5 Reasons You Shouldn’t Buy a Car When You’re Living on Social Security
Written by
David Nadelle
Edited by
Justice Petersen
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According to the Social Security Administration, Social Security benefits aren’t meant to be your sole source of income when you retire. As of right now, Social Security should replace only 40% of your pre-retirement income.
However, you will have considerably less replacement income if a newly-elected administration decides to overhaul the Social Security system or cut benefits significantly. Additionally, if the Old-Age and Survivors Insurance (OASI) and the combined OASI and Disability Insurance (DI) trust funds become depleted by as early as 2033 and 2034, respectively, reduced payouts of less than 40% are a distinct possibility in the future.
For many, retirement isn’t the time to think about Social Security and Medicare coffers 10 years from now. Instead, it’s a time to enjoy the things you denied yourself while working, like splashing out on a vacation, moving house or buying a fresh set of wheels.
In the case of spending money on a vehicle, Michael Santiago, CRPC, senior financial editor at RetireGuide and Annuity.org, believes that you should only do so if you can truly afford to. “Buying a car while relying solely on Social Security monthly payouts is not advisable, especially if you’re purchasing a new car or have poor credit,” he said.
Here’s why you should think twice about buying a car when you’re living on Social Security.
Financial Constraints
“While owning a car can be both a luxury and a necessity, it’s essential to consider all of your other expenses, which may include money needed for emergencies, travel and leisure, family-related expenses and bills,” explained Santiago. “Adding a vehicle to your budget only increases your financial burden and will drain your monthly Social Security payment more quickly.”
For example, even a basic car can cost several thousand dollars upfront, and monthly expenses can easily surpass a few hundred dollars. This can make it challenging to cover other essential needs like housing, food and medical care, which are already difficult to manage on a limited income.
Oliver Morrisey, lawyer and director of Empower Wills & Estate Lawyers, an inheritance law firm specializing in will and estate dispute, agreed. “Buying a car can potentially come with a large monthly payment, depending on whether you paid in full, the size of your down payment, your loan’s interest rate and whether you leased the vehicle,” he said.
Additionally, if you’re carrying any significant debt, adding another, in the form of a car loan, will increase your financial burden. It might be better to prioritize paying down existing debt before taking on new financial commitments.
Costs Associated With Car Ownership
Many prospective buyers, of any age, downplay the total cost of car ownership, including unexpected or frequent repairs, which can be a challenge to manage for someone on a fixed retirement income.
“When your income from Social Security is fixed and limited, the cost of a car extends beyond the initial purchase price to include ongoing expenses like insurance, registration, maintenance and fuel,” explained Morrisey. “These costs can quickly spiral out of control, putting a strain on your budget and potentially leading to financial instability.”
Santiago notes that the high cost of fuel, repairs and maintenance — oil and tire changes or more expensive repairs like replacing an engine or alternator — can quickly add up and become a steady financial obligation.
“Even the cost of cleaning the car and any extras you may purchase for it should be considered,” he added. “All of these expenses can add up to be hundreds of dollars, depending on your situation, and it’s not advisable to strain your finances, especially when relying on Social Security.”
Other Transportation Options
Without having to contend with the daily commute, you should be driving less in retirement (unless you have an active social life). In any case, using public transportation will help save money that would have otherwise gone to the purchase and maintenance of a new vehicle.
“Your location plays a significant role in determining the best transportation alternatives, but if your city has an excellent subway system, consider using it,” Santiago said. “If the bus system is reliable, that might also be a good option. Remember, many transportation systems nationwide offer monthly passes (and senior discounts), which can be a convenient and cost-effective choice.”
As services like Uber and Lyft become more popular, some seniors may decide that using them when they need to is cheaper than keeping a car in good shape, especially if they don’t drive very often.
SSI Eligibility
Buying a car when you’re living on Social Security is unadvisable at the best of times, but buying a second car can actually hurt your eligibility for certain benefits.
“If you are receiving Supplemental Security Income (SSI), there are strict asset limits that you must adhere to,” noted Morrisey. Although the SSA removed the value limit of a vehicle, owning two cars will count against your benefits or you could lose them altogether.
“Therefore, purchasing a (second) vehicle could inadvertently reduce or eliminate your benefits, which are crucial for covering basic living expenses,” Morrisey added. “This can create a precarious financial situation where the loss of benefits outweighs the convenience of owning a car.”
Health Concerns
Purchasing a car might not be wise if you have deteriorating health or expect to have less mobility in the near future. Additionally, finding a car that has every driver assistance feature and technology you require might cost more than you have in your budget. It gets more difficult and dangerous to drive as you age, and it’s possible that you won’t be driving as often or that you’ll need to use more sensible alternatives like ride-sharing services or public transit.
Bonus Tip: Don’t Buy a Car If You Don’t Absolutely Need It
The urge to splurge on a new car and celebrate your freedom from decades of work is more than a little tempting. However, as Santiago says, “By forgoing car ownership, you can allocate your Social Security benefits to more important needs such as emergencies, savings, food and other bills.”
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