How to Make a Retirement Budget So You Don’t Outlive Your Savings

You’ve spent decades in the workforce earning a living, your schedule dictated by the demands of the job. All the while, you’ve been steadily adding to your savings so that one day you could get to this point. Retirement.

Now, there’s no alarm to wake you up in the mornings and no boss to answer to. You can finally get around to crossing items off your bucket list — or simply have the opportunity to catch a midweek matinee movie.

The world is your oyster.

Life may feel more relaxed and carefree, but that doesn’t mean you no longer have financial responsibilities. In fact, now’s the time you might need to be even more diligent about budgeting your money.

Living on What You Have Saved

When you say goodbye to your 9-to-5, you also say goodbye to your regular paycheck. You’ll rely on Social Security benefits, the money in your retirement accounts and any additional income, like a pension, to cover your expenses.

Sticking to a budget is vital so your retirement savings last. That money you’ve squirreled away in your working years has to stretch for decades. Remember, life on a fixed income means there are no bonuses, overtime or promotions to increase your cash flow.

How Much Should You Have Saved?

If you’re already retired or nearing retirement age, hopefully you’ve done the math to determine whether you’ll have enough money to keep you afloat.

One popular rule of thumb is to have 25 times your average annual expenses saved up. But how much money you need in retirement depends on many factors, like your age, where you live and the type of retirement you want to enjoy.

If you want to retire at 60, rent a highrise in New York City and travel every couple of months, you’ll need considerably more money than a retiree who leaves the workforce at 70, lives in a paid-off home in rural North Dakota and just stays home and knits.

There are also a lot of unknowns in retirement — like what medical conditions you could develop and exactly how many years you’ll need your money to stretch.

That’s why it’s important to have robust retirement savings and be cognizant of your spending in your golden years.

How to Make the Most of Your Nest Egg

To make your savings last, you’ve got to be prudent about how much you withdraw each year.

“The gold standard has always been 4%, but new research has revealed a different number,” said Chuck Czajka, a certified estate planner and owner of Macro Money Concepts in Stuart, Florida.

He said withdrawing 3% a year instead gives you a 90% success rate to last through a 25-year retirement.

Keep in mind, once you’ve determined how much you can withdraw per year, you’ll want to divide that amount by 12 to come up with how much to withdraw each month. Czajka recommends withdrawing money from your retirement accounts on a monthly basis rather than taking out all you’d need for a whole year.

Meeting with a financial adviser can help you come up with a personalized plan to fit your individual situation.

“As people approach retirement, they should work with a retirement professional to determine their expected retirement income,” said Lisa Bamburg, a registered investment adviser and owner of Insurance Advantage in Jacksonville, Arkansas.

Two grandmothers dress in funky classes and brightly colored shirts.
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Factoring in Income Beyond Your Savings

In addition to the money you’ve saved in your 401(k), individual retirement account (IRA) or other investment accounts, a portion of your retirement income will come from Social Security benefits.

You can start collecting Social Security benefits as early as age 62, but you’ll receive less money per month than if you waited until full retirement age — 66 or 67, depending on when you were born.

If you delay claiming Social Security benefits past your full retirement age, you’ll receive even more each month. However, there’s no additional increase once you’ve reached age 70.

Pro Tip

This calculator from the Social Security Administration gives you a rough idea of your retirement benefits. This retirement estimator is more accurate but requires plugging in your personal info.

In addition to Social Security, you might have other sources of retirement income, like money from a pension plan or an annuity.

A report from the National Institute on Retirement Security found that many retirees don’t have a great diversity in their retirement income, though more income sources provide for a more secure retirement.

The report found less than 7% of older Americans have retirement income that’s made up of a combination of Social Security, a pension plan and a retirement contribution plan like a 401(k). About 40% rely on Social Security alone.

“Social Security benefits typically are not the equivalent of what it takes for most people to maintain their standard of living,” Bamburg said.

The Social Security Administration states its retirement benefits only replace about 40% of earnings for people with average wages — more for low-income workers and less for those in higher income brackets.

How to Create a Retirement Budget

Once you determine what your retirement income will be, it’s time to make your retirement budget.

If you’ve already been budgeting, you’re off to a great start, though your new budget will likely differ from that of your working days.

Take Stock of Your Essential Expenses

First you’ve got to get an overall look at your current spending. If you don’t already have a budget or track your spending, pull out the past several months of bank or credit card statements. Dig up old receipts if you tend to pay in cash.

Reviewing the past three months will help you find what you spend on average, but an even deeper dive — looking at the last six to 12 months — will give you a more accurate picture and will reveal things like your annual car insurance bill and holiday spending.

Group your spending into categories to get a good picture of where your money’s going. You’ll have fixed expenses, like your mortgage, where the cost stays the same each month. Other expenses, like groceries or utilities, will vary. For those, you should calculate your average monthly spend.

