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Start Social Security to buy a new car or cash in equities
Old 06-22-2021, 07:18 PM   #1
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Start Social Security to buy a new car or cash in equities

Just reached FRA and have been planning to defer claiming SS benefit for a few years.

Iíve reached the point where I need to replace a 10 year old car. Three options. 1. Take out a loan. 2. Cash in some stocks and pay the tax hit. 3. Begin claiming SS which will more than cover the cost of the car in a couple of years.

Only Fed taxes on SS as my state does not tax SS. Another benefit is claiming now reduces draw on other assets. A big draw back is giving up the 8% guarantee increase in SS. Iíll need to be vigilant to remain under the Medicare IRMAA.

Which option seems best?
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Old 06-22-2021, 07:40 PM   #2
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Keep delaying SS until age 70.
Sell some equities from some combination of:
1) your tax-deferred account
2) your taxable account
3) your Roth IRA

Do some tax analysis ahead of time to figure where to draw the money from so you don't trigger IRMAA in two years...
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Old 06-22-2021, 09:42 PM   #3
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There may be no tax hit on sale of stocks depending on your tax situation. For example, if you are single and had $30k of SS and sold stocks to buy the car and had $20k of long-term capital gains your federal tax bill would be a whopping $1,337. If your sale doesn't generate as much gains your tax might be zero.

Check out https://www.irscalculators.com/tax-calculator

Starting SS early to buy a car seems like a poor idea to me.
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Old 06-22-2021, 09:55 PM   #4
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Yeah, I can think of many reasons to start SS early but a car isn't one of them.
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Old 06-22-2021, 10:29 PM   #5
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Your issue might be that Class C RV you just bought.


Keep running the car if it's roadworthy. Cut back a little on your spending. Save that toward a new car. It's best to spread out expensive purchases and not do them all at once.


I see you posted in December that you planned on taking SS in 21, so apparently you haven't made a firm decision on that. You mentioned SS will take you to 65X annual expenses, it doesn't really matter much what you do.
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Old 06-22-2021, 11:04 PM   #6
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I would choose the options in the following order:
- If you can get financing with a very low interest rate, say below 3%, take the loan and sell equities gradually to pay the car payment. This will enable you to keep most of your funds invested and your tax bill low.
- If the financing is higher rate debt, pull funds from the portfolio to pay for the car and try to pull with lower capital gains if possible.
- I would only start SS early as a very last resort.
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Old 06-23-2021, 05:16 AM   #7
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Starting SS early to buy a car seems like a poor idea to me.
+100
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Old 06-23-2021, 06:37 AM   #8
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With what is going on in the car business right now, like chip and car shortage, cars selling above MSRP, low inventories, etc., it may be a good time to invest some TLC into your 10 year old car and kick this new car can down the road 2-4 years.
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Old 06-23-2021, 06:44 AM   #9
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^ What latexman said.

Best to avoid buying a new or used car until supplies and prices return to reality.
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Old 06-23-2021, 06:51 AM   #10
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Good point.... I'm not sure that it will take 2-4 years for things to stabilize, but probably 6 months or so.
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Old 06-23-2021, 06:56 AM   #11
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I think I was subconsciously trying to get the OP to 70 y.o. No idea what it'll take to prolong the life of his old car, but it'll probably take several years, not months, for that investment to pay out. Yeah, hopefully the current car mess will be over by 2022.

Daughter just wrecked her car and it was near the point it could be totalled. Normally, I'd push to total it, kick in a few $1k, and get a car a few years newer, less miles, etc. But, with the current car market, I had it repaired, because up to that point it was a good little car.
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Old 06-23-2021, 06:56 AM   #12
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Very funny!
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Old 06-23-2021, 07:05 AM   #13
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With what is going on in the car business right now, like chip and car shortage, cars selling above MSRP, low inventories,

Now some USED cars are selling for more than their original NEW MSRP from a couple of years ago. You'd be crazy to buy a newer car now if you don't have to. The auto makers thought the recession would last longer and cut their chip orders last year just as the tech industry and demand for chips was going up coupled with cut supply. I'm guessing by this time next year, things get back to "normal", just need to wait it out if you can.
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Old 06-23-2021, 07:11 AM   #14
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Take care of your car a couple more years as others have said. Most modern cars last far longer than 10 years. When the time comes, cash out equities to buy the car. You could plan on taking out a car loan, then pay it off early over a period of a year, spread into two calendar years, allowing you to split the sale of equities over two tax years, and still paying minimal in interest with an early payoff.

