total.
Real Knowledge Comes Only From Experience

strafe
Posts: 830
Joined: Sat Mar 03, 2007 12:49 pm

Re: Leasing Cars in Retirement

Post by strafe » Sat Sep 15, 2018 7:11 am

Frisco Kid wrote:
Fri Sep 14, 2018 8:27 am
Wanted to get others thoughts on leasing cars in retirement in lieu of triggering an additional taxable event by spending down investments. Thinking $350 or so monthly for three years within mileage allowances, wash and repeat. Pluses are covered maintenance and investments continue to grow.
Please chime in with your thoughts on the minuses................. thanks in advance.
The first question you need to answer is "Do I want to buy a new car every 3 years in retirement?" Cars depreciate fastest in the first several years. Short holding periods will cost you a lot of money.

If the answer is yes, leasing is probably the best way to structure the transaction. Leases combine the purchase and later sale of the car into one transaction. It will be less hassle and probably cheaper than buying & selling as separate transactions.

If the answer is no, you should not lease. You can avoid a taxable event by taking out a loan.

JW-Retired
Posts: 6880
Joined: Sun Dec 16, 2007 12:25 pm

Re: Leasing Cars in Retirement

Post by JW-Retired » Sat Sep 15, 2018 9:37 am

MikeG62 wrote:
Sat Sep 15, 2018 6:41 am
JW-Retired wrote:
Fri Sep 14, 2018 6:25 pm

Your thread is timely! We are in the market for a new car soon and I hadn't given a thought about leasing until this thread. We have been in the habit of keeping cars 10+ years (it's 20 for our commute car we now drive very little). One of the reasons for that is I just detest buying cars. :oops:

Is leasing more like off the shelf pricing or is there haggling with that too?
JW
................................Mike's negotiation how to ....................................
And keep any discussion of trade-in's out of the negotiation (until the end, if at all). It won't help you - if they give you more for the trade then they will be less willing to discount the sale price on the new car.

I have negotiated or help negotiate for family and friends many leases. This is how I do it and I have always come out with a deal way better than anything advertised on the dealers website (or in the paper).
MikeG,
Very helpful! I'm studying it carefully.
Thanks a bunch! :beer
JW
Retired at Last

Dandy
Posts: 5287
Joined: Sun Apr 25, 2010 7:42 pm

Re: Leasing Cars in Retirement

Post by Dandy » Sat Sep 15, 2018 12:38 pm

I have always bought. I hate the car buying process. I feel I would hate the leasing process even more since you have a lot more to negotiate. The more you have to negotiate the greater disadvantage to the buyer. Then you are required to further negotiate the end of the lease if there are any dents, etc. that have to be fixed/charged. It is only 3 years later and you have to go through the process again :oops:

I do agree that in retirement it is tempting every 3 years to get a new car with the latest safety equipment and most likely have little repairs/maintenance issues. But, the learning curve for the new tech is often beyond me. I can't seem to master the clock change on my Forester - I have to subtract 2.5 hours mentally to get the current time. :oops:

Stormbringer
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Re: Leasing Cars in Retirement

Post by Stormbringer » Sat Sep 15, 2018 1:25 pm

I think we're all aware that the most cost effective way to own a car is to buy one a few years old and then drive it into the ground. Anything more than that and you are transitioning from a necessity towards a luxury good. At that point it becomes a question of means and preferences.
"Compound interest is the most powerful force in the universe." - Albert Einstein

Dandy
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Re: Leasing Cars in Retirement

Post by Dandy » Sat Sep 15, 2018 2:21 pm

I think driving it into the ground was at one time maximizing cost savings. Been there done that drove a Pinto for 11 years. :oops:

It might now be less valid since more up to date cars have better safety and accident avoidance features. One accident avoided can be a lot of savings on repairs and future insurance bills. Barely dented a car backing up and it cost almost $1000 to repair. A few beeps or a back up camera would have avoided that expense.

So buying a 3 year old car and keeping it for a 3 or 4 years might be the new way of balancing value and safety/cost.

ncbill
Posts: 346
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Re: Leasing Cars in Retirement

Post by ncbill » Sun Sep 16, 2018 4:12 pm

spend some time own the leasehackr [sic] dot com forums if you're interested in leasing.

IMHO, leasing has gotten more expensive (lower residual values, higher money factors, fewer lease rebates, more purchase rebates)
over the last year or so.

randomguy
Posts: 6171
Joined: Wed Sep 17, 2014 9:00 am

Re: Leasing Cars in Retirement

Post by randomguy » Sun Sep 16, 2018 7:24 pm

Dandy wrote:
Sat Sep 15, 2018 2:21 pm
I think driving it into the ground was at one time maximizing cost savings. Been there done that drove a Pinto for 11 years. :oops:

It might now be less valid since more up to date cars have better safety and accident avoidance features. One accident avoided can be a lot of savings on repairs and future insurance bills. Barely dented a car backing up and it cost almost $1000 to repair. A few beeps or a back up camera would have avoided that expense.

So buying a 3 year old car and keeping it for a 3 or 4 years might be the new way of balancing value and safety/cost.
So would looking in the mirror:) You could hit a lot of cars for the amount of depreciation you avoid by getting a new car. You could have made this same argument a lot in the past 25 or so years. You had antilock brakes, driver airbags, passenger airbags, VSC, and AEB off the top of my head which all showed decent improvements in safety to go along with improves in frame construction.

