Car Buying Tips

Jane Young, CFP, EA

Jane Young, CFP, EA

Aside from a home, purchasing a vehicle will probably be your single largest expenditure, so it merits some serious consideration and in-depth research.  The decision on what to buy should include budget, practicality, safety, reliability and cost of ownership.  A vehicle is a very expensive depreciating asset. Unless you have a large disposable income it’s advisable to buy a practical car.  If your heart is set on a more extravagant sports car or luxury car consider buying an older model, used vehicle.   Cars have become a status symbol but there are plenty of less expensive ways to express your style and status – many of which are better long term investments.

Ideally, save your money to purchase a used car that is about 2 to 3 years old with cash.  The car will be greatly depreciated and you get a relatively new car for much less than a brand new car. If paying cash is unrealistic, work with your bank or credit union to get pre-approved for a loan.  This can give you a good idea of what you can afford.  As a general rule, your household budget on vehicle expenses should not exceed 20% of your take home pay.  This includes car payments, gas, insurance and maintenance.

Decide how much you want to spend and make a list of your must have features.  Conduct some on-line research to narrow down the range of possibilities.   The following websites can provide price quotes and information on the cars you are interested in – Edmunds.com, Truecar.com, KBB.com (Kelly Blue Book) and NADA.com.  Once you have settled on a couple of options do some further research to find the invoice price.  Generally the dealers actual cost is the invoice price, less about 3% to 5% for factory hold backs.

Now you’re ready to negotiate the purchase of your new car.   Get quotes from several dealers and make it clear that you want to focus on the total cost to buy the vehicle, with cash.  Don’t let them side track the conversation with discussions about monthly payments, trade-in deals and financing options where it is harder to decipher the true cost of the vehicle.  If purchasing a new car, inform the salesperson that you have done your homework and you have a good idea of what the dealer paid for the car.  They will try to focus on the MSRP (Manufacturers Suggested Retail Price).   Let them know you have quotes from other dealers and you are ready to buy a car for their cost (not the MSRP) plus a reasonable profit.

When buying a used car, you can get reasonable purchase prices on Edmunds.com and KBB.com.  You can probably get a better deal through a private seller than with a dealer.  Before signing the papers, get a vehicle history report form Carfax.com or Autocheck.com and have the car inspected by a good mechanic.

Is Long Term Care Insurance Right for You? – Part 2

Jane Young, CFP, EA

Jane Young, CFP, EA

As mentioned in my previous post, about 75% of the population will spend $10,000 or less on Long Term Care (LTC) and about 6% will spend over $100,000.  You may not need extended LTC but due to the significant costs, the possibility should be addressed in your financial planning.  According to the U.S. Department of Health and Human Services the average monthly cost for long term care in 2013 was $1343 for adult day care, $3,500 for assisted living, $4,000 for home health care and $6,500 for nursing care.  Based on cost increases over the last 5 years, it’s reasonable to assume that LTC will continue to increase about 5% annually.  If we assume a current LTC cost of $5,000 per month, with a compound inflation rate of 5%, the annual cost of LTC in twenty years could be $159,197.  Although the probability of needing LTC for an extended period of time is low, if you need care, it can quickly diminish your retirement nest egg.

Based on the danger of depleting your savings, LTC insurance may seem like a logical option but the cost can be significant and it’s not without risk.  The cost of LTC insurance is dependent on your age, your health, the daily benefit, the benefit period and the inflation protection.  Below are some average LTC insurance rates for individuals with a standard health rate, a daily benefit of $150, a benefit period of 3 years and a 3% compound inflation growth option.  The average LTC care insurance rate for a single person age 55 is $2,007 per year, the rate for a couple both 55 is $2466, and the rate for a couple both age 60 is $3,381.

If you decide to purchase LTC insurance, compare prices and work with a couple of different brokers who work with several companies.   Companies have different niches where some may have the lowest prices for those in their 50’s while others may focus on clients who are in especially good health.  A good insurance broker can help you select the best provider for your situation.

You also want to purchase LTC insurance from a high quality company, this is not the place to go with the low cost provider.  Select a company with a reasonable chance of being solvent down the road, when you need the coverage.  Over the last several years, 10 out of the top 20 providers have stopped providing LTC insurance.  Additionally, as a result of higher than anticipated LTC costs, low interest rates and a larger than expected number of people holding on to their policies, LTC insurance companies have significantly raised their premiums.  Many older policies have had premium increases in excess of 20% – 40%.  Although industry insiders claim to have a better handle on this going forward, there is still a risk of premium increases in the future.