Is Your Car Payment Killing Your Retirement Plans?

(MoneyWatch)  I went to the auto show here in Denver last week, and was surprised at how many cars cost more than $30,000 -- for instance, the Ford F-150, the Dodge Durango and the Volkswagen Passat.

That's a lot of money to plunk down on a new ride. At that price, I can't help but think that car payments are keeping lots of people from saving for retirement.
Let's take a look at some numbers. Assume you want to buy a $30,000 car. If you finance it over five years at 6 percent interest, that will cost you $580 a month, or $6,960 a year. If you bought two $30,000 cars, that would cost you about $13,920 a year.

Leasing is a little less expensive, but could easily top $400 a month for a $30,000 car.

Although people are struggling to put money into their 401(k) plans, they seem willing to jump into $400 to $600 a month car payments without batting an eye. With two cars, the average family could be spending $1,000 a month on auto loans or leases.

The good news at the auto show was that I did see a number of cars for less than $20,000 -- like the Toyota Corolla, Ford Focus and Honda Fit. There were even a few in the $16,000 to $18,000 range. These cars weren't fancy, but they certainly seemed to offer basic and safe transportation.

Let's say you got religion about your retirement savings and decided to buy less expensive cars going forward. If you shifted from the $30,000 range down to the $20,000 range, you could easily drop your total payments on two cars by $300 a month.

If you moved that $300 a month into your retirement plan, it could make a big difference over the next 20 years. At an assumed seven percent return over 20 years, you could amass more than $153,000.

Bottom line: Most people need to save more for retirement. Take a critical look at what you're spending on cars. I'll bet you could boost your retirement plan contributions by a few thousand a year just by changing what you drive.

Nice Cars image via Flickr user dennis and aimee jones, CC 2.0