Account for Changes

After leaving the workforce, you’ll probably notice some differences in your spending. You’ll no longer have to pay for downtown parking near the office, dry cleaning your suits or pricey lunches with coworkers. Your monthly retirement contributions will be a thing of the past.

However, not everything will be budget cuts. You’ll have to account for new retirement expenses, like health care premiums your employer previously covered. If you’re 65, you can get health insurance through Medicare, but it’s likely you’ll have increased out-of-pocket medical costs as you age.

And of course, now that you have an influx in free time, you can pursue the things you’ve always wanted to do — which means more new expenses.

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Make Room for Fun in Your Retirement Budget

A big part of retirement planning is determining what type of lifestyle you want to have when you’re no longer at work 40 hours a week.

Do you want to travel? Spend more time with your grandkids? Explore a new hobby? After you’ve covered your essential expenses, how you spend what’s left in your budget is totally up to you.

Don’t forget to include run-of-the-mill discretionary expenses, like cable, magazine subscriptions and dining out. It won’t all be cruise ships and Broadway plays.

If you’re married, be sure to share your vision for retirement with your partner, so you’re both on the same page about how you’ll spend your time and money.

Adjusting Expectations to Reality

As you create your monthly budget, you may discover you don’t have nearly as much money as you thought you’d have in retirement. That doesn’t mean you have to live out the rest of your life kicking yourself for not saving more. You have a few options to get by.

Take another look at your living expenses. Are there any ways you can cut costs? Slash your food spending with these tips to save money on groceries. Consider downsizing to a smaller home.

When it comes to your discretionary spending, look for ways to enjoy a more frugal retirement. Take advantage of senior discounts. Check out free activities at your local community center. Find ways to save money on traveling.

Although retirement means leaving your working days behind, you may find it necessary to pick up a side gig or part-time job to supplement your income. Seek out opportunities that match your interests so it doesn’t feel like work.

Don’t forget to enjoy this new stage of life. You worked hard — you deserve it.

Nicole Dow is a senior writer at The Penny Hoarder.

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Source: thepennyhoarder.com

The Average Cost of Home Insurance

We’ll get straight to the point: The cost of home insurance varies widely, but the average American homeowner pays $1,249 a year in premiums, according to the Insurance Information Institute’s 2018 figures, the most recent available.

(This is based on the HO-3 homeowner package policy for owner-occupied dwellings, 1 to 4 family units. It provides all risks coverage (except those specifically excluded in the policy) on buildings and broad named-peril coverage on personal property, and is the most common package written.)

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Home insurance premiums can vary widely in part because of:

  • Your location
  • Your history of claims
  • Your credit score
  • The age and condition of your home

However, there are ways that homeowners can save money on their insurance costs, which we’ll get into. We’ll also walk through which areas in the U.S. are the cheapest and most expensive, typical coverages and more.

[ Read: Home Insurance Quotes, Explained ]

How much does home insurance cost by state?

As you can see below, the average home insurance premium varies widely by state. As you might expect, weather events figure big in the average annual premium by state, although there are other factors, of course, such as your credit score and the age of the home. The figures in this table come from 2018 data provided by the Insurance Information Institute.

State Rank Average annual premium State Rank Average annual premium State Rank Average annual premium
Ala. 13 $1,409 Ky. 26 $1,152 N.D. 18 $1,293
Alaska 36 $984  La. 1 $1,987 Ohio 44 $874
Ariz. 46 $843 Maine 42 $905 Okla. 4 $1,944
Ark. 12 $1,419 Md. 32 $1,071 Ore. 51 $706
Calif. 31 $1,073 Mass. 10 $1,543 Pa. 40 $943
Colo. 7 $1,616 Mich. 38 $981 R.I. 5 $1,630
Conn. 11 $1,494 Minn. 14 $1,400 S.C. 19 $1,284
Del. 45 $873 Miss. 8 $1,578 S.D. 20 $1,280
D.C. 21 $1,264 Mo. 15 $1,383 Tenn. 23 $1,232
Fla. 2 $1,960 Mont. 22 $1,237 Texas 3 $1,955
Ga. 17 $1,313 Neb. 9 $1,569 Utah 50 $730
Hawaii 27 $1,140 Nev. 48 $776 Vt. 41 $935
Idaho 49 $772 N.H. 36 $984 Va. 34 $1,026
Ill. 28 $1,103 N.J. 24 $1,209 Wash. 43 $881
Ind. 33 $1,030 N.M. 30 $1,075 W.Va. 39 $970
Iowa 35 $987 N.Y. 16 $1,321 Wis. 47 $814
Kansas 6 $1,617 N.C. 28 $1,103 Wy. 25 $1,187

Based on the HO-3 homeowner package policy for owner-occupied dwellings, 1 to 4 family units. Provides all risks coverage (except those specifically excluded in the policy) on buildings and broad named-peril coverage on personal property, and is the most common package written.

