By Scott Burns

Q. Every article I read about leasing cars versus buying seems to conclude with the sage wisdom:  "well, it depends."  I am totally confused.  My wife and I are both over 65, retired, financially comfortable, and yet ever vigilant and prudent about what and how we spend.

We are in two lease vehicles now, but I am thinking about getting a new SUV this fall when one of our leases expires.  It will cost about $50,000.  It appears I can either put "X" dollars down and finance a purchase at no interest for 72 months to own at about $600/month, or I can lease for 36 months at about $600/month with "Y" dollars at down payment. 

We typically get bored with a car after about 3 years. Since any down payment will have to come from our IRA (and be taxable), I wonder constantly about the best way to do this.  Any suggestions? —R.B., Dallas, TX 

A. In a polite world, the answer to this question would be one you could find in a handheld calculator. You’d put in the numbers for each path and calculate the net present value of how much owning or leasing the car would cost you over the chosen ownership/lease period. You can actually do that calculation for the same car and sometimes find that the costs aren’t identical.

But our world isn’t a nice polite little place. Car manufacturers frequently offer lease deals that will turn out to be less expensive than owning, particularly if you generally change cars every three years and have a desire to own a luxury car. There have been times, for instance, when Jaguar and Infinity cars have been really good lease deals because the lease cost was far less than the cars actually depreciated over the lease period. That’s the (sometimes) good news. The bad news is that to get that deal you’ll need to be on the lookout for the deals because they generally don’t last long.

The best way to reduce the cost of driving is to focus on the single largest cost— depreciation. The American Automobile Association, for instance, regularly calculates the cost of ownership for a variety of car types. Assuming a 5-year ownership period they figure that depreciation accounts for $5,003 of the $7,738 annual costs of driving an SUV 15,000 miles a year. Basically, depreciation accounts for about $2 of every $3 spent on a car. That’s one of the reasons it’s hard to save money by selling a gas guzzler and buying a gas sipper. Another major cost of driving is the interest cost of financing the car.

So choosing to lease is a really good way to rack up depreciation and interest expenses so you can maximize the cost of driving. The best way to reduce the cost of transportation is to stretch the period of ownership and pay cash. The money you don’t spend will allow you to develop a hobby more interesting than trading in cars every three years.

Suppose, for instance, that a $50,000 car loses half its value every three years. That means while a car you own loses $37,500 of value over 6 years, two leased cars would lose $50,000. That’s a difference of $12,500 over 6 years or $2,083 a year of after-tax money from your IRA. Add interest cost differences and other expenses and you’re paying a lot to avoid boredom.

Q. I am underweighted in bonds for a retired 68 year old. I have 36 percent in bonds, mostly in Vanguard TIPS, GNMA and Short term bonds.  In the next three to five years I could wait out the wave of inflation to buy more and dollar cost average in.  Or I could jump in all the way now to get to a 50 percent weight.  I plan to then continue on up 1 percentage point a year up to a 60 percent weight. How does this sound to you? —S.H., by email

A. Your bond allocation is low, according to the conventional wisdom, but it seems quite reasonable when you consider that bond yields have been artificially lowered by Federal Reserve policy. PIMCO top dog Bill Gross is so concerned he sold Treasuries. So you needn’t be in a hurry to increase that allocation to 60 percent. If you do start increasing the allocation, the safest way would be to build a simple 3-year ladder. This will give you a good yield when yields are closer to “normal” and the constant turnover of the securities will allow you to buy higher yield securities in future years.