Q. I am 73 years old with a modest income consisting of a small pension and government benefits. I need a new vehicle and I’m considering leasing instead of dipping into my retirement savings to buy another car outright. Is this a good idea?
One-off expenses such as a replacement vehicle should be part of everyone’s retirement income planning. It’s understandable that drivers in their 70s and older may want to consider leasing instead of buying if they need to replace their car.
Driving a newer car that has the latest safety and convenience features that seniors want – air conditioning, backup camera, auto-braking and pre-collision warning – has its appeal, especially if you want to upgrade every few years to suit your future needs.
There are a few factors to consider when making the lease-or-buy decision.
Take a look at your cash flow to see if it can handle the monthly lease payments. Think about how much you drive and for how long.
One benefit of leasing is the vehicle is usually covered by a warranty for the duration of the lease. You don’t have to worry about repair and maintenance costs (other than routine maintenance such as oil changes).
Disadvantages of leasing a vehicle
While many seniors don’t use the full mileage allowance of their lease, you can easily underestimate your mileage if you spend time motoring across the province or country visiting relatives and friends. This additional mileage will cost you.
Many elderly drivers tend to accumulate a lot of scratches and dents to their vehicles, a fact that I can attest to from my own parents and in-laws, and their peers. With a lease, you will face a steep bill for the damages when you turn in the car. When you own the car, you can decide what repairs you want to make and which you can ignore.
Chances are fairly good that an unanticipated future medical issue may leave you unable to drive. Even if you get a doctor’s certificate, you may still be stuck with a significant cost to terminate the lease early. Some dealers allow the option of getting someone else to pick up the lease, but don’t count on it.
Ask a lot of questions to see how flexible the lease is. Negotiate the price just as you would if you were buying.
Final thoughts
Buying a reliable car outright will give you many years of service. You have the flexibility to sell the car when you want to and may even have a little equity left if you purchase another vehicle, or if you must stop driving.
Another possibility to consider if you don’t drive much and live close to amenities, is to rent a vehicle for road trips, or use a car sharing service such as Autoshare or Car2Go if available in your area.
As part of my budgeting plan, I transfer a set amount every month into my chequing account to pay for the household bills and regular monthly spending. I have this figured out pretty accurately. This month, I was pleasantly surprised to see that I had almost $700 extra – money that wasn’t spent.
I told my husband, thinking we could use the money to splurge on something, and I just about fell over backwards when he said, “You should save it.”
You see, I’m the saver in our family, and he’s a major spender. Even though we both had a frugal upbringing, we ended up with totally opposite money styles.
Mr. E always wants to buy something new, and it seems he just can’t rest until all his available funds are gone. He thinks I’m a crazy miser lady.
Spenders vs Savers
Our money philosophy is not entirely based on family upbringing. Often, even siblings who grow up in the same household – whether frugal or affluent – can have totally different perspectives when it comes to money. It’s how we view life.
Spenders have a natural propensity to acquire and consume. They may think that because they work hard they deserve to go out, take expensive vacations, and buy nice things for themselves and for their friends and loved ones. They may try to seek acceptance from their peers by being ultra-generous.
Related: Of course, but maybe.
Unfortunately, spenders also tend to be quite wasteful. Who cares if you throw away produce that’s gone bad, or if the hydro bill is a bit higher this month?
I grit my teeth when I see my husband ripping off half a roll of paper towels to wipe up a spill.
Here’s a couple of common conversations between us:
Me: Can you pry this container open?
He: Why don’t you just throw it away? It’s empty!
Me: Are you kidding? I can get at least five more uses out of it!
Me: This is a great deal on tomato sauce. We should stock up.
He: Nah! We don’t need to. We still have a can in the pantry. (My translation: He’ll buy one later when it’s at full price.)
There’s a lot of information available for spenders to help them change their ways and become more careful, reasonable and responsible with their resources, but not much is said about savers. I guess it seems to be more of a virtue, but compulsive saving can be just as damaging.
Savers pay themselves first, look for sales, research the cost of items, and consume only as necessary. These frugal activities are commendable but it is possible to analyze potential purchases too much or get mired in research. Savers can be neurotic: “I can buy this $3 coffee, but if that money was saved, with interest over 25 years, it would mean the coffee actually costs $11.85.”
Not spending any money, or doing without things that others might consider necessities, is not conducive to a full and happy life. Why don’t you think you deserve nice things or experiences?
Allowing for the occasional splurge is not going to be the end of the world.
When spending habits come into conflict
It’s great when couples are totally in sync with spending and saving – but that was just not us.
It didn’t always make for automatic marital bliss those first few years. We all know that money is ranked high on the list of topics that couples fight about, and a reason for splitting up.
But, even if you and your spouse are polar opposites when it comes to money attitudes – don’t think it’s hopeless.
Experts say the saver/spender combination in a marriage can actually complement each other. The spender makes sure that the family has nice things and does fun activities together. The saver makes sure there’s money to support the lifestyle now and in the future. Natural tendencies don’t have to rule our lives and cause problems.
It does require communication, compromise, and lots of negotiation to find a happy balance.
