Extended Car Warranty Programs and Retirement Planning

Retirement planning for men 50 and over comes with a list of unending questions, one of which could be – am I taking a car payment into retirement? It makes sense that you want to reduce your debt picture in retirement and time the end of your car payments with that period. But that will bring another scenario: how will I care for or plan for car repair? Should you include an extended car warranty program in your retirement plans? It helps to understand what an extended car warranty program is, how it works, and what it covers first.  We can help with our blog – Extended Car Warranty Programs and Retirement Planning.

We’ve all seen the ads, probably to the point of nausea. Music or sports celebrities mingling about a throng of over-enthusiastic stand-ins promoting the service and how much they’ve saved with this “amazing program.” Sure, on the one hand it gives you peace of mind that it protects you against large, unexpected car repairs. Conversely, it limits your budget on other things necessary in retirement. So, consider the following points when deciding to use these programs for your retirement planning.

What are Extended Car Warranty Programs and How Do They Work?

We know that car warranties are often a perk with new car purchases. It’s a contract held between you and your car dealership or car manufacturer involving the repair of defects. Most programs only last to about 60,000 miles give or take and more often are on a declining scale, meaning some items may go out of warranty before others. But once the dealer warranty expires, what options do you have? That’s where an extended car warranty program comes into play.

What is covered?

Extended car warranties are programs designed to offset the expense for major car repairs such as your engine, air conditioner, or transmission. Depending on the coverage, common car repairs under an extended car warranty provision are:

• Engine repairs
• Transmission repairs
• Cooling system repairs
• Drive axle repairs
• Electrical repairs
• Steering repairs
• Air conditioning repairs
• Suspension problems
• Brakes repairs

A usual question is whether your regular car insurance will cover these repairs. The short answer is no, these are two distinct programs and most auto insurance plans are only meant for accidents and liability. Some will replace your windshield, but that’s about as far as they’ll go regarding repairs. An extended car warranty will typically cover listed repairs (check the contract carefully) and car maintenance. A key point is to make sure the costs are covered before the work is completed!

Can Extended Car Warranty Programs Help You In your Retirement Planning?

Can a car warranty program save you money and help you with your retirement plan? Perhaps the answer lies in answering a simple question: If you had an unexpected $2,000 car repair bill, could you pay it out of pocket or apply it to a credit card? If not, then an extended car warranty program may be an option worth exploring.

A few things to consider when deciding whether to add an extended car warranty program to your retirement plan are:

• Are there other priorities that need consideration first, like health insurance?
• What current benefits does your current car warranties and car insurance cover?
• Does your retirement plan have major car repairs included in the budget during retirement?
• How new/old of a car do you plan to drive in retirement? This may help estimate the likelihood of a major repair happening.

Pros for Extended Car Warranty Programs

Why consider using an extended warranty program? Consider some following benefits:

• Potentially a cheaper option than planning to use your own money for large repairs.
• Added benefits like 24/7 roadside assistance and access to other emergency services.
• Extended warranty programs take the headache out of planning for major expenses.
• It may free up your budget for the short term because you don’t have to set aside thousands for emergency car repairs, allowing you to use the funds for something else.
• It gives you peace of mind knowing that it safeguards you for most major repairs and emergencies.

Cons for Extended Car Warranty Programs

Why wouldn’t you consider using an extended car warranty program? Consider the potential downsides of car warranty programs in retirement:

• You’re potentially paying for something that may never use.
• You may lose money in the amount of premiums you pay compared to the amount paid out in claims. For example, if you’ve paid for $3,000 in premiums over the last two years and only incurred one repair claim costing $1,000, you’re losing money.
• Some car makes and models are not eligible for coverage.
• There are often limits on the roadside and towing benefits, such as only being able to tow within a 20-mile radius of the accident (an example). Anything outside of your program’s terms may cost you extra money.
• The cost of an extended car warranty program just adds more expenses to your retirement budget, tightening up your budget for other areas of your retirement plan.

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Alternative Options for Your Retirement Plans

If you decide not to use an extended car warranty plan in your retirement, what should you do? First, consider these expenses in your budget. This may mean setting up an emergency fund specific to unexpected repairs for your car (some may refer to this as self-insuring).

Next, if you want to lower the probability of an unexpected repair from ever happening, have regular maintenance checkups with your mechanic every six to twelve months at least, depending on your driving habits. These checkups are often very cheap and can end up costing much less than the aggregate amount of premiums you would otherwise spend on a warranty program.

Last, consider the car you drive. If you have a car that is only a few years old, has a clean title, and maintained, chances are that you are much less likely to run into unexpected car repairs during retirement. Which brings up an important talking point for your retirement planning, which is: what type of car you want to drive or plan to drive in retirement?

How to Decide What’s Best for You

Reasons that you might want an extended car warranty program as a part of your retirement plan might include things like:

• You plan to drive an older car outside of the manufacturer warranty program.
• You don’t expect paying for regular mechanical checkups for your car.
• Your retirement budget doesn’t include funds for an unexpected $2,000+ car repairs.

Reasons that you may avoid using an extended car warranty program are:

• You have other expenses of higher priority.
• You have a large enough emergency fund to take care of unexpected car repairs.
• You have complimentary benefits such as 24/7 roadside assistance on your car insurance policies.
• You don’t plan on driving a car often in retirement.

Final Thoughts

There isn’t really a “one size fits all” answer to deciding what’s best for you regrading extended car warranties. These programs are about an $18 billion dollar industry, so the market and demand is certainly there. But after considering the above, along with talking with your trusted financial planner, determine if the additional costs are worth the security or are there more beneficial way to manage your car repair costs.

We hope that you’ve found some useful information in our piece: Extended Car Warranty Programs and Retirement Planning. As always, if you don’t see something here you want us to cover, feel free to reach out to us directly through our Contact page or leave a comment below. Happy retirement planning! ~ Glen.