Trying to buy a new care this year could cost you far more than you would save in taxes or the slight increase in Medicare part B premiums. Sell the equities slowly to build up your cash so you can buy the car with cash in a couple of years when the prices normalize.
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Old 06-23-2021, 08:24 AM   #15
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Originally Posted by latexman View Post
With what is going on in the car business right now, like chip and car shortage, cars selling above MSRP, low inventories, etc., it may be a good time to invest some TLC into your 10 year old car and kick this new car can down the road 2-4 years.
In 2019, I bought my Rav4 in a hurry and could not negotiate the 'best' deal. Still I got a discount off of list price. Today, the same dealer is adding about $3000 in 'additional dealer markup'. Ugh! That is above the usual dealer 'packs like $500 for thin strips of plastic on the door edges to prevent nicks.

All this dealer nonsense makes me more convinced than ever that as soon as my included 'free' 5000 mile services are done, I will take the vehicle to my usual local mechanic.

Note: The average car in the US is now 12 years old. So, the OP's car is barely into middle age. If it runs OK and meets ones need, I would hold on until the market becomes more normal.
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Old 06-26-2021, 08:20 AM   #16
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Originally Posted by davidfin View Post
Just reached FRA and have been planning to defer claiming SS benefit for a few years.

I’ve reached the point where I need to replace a 10 year old car. Three options. 1. Take out a loan. 2. Cash in some stocks and pay the tax hit. 3. Begin claiming SS which will more than cover the cost of the car in a couple of years.

Only Fed taxes on SS as my state does not tax SS. Another benefit is claiming now reduces draw on other assets. A big draw back is giving up the 8% guarantee increase in SS. I’ll need to be vigilant to remain under the Medicare IRMAA.

Which option seems best?
Or "punt" by leasing a vehicle...roll everything into the monthly payment & convert transportation costs to just another monthly expense.

Make sure you have gap insurance, though it's now included in most leases.
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Old 06-26-2021, 10:08 AM   #17
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Thirty years ago, maybe longer, I took a margin loan on my taxable brokerage account to buy a used Blazer that was in excellent shape, low miles. No payments required, but in 3 years, the account doubled, and I sold enough stock to pay off loan. Very risky, I know, but it worked out for me.

I had the Blazer for over 12 years, and we put 450,000+ miles on it before I junked it.


No, don't take SS so you can buy a car.
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Old 06-26-2021, 01:45 PM   #18
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One of the options I’m looking at now is to sell my existing car privately and lease an electric car. My belief is that the next 3 years will see dramatic changes in electric car offerings and electric car infrastructure like charging stations. Since I keep cars for a decade, I don’t want to lock in during a time of rapid change. Thoughts?
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Old 06-26-2021, 01:58 PM   #19
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One of the options Iím looking at now is to sell my existing car privately and lease an electric car. My belief is that the next 3 years will see dramatic changes in electric car offerings and electric car infrastructure like charging stations. Since I keep cars for a decade, I donít want to lock in during a time of rapid change. Thoughts?
I think the same statement could have been made 5 or 10 years ago.

EVs are coming, but I wouldn't expect the pace of change to be any different than it has been.
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Old 06-26-2021, 03:50 PM   #20
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I think the same statement could have been made 5 or 10 years ago.

EVs are coming, but I wouldn't expect the pace of change to be any different than it has been.
There are many new players now and in some regions charging stations are reaching critical mass.
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