Auto Expert: Is an Electric Car a Good Option on a Social Security Budget?
Written by
Sean Bryant
Edited by
Amber Barkley
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If you’re living on Social Security, your budget is slightly limited. Because Social Security benefits are calculated based on how much you earned and contributed during your 35 highest-earning years and how old you are when you begin receiving benefits, you may only be receiving approximately 40% of your pre-retirement income. That means large purchases, like buying a new car, need to be thought out ahead of time.
Buying a car is a significant financial event, so you want to make sure you choose the best option for you and your wallet. If you’re considering an electric car, you should weigh the pros and cons when on a tight retirement budget.
Why Owning an Electric Car in Retirement Would Work
Many people think of electric cars as being expensive, making them a poor choice for anyone on a Social Security budget. However, there are a few reasons why an electric car might be a good idea.
Tax Incentives
The electric vehicle tax credit (EV credit) is a nonrefundable credit for taxpayers who purchase qualifying electric or plug-in hybrid vehicles. You may be eligible for a tax credit of up to $7,500 if you buy a new electric vehicle or up to $4,000 if you buy a used electric vehicle. New to 2024 tax filings, consumers can choose between claiming the credit on their tax returns or transferring the credit to their dealer to lower the price of the car at the point of sale.
Lower Maintenance Costs
The price for maintenance on an electric vehicle can be fairly significant. But did you know that an electric car only has approximately 20 parts compared to more than 200 on a car with a combustible engine? That means, on average, electric cars will cost their owners less in the long term, because there are fewer things to go wrong.
“One of the most compelling advantages of EVs is their lower operating costs,” said Joe Giranda, director of sales and marketing for CFR Classic. “Electric cars are significantly cheaper to run compared to their gasoline-powered counterparts, primarily due to the lower cost of electricity versus gasoline and the reduced maintenance requirements. Electric motors have fewer moving parts, which means less wear and tear and, consequently, lower maintenance expenses.”
Lower Fuel Costs
The cost of fueling an electric vehicle can be cheaper in the long term than the cost of fueling a gas-powered vehicle. Exact savings may depend on gas and utility prices, which vary based on location, politics, etc. You may also save money by charging your vehicle overnight at home during off-peak electricity rate periods.
Cons of Owning an Electric Vehicle on a Social Security Budget
Even though there are reasons why owning an electric car might make sense, there are also some negatives to consider.
Tax Credit Restrictions
There are several restrictions and criteria to qualify for the EV tax credit, which means that not everyone and not every electric vehicle will qualify.
Vans, SUVs and pickup trucks must have a manufacturer’s suggested retail price (MSRP) of $80,000 or less to qualify for the tax credit. Sedans and passenger cars must have an MSRP of $55,000 or less, and used vehicles must have an MSRP of $25,000 or less. The vehicle’s final assembly must take place in North America to qualify for the tax credits.
Additionally, your modified adjusted gross income (MAGI) must fall below certain thresholds to qualify for the tax credit.
New EVs:
- Single and married filing separate households: MAGI less than $150,000
- Head of household: less than $225,000
- Married filing jointly: less than $300,000
Used EVs:
- Single and married filing separate households: less than $75,000
- Head of household: less than $112,500
- Married filing jointly: less than $150,000
You may use your modified adjusted gross income from the year the car was delivered or the year before.
High Initial Cost
The biggest downside for most people is the high upfront cost of most electric cars, which can be substantially higher than that of many gas-powered cars. Plus, it’s going to be more difficult to find used electric cars, since the technology is newer, and there are fewer available on the resale market.
“The initial purchase price of electric vehicles can be higher than traditional cars, though this is gradually changing as technology advances and production scales up,” said Giranda.
High Registration Fees
Some states now charge higher registration fees for electric vehicles than for gas-powered vehicles. State registration or other fees may also change over time.
Potential Taxes at Electric Vehicle Charging Stations
When you purchase a gallon of gas, the state makes money on the taxes associated with that gas. However, less gasoline being purchased means less revenue for states. Some states are now charging a tax on electric vehicle charging stations to offset this revenue loss.
The Bottom Line
Before buying an electric vehicle on a Social Security budget, make sure it is the right decision for you. Weigh the pros, like tax incentives, lower maintenance costs and lower fuel costs, with the cons, like tax credit restrictions, high initial costs, high registration fees and taxes at electric vehicle charging stations.
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