The Surprising Reason Retirees Shouldn’t Pay Cash for a Car

Core Insights - Many retirees are looking to downsize and minimize debt, but financing a car can be a strategic decision even for those with cash available [1][2] Financial Strategy - Retirees should consider "opportunity cost" when managing their finances, as cashing out assets in a high-rate environment can disrupt long-term wealth [3] - Financing a vehicle can help maintain cash flow and provide stability in a financial portfolio, rather than withdrawing from retirement accounts [4] Tax Considerations - The recent One Big Beautiful Bill Act (OBBBA) allows retirees to deduct up to $10,000 per year in interest on qualifying auto loans, applicable from 2025 to 2028 [4] - Withdrawing funds from a 401(k) to purchase a car can increase taxable income and potentially push retirees into a higher tax bracket, making financing a more favorable option [5] Shopping for Loans - It is essential for retirees to shop around for the best loan terms and utilize tools like AI for financial projections and risk evaluation [6] - Keeping loans simple is advised, with recommendations for short-term loans (three to five years), a minimum 20% down payment, and fixed rates [7]