Financing new car purchases when retired and in drawdown

Audaxer · 15 June 2019 at 1:55PM

I'm just wondering how others in retirement finance large purchases in retirement, for example when you need to change your car.

I've always kept cars for a good number of years and when I've bought a new (or nearly new) car, I've paid for it by cash from savings. However since joining this forum many investors and IFAs suggest its best to be nearly fully invested and only keep back about 18 months or 2 years as a cash buffer. In these circumstances I'm just interested to know whether retired investors would drawdown a large sum from investments to pay cash for a new or nearly new car when necessary, or whether they would normally finance new car purchases by monthly payments on the likes of PCP contracts, as they seem to be very popular these days?

Sea_Shell · 15 June 2019 at 2:01PM

We have a larger cash buffer, but we would (personally) also sell investments if needed to purchase a car rather than borrow.

However, I suppose it depends on the interest rate we could get for a loan.

But, no one has a crystal ball to know how your investments will perform over the course of the loan period?? You'd only ever know for sure the cheapest option after the event!!

Everyone can be an expert in hindsight!!!

Linton · 15 June 2019 at 3:45PM

Our cash buffer is increased in the period leading up to the planned car purchase as part of annual rebalancing.

bostonerimus · 15 June 2019 at 4:17PM

A new car is in the near future for me. I drive a 2007 Honda Civic and a couple of weeks ago the alternator failed. I managed to limp to a Honda dealer before everything stopped and $1000 later I was back on the road. But as the car is close to 200k miles the repair costs will mount. I’ll het either another Civic or a hybrid Insight. That will cost around $20k which will come out of my cash buffer and I will top that back up with dividends and some capital gains.

I also just had to spend $14k on painting my house which means that I’ll probably deposit dividends into my cash account for a bit rather than reinvesting them.

enthusiasticsaver · 15 June 2019 at 4:32PM

We have quite large DB pensions so not sure we actually count as being in drawdown but we keep a significant cash buffer anyway for cars, home improvements and large holidays. I personally would cash in investments unless the market was really low in which case we would probably use as much of the cash buffer as we dare and maybe draw our horns in to find the rest. We don't do expensive cars though and at some point we will go from two cars to one so will save there.

I don't think I would feel comfortable being almost fully invested. We keep one third of our savings in cash and have invested the other two thirds as we have some big holidays coming up plus we are putting in new bathrooms this year.

Financing new car purchases when retired and in drawdown

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