- Set financial goals and priorities together – for retirement, large purchases, etc.
- Maintain individual accounts as well as joint
- Agree on a spending budget – either an “approved limit” for individual purchases, or a monthly allowance.
Be honest and trust your partner. Don’t resort to blaming and name calling. You have to pick your battles. Lying or keeping secrets about what you are spending is definitely not OK.
Final thoughts
While people hope to marry someone with a money style similar to their own, they often marry their financial opposite. It takes a bit of effort to find some common ground. With a well thought out financial plan and a realistic budget you’ll be able to make better decisions as a couple.
As for my bonus money, instead of putting it back into savings, I’ve decided to use it to fly out and visit my newest baby granddaughter.
Are you a saver or a spender? How do you manage your money as a couple?
When I was younger I had the opportunity to work for Vector Marketing, the sales arm of Cutco Corporation and the maker of Cutco cutlery – speciality knives with a forever guarantee.
The job listing said no experience necessary and it wasn’t all commission-based – you received a guaranteed base rate of pay every time you made a qualified appointment (sales demonstration).
Related: How a career change improved my life
The knives were quite remarkable. In the demonstration I got to show off their superior cutting ability by slicing through an inch-thick rope in one stroke. I even cut through a penny with the $119 super-shears.
All of my customers were wowed by the demonstration and ended up purchasing a knife set. I was that good!
But after selling to my parents, grandparents, aunts and uncles, my enthusiasm for the direct sales process waned and so I ended up quitting after only a few weeks.
“Mom, I think you need a Universal Life Policy”
Years later I looked into a career at Clarica Life Insurance – now part of Sun Life Canada. The job was to sell insurance products and mutual funds. Similar to the Cutco job, you aren’t handed a client list so you must resort to calling friends and family – people you know – in order to get started.
And similar to my Cutco experience you might have some success early on. After all, your friends and family trust you and want you to succeed. Surely you’ll look after them.
Related: How a lucky break launched a successful career
I turned down the job – commission sales were not for me. But that’s where I’d like to turn the story around and ask: How many of you have been approached by a friend or relative (or friend of a relative) to buy investments or life insurance?
The new advisor salesperson may have good intentions, but does he or she have your best interests at heart? The problem with Sun Life, or Investors Group, or London Life, or Industrial Alliance, is that they focus on selling products – specifically their in-house products which happen to cost twice as much (or more) than other products on the market – instead of giving financial advice.
Maybe you’ll get Universal Life insurance instead of term insurance, segregated funds instead of index funds, basically any plain vanilla instrument could be turned into a complicated set of products that your advisor salesperson will pass off as strategic asset allocation.
You can check out any time you like…
You let your guard down, deferring to their “expertise”. By the time you figure out these products might not be in your best interest, it may be too late.
Trying to untangle yourself from this complex web of products might cost you a pretty penny. That’s why you should exercise caution before purchasing any investment or insurance products, especially from a friend or relative.
Related: Can you trust advice from your bank?
A Universal life insurance policy is essentially term insurance plus a savings component – the insurance industry’s answer to “buy term and invest the difference”.
The insurance policy has a cash surrender charge to discourage you from cancelling before the term matures. In the first few years, most of your savings component is likely used to pay the advisor salesperson and the insurance company – leaving you with nothing should you decide to cancel. This surrender period could last anywhere from seven to 10 years.
With segregated funds, you’re looking at Management Expense Ratios well in excess of 2 percent. There are additional fees charged if you decide to sell the funds within seven years of purchase. That’s called a deferred sales charge and it might look something like this:
If you sell within:
- 1st year 5.5%
- 2nd and 3rd year 5.0%
- 4th and 5th year 4.0%
- 6th year 3.0%
- 7th year 2.0%
- After 7 years 0.0%
Breaking up with your “trusted” advisor
So what do you do if you’re faced with this scenario? Will it be uncomfortable to tell your advisor salesperson that you’d like to make changes to your portfolio, that you’re not happy with the way he or she is managing your finances? Probably.
Related: How to transfer your RRSP to another bank
But if it’s your intention to move your money over to another institution then that conversation doesn’t need to happen – at least not the uncomfortable one about wanting to take your money somewhere else. Your new bank or financial institution will make that request and transfer the money for you. They might even agree to pay any fees associated with transferring out of your old institution.
Final thoughts
I still have those Cutco knives – I think my parents do, too. They’re great knives, and they should be for the price you pay. But the only reason my parents, grandparents, aunts and uncles have these knives is because of who sold them. They could’ve easily picked up a 6-piece set of Komachi knives for $29, which are probably just as good as the Cutco knives.
Bottom line: Hiring friends or relatives for investment advice is probably a bad idea. So the next time you get a phone call from your nephew, or from a friend of a friend telling you all about his new job as a advisor salesperson, tell him you’re thrilled, tell him you’d love to go for coffee or a beer to celebrate, but be careful about entering into a financial agreement that might not be in your best interests.
Related: My advice to switch out of mutual funds draws the ire of an industry group
A simple “no thank-you” up-front might save you from an uncomfortable conversation in the future, and save you thousands in unnecessary commissions and fees.