Amazing Math: Skip Just One Pickup Truck Purchase and Add $240,000 to Retirement Savings
Expensive truck buyers – especially the young – are missing out on huge retirement savings
According to Experian Automotive, nearly one in five new car registrations in the first quarter of 2019 was for a pickup truck, continuing a trend that has catapulted the pickup from its utilitarian roots to a fully-loaded luxury vehicle owned even by drivers with little to schlep.
The Ford F-150 is the most popular pickup truck. Depending on your choice of cab, engine size and trim level, your base MSRP could be “as little” as $30,000, or as much as $95,000 for the fully loaded F-450 Super Duty, according to CarFax.
The Toyota Tacoma TRD Pro starts out more budget-friendly, at $26,000, but that rises to $45,000 with upgrades.
And pickup truck buyers aren’t any different than SUV-buyers who load up on bling. According to J.D. Power, more than 95% of new GMC Sierra 1500 sales this year have included high-end trim packages. The GMC Sierra Denali starts at $54,700. Pile on options such as four-wheel drive, a V8 engine, sunroof, upgraded braking systems and more, and the tab will push $75,000.
General Motors’ head of marketing recently said the carmaker plans to roll out a fully-loaded Silverado High Country that will pass the six-figure mark.
Even if your pickup truck tastes are below the caviar-and-champagne level, you’re going to have to dig deep. The Detroit Free Press reported that the average pickup price in late 2018 was more than $48,000, a near 50% rise over 10 years. The 19% price rise since 2013 is more than double the 8% inflation rate and three times higher than the growth in wages.
The even bigger price
At those prices, loans are common. The average new-car loan is more than $30,000 and runs for 69 months at $545 a month, according to Experian Automotive. With an average price tag pushing $50,000, a pickup digs an even deeper hole.
On Ford’s website, where you can price bells and whistles, it’s telling that Ford’s loan estimator defaults to an insanely long 84-month loan term. How else to keep the monthly payment under $900 on a $60,000 pickup?
Seven years to pay off a depreciating (declining in value) asset makes little financial sense. It becomes even less defensible if the borrower is hard-pressed to save for retirement or insists they can’t afford to buy a home. And with an average of 18.5 mpg, a pickup truck that is a lifestyle choice and not a professional necessity is going to cost you, and the environment, a lot more than a more efficient SUV (24 mpg on average) or standard gas sedan (near 30 mpg).
Being generous, let’s assume you’ve got your eye on a $50,000 pickup that you will finance with a $45,000 loan. Your credit is excellent, and you agree to push yourself to get the loan paid off faster, so you take out a 60-month loan.
You’re looking at a monthly payment of nearly $850.
Opt instead for four wheels that get you where you need to go, but run you, say, $400 a month, and you’ve just found $450 a month to save for retirement, or a down payment on a home, which has the added value of being an asset that has a solid shot of holding or increasing in value over time.
If you invest that $450 “savings” each month over the five years of your car payment and earn an annualized 6% return, you will have more than $31,000 after five years. Keep that $31,000 growing for another 25 years, and you will have more than $130,000. Got 35 years until you retire? The $31,000 will be worth nearly $240,000.
Or that $31,000 becomes a home down payment. Or you use it to pay down your student loans or jumpstart the kid’s college fund.
If you have any financial worries, calculating the opportunity cost of a too-expensive pickup (or any too-expensive vehicle) should be an eye-opener.