The issue I have with buying and selling cars every 3 years is that I suck at it:) I have no desire to haggle to get that last 10-20% in private sales that make it cheaper to do that versus just buying a new car and driving it 10 years. Sure i am slightly more out of date (10 year olds versus 6) sometimes and more upto date (0 versus 3) others.

ubermax
Posts: 1433
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Location: Connecticut

Re: Leasing Cars in Retirement

Post by ubermax » Mon Sep 17, 2018 3:11 pm

Frisco Kid , I can relate - DW and I are very top-heavy in tax deferred accounts and ,although the tax bite upon withdrawal is expected since we chose to defer taxes through the years , we never thought it would be as big an ouch each time we needed some extra dollars - we are both already taking fully taxable RMD's .

During our working years we always bought new or used but this year we seriously considered leasing and I put together a simple spreadsheet that uses the same methodology as dealership lease software - this allowed me to play around with different down payments in order to get a monthly lease payment that would only require a small stretch in our monthly retiree expense budget - we had a small value trade-in but this past Summer many dealerships in our area were also offering rebates and so the downpayment on our part that was required to hit our target payment was relatively small .

Two weeks ago we closed on a 3 year, 15K per year lease and we'll see how it goes - if you have any specific questions , I'd be happy to try and answer them .

jdb
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Re: Leasing Cars in Retirement

Post by jdb » Mon Sep 17, 2018 3:51 pm

So why do you think car dealers love leases? Cause they want to give you best financial deal? No. They want to maximize their margin off you and see you again in three years to rinse and repeat. And if you think negotiating a car purchase tricky try negotiating a lease. And if want to limit down payment just take out bank loan from your friendly local bank or credit union. I would rather make a local banker happy than a car dealer. As you can guess I am not a fan of car leases or car dealers. Good luck. Edit: as an aside, I am also retired and paying 30 percent tax on my RMD, at least those which don’t go to QCD. But am always puzzled by comments like OP which seem to indicate tax on RMD unusual. All the years that you earned income you paid tax, why is tax on tax deferred savings that you are finally taking any different?

ThankYouJack
Posts: 2108
Joined: Wed Oct 08, 2014 7:27 pm

Re: Leasing Cars in Retirement

Post by ThankYouJack » Mon Sep 17, 2018 6:29 pm

Chip wrote:
Fri Sep 14, 2018 10:14 am
Frisco Kid wrote:
Fri Sep 14, 2018 10:05 am
All purchases in our case would trigger a large taxable event, looking at how leasing might offset that or not......
Not if you take out a loan.
+1. Not sure why a loan couldn't be an option.

michaeljc70
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Re: Leasing Cars in Retirement

Post by michaeljc70 » Tue Sep 18, 2018 9:42 am

Isn't leasing just delaying the taxes? You still have to have the money down (I know sometimes you can get none down, but payments are higher). You still have to make the payments. If you buy and sell after 3 years (or trade in), the residual value is money you don't have to take out of savings. I really don't see a big difference in taxes over the long haul.

Leases are almost always for new cars, so no saving on buying a newer used car. Some cities also have very unfavorable taxation of leases. I also don't like being forced into making a decision on keeping/returning the car on an exact date.

As others said, a loan might be a better deal depending on the terms.

I think this whole idea could be taken to extremes. Sell your house and rent so you have money and don't have to take out of savings and pay taxes. You knew the money would be taxable upon withdrawal.

TheAccountant
Posts: 91
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Re: Leasing Cars in Retirement

Post by TheAccountant » Tue Sep 18, 2018 11:22 am

I recently bought a boat by "triggering a taxable event." In my case I had funds specifically earmarked for a purchase such as this (car, truck, boat, etc.) So I'd have to ask you - if you're not willing to spend the money on a car, then what else are you using that money for?

Put it this way - leasing a car is generally like paying 14% interest. Interest on a boat is something like 9%, and they depreciate like crazy.

I had zero issue with selling stock to buy an asset, albeit a depreciating one. I'd never use my cashflow to rent something long term unless it was to put a roof over my head.

My .02. Pay cash and be done with it.

inbox788
Posts: 5391
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Re: Leasing Cars in Retirement

Post by inbox788 » Tue Sep 18, 2018 1:10 pm

Frisco Kid wrote:
Fri Sep 14, 2018 10:05 am
Op here.....keywords are IN RETIREMENT. All purchases in our case would trigger a large taxable event, looking at how leasing might offset that or not......
Are you selling stocks? How long do you plan to keep your cars? How many miles do you drive a year?
michaeljc70 wrote:
Tue Sep 18, 2018 9:42 am
Isn't leasing just delaying the taxes?
Is this a math or finance question? Does paying the lump sum capital gains tax all in one year increase the total taxes paid? Does it move OP up a tax bracket? If you don't have to pay the tax by spread things out or if your heirs have a step up basis, then there may be a benefit to delaying payment.

A loan costs interest, but there's a time value to money, so if you can get a free subsided car loan (0% or very low rate, less than 2%) that doesn't increase the cost of the deal, that may be less costly than paying cash. Similar with leases, but additional lease costs/benefits.

Anyway, the math doesn't change whether you're in retirement or not.

New Car: Ever make sense to lease?
viewtopic.php?t=231128

strafe
Posts: 830
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Re: Leasing Cars in Retirement

Post by strafe » Tue Sep 18, 2018 2:19 pm

TheAccountant wrote:
Tue Sep 18, 2018 11:22 am
I recently bought a boat by "triggering a taxable event." In my case I had funds specifically earmarked for a purchase such as this (car, truck, boat, etc.) So I'd have to ask you - if you're not willing to spend the money on a car, then what else are you using that money for?

Put it this way - leasing a car is generally like paying 14% interest. Interest on a boat is something like 9%, and they depreciate like crazy.

I had zero issue with selling stock to buy an asset, albeit a depreciating one. I'd never use my cashflow to rent something long term unless it was to put a roof over my head.

My .02. Pay cash and be done with it.

Where did you get that interest rate figure? The interest rate on leases is nowhere near 14%. More like 0-4% depending on the lease program.

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