Considering a new car

I've always thought it economical to defer that new car purchase by maintaining the one I have. Tom & Ray at Car Talk say "there is nothing cheaper than running an old car into the ground.... It's NEVER cheaper in the long run to buy a new car." But I keep wondering -- how do I know when I've officially "run it into the ground," i.e. when it's not economical to keep maintaining it?

When
* You worry too much about being stranded or seriously inconvenienced -- like missing a plane, or
* It spends to much time in the shop, or
* The repair/rental cost in any 6-month period exceeds the cost of 6 months depreciation on a new car, and is likely to continue to do so. E.g. when the body starts to go.

"Here's a standard rule of thumb about used cars. A car loses 15 percent to 20 percent of its value each year," [Bankrate.com] There's also the interest cost on the loan, which is roughly 6% per year. If you live in a state that calculates the registration based on vehicle value, it'll cost you that rate, e.g. 1%. If you have to pay sales tax on your car (we don't) there's also that cost - right out the window in year one, though you might amortize it over the car's expected service life.

In a no-sales-tax state, six months depreciation, interest and registration on a $30,000 car would be at least 11% (i.e. (15+6+1) * 0.5). or $3300.

You could argue that 15% "year one" depreciation is an excessive charge if you always keep your car 8 years. But it's still 12.5% compared to the 15% we used.

My 10-year-old Lumina APV van still has some depreciation cost, but not much. It looks to have a private sale value of about $1000, and a trade-in value of about $500.

Edmund's Automobile Buyers Guide, AutoSite, Kelley Blue Book, CarPrice.com and NADAguides.com are among the sites offering timely pricing information as well as shopping and negotiating tips. [Bankrate.com]

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Wow, I've been looking around the Car Talk site and it is has some great articles, including a spot where you can recommend your favorite local mechanic.

Bond time?

The Federal Reserve on Tuesday lifted a key U.S. interest rate for a 13th straight time but signaled, as one economist put it, the "beginning of the end" of a 1-1/2 year credit-tightening campaign.

Don't count on that pension

Verizon Unveils Major Changes to Retirement Benefits

Verizon Communications announces it is overhauling its retirement benefits. The company said it will freeze its pension plan and restrict retiree health benefits for some 50,000 non-union employees. To replace its existing pension program, Verizon will offer a 401k retirement savings plan. [All Things Considered]

So the retirement program won't grow to the point a these employees were thinking it would, by the time of their retirement. And Verizon is making lots of money today -- but it's re-positioning to compete with Google, cable companies, etc. -- and acquire MCI that had no pension program. The 401K option is a match up to 6%. Sears, Fleet Boston and others have recently decided to stop expanding traditional "defined benefit" pensions too.

Saving right might be saving grace at retirement: "IRAs
The maximum contributions for individual retirement accounts goes up to $4,000 in 2005, or $4,500 for workers age 50 and older. You must have earned income to contribute to an IRA.

If you're not covered by a retirement plan at work, you can contribute to a deductible IRA. Low-income workers may also qualify for a deductible IRA, even if they're covered by a company pension or 401(k). For just about everybody else, there's the Roth IRA. You don't get a tax deduction for Roth contributions. But withdrawals are tax-free, as long as you're at least 591/2 and it's been five years since you set up your Roth. If you play by the rules, you'll never pay taxes on any of your investment gains.

Too hard to put money aside for an IRA? Consider having a specific amount withdrawn electronically from your checking account each month, says Christine Fahlund, senior financial planner for T. Rowe Price. The automated programs funnel money into your retirement plan before you have a chance to spend it."
--from Sandra Block: Your Money: USA Today

Many in GOP Wary of Social Security Plan - There is little disagreement that Social Security needs to be bolstered, because in 2018 annual benefits paid out will start exceeding revenues coming in. If it is not changed by 2042, the system will be able to afford to pay only three-fourths of the benefits now due recipients. ...

Bush has yet to detail his plan. He is expected to propose letting workers divert some — perhaps 2 percentage points — of the 6.2 percent payroll tax they now pay on wages into private investment accounts. Those opening such accounts may have to accept smaller regular Social Security benefits in exchange.
--AP

New York Times > Business > Web Guide: Business Navigator A very thorough list of business and financial market links.

The next crash is silently upon us: "You can analyze the domestic economy, interest rates and markets all you want -- it won't matter. Why? Because the reasons are external. Remember, shortly after 9/11 both Donald Rumsfeld and Warren Buffett publicly said that the question is not if we are going to have more attacks on U.S. soil, but when. That may not be news, but it is clear Americans are in denial about this truth, and that denial, unfortunately, will set you up for failure in your personal finance. As a result of the Afghan and Iraq wars the global political landscape has become more destabilized than before. The Israeli roadmap for peace has collapsed. The Pakistani offensive against al-Qaida now looks like a farce. And the post-Madrid television warnings from bin Ladin's mastermind al-Zawahiri that 'death brigades' are 90 percent in place to carry out new terrorists' attacks inside America's borders have an ominous promissory ring to them, as did the warnings of the blind cleric during his trial after the 1993 bombing of the World Trade Center."

"Madrid taught the terrorists that they can influence elections. The likely timing will coincide with a significant political event this year: The Fourth of July, a political convention, the 9/11 anniversary or the November presidential election."

"This forecast was already well formed although unarticulated when I read in Barron's: 'We are coming into one of the worse bear market in history.' The prediction was made by Richard Russell, the highly respected publisher of the Dow Theory Letters. He has a solid track record predicting market turns since he launched his newsletter in 1958.

His dark omen reminds me of similar warnings from super-bears like Robert Prechter, the long-time publisher of the Elliot Wave Theorist. Prechter has also been sounding the alarm in recent months, reinforcing Russell predictions.

Prechter's solutions are drastic. In an earlier newsletter he offered many radical 'Bear Market Strategies:' Get out of stocks and funds and park all your money in Treasuries and money markets. Cash out insurance policies and stop looking at your home as an investment because that market's bubble will burst."

So bond ladders are looking more interesting than ever.

Yahoo! News - J.P. Morgan Investor Services Launches Outsourced Service: "for investment managers for processing separately managed accounts. Separately managed accounts offer investors more customizable investment strategies and tax advantages than standard-issue mutual fund accounts."