Most expensive states in home insurance premiums

Below are the most expensive average home insurance premiums by state, according to the Insurance Information Institute’s figures from 2018. Premiums can vary widely within the state, and of course, there are more factors in your premium than the location of your home.

  • Louisiana: $1,987
  • Florida: $1,960
  • Texas: $1,955
  • Oklahoma: $1,944
  • Rhode Island: $1,630

Cheapest states in home insurance premiums

Below are the cheapest average home insurance premiums by state, according to the Insurance Information Institute’s figures from 2018. Premiums can vary widely within each state, and of course, there are more factors in your premium than the location of your home.

  • Wisconsin: $814
  • Nevada: $776
  • Idaho: $772
  • Utah: $730
  • Oregon: $706

What determines the cost of homeowners insurance?

The cost of an individual homeowners insurance policy is determined by a wide range of factors. Some of those factors are within your control, and some of them are not. 

For instance, home insurance can be more expensive in areas with a high risk of flooding or fires than in places where natural disasters are uncommon. Newer homes often cost less to insure than older dwellings — especially those in need of repairs. Insurance companies also look at your personal credit history before covering your home, so people with good credit histories could receive a lower premium than those with poor credit histories.

Every insurance company calculates rates differently. Some carriers place a higher value on credit score and claims history, while others look more closely at the condition and age of the home. Below is a more comprehensive list of the considerations that might determine your homeowners insurance premium.

[ Read: The Best Homeowners Insurance Companies ]

  • State, city and neighborhood: Some states are more prone to wildfires, earthquakes, and hurricanes than others.
  • Location of home: This information is pulled for crime and claim statistics in your home’s area.
  • Construction of the home: Is the home made out of wood, brick, or vinyl siding?
  • Heating system: Is the home heated with an HVAC or wood stove?
  • Security system: Homes with security systems might be less likely to be broken into.
  • Previous claims on the home: If the home has a history of water and electrical issues, then the homeowner may be more likely to file a future claim.
  • Homeowner’s previous claims: If the homeowner has a history with other insurance companies, he or she may be more likely file a claim again in the not-so-distant future.
  • Credit score: People with low credit scores may be more likely to file a claim.
  • Nearest fire station: The distance between your home and the nearest fire station can be a factor.
  • Marital status: Married couples are statistically less likely to file claims with insurance companies.
  • Replacement cost: The cost to replace an older home and bring it up to code can be more expensive than replacing a new home.
  • Pets: Certain animals might be considered a greater risk for liability claims.
  • Outside structures: Things like pools, sheds or greenhouses can also affect your policy rate.

Aside from these factors, the cost of an individual policy can also be determined by which features you chose to include in your coverage. A few of the options that can affect the cost are:

  • Deductible amount
  • Extra coverage add-ons
  • Bundled insurance policies
  • Discounts

[ More: Complete Guide to Home Insurance ]

Types of coverage

There are many different types of homeowners insurance coverage. Some coverages, like dwelling and liability coverage, can come standard with most policies. But insurance companies also often sell add-on policies that offer protection in certain areas. Here are some of the most common home insurance coverages you might find:

  • Dwelling coverage is insurance that covers qualified damages to the home itself. If the siding of your home tore off in a major storm, dwelling insurance might cover the cost of repairs. Insurance companies might sell add-ons for roof damage, water back/sump pump overflow, flood insurance and earthquake insurance.
  • Personal property coverage pertains to the cost of replacing possessions in your home, such as furniture. If someone broke into your home and stole personal items, personal property coverage might reimburse you. If you need to protect valuables, your agent might recommend you purchase a scheduled personal property endorsement for higher coverage limits.
  • Personal liability coverage protects against lawsuits for property damage or injury. If a delivery driver slipped and fell on your icy driveway, liability coverage might pay for their medical expenses and court costs if they sued you. Some insurance companies offer add-on policies that extend your liability coverage limits.
  • Loss of use coverage might cover additional living expenses you have after your home has been damaged. This might include hotel stays, groceries and gas while your home is being repaired. If your house is under construction after a covered claim, loss of use coverage might pay for your temporary hotel and food expenses up to your policy’s limit.

Generally speaking, your agent may recommend that your home insurance coverages be based on your lifestyle, where you live and the value of your assets.

Keep in mind that your agent may recommend you add coverage as time goes on. If you adopt a puppy six months after you purchase your home insurance policy, your agent may recommend you add pet coverage when the time comes. Or, if you take on a remote job, you can contact your insurance company and see if you should add home business coverage for a small fee.

Every home insurance coverage has a policy limit. A policy limit is the highest amount of money your insurance company will give you after a covered loss. For example, if your dwelling coverage limit is $400,000, that may limit how much is paid out if your home is damaged or destroyed by a covered peril to no more than $400,000, although factors like your deductible may come into play.

When you purchase a home insurance policy, you may be able to set your own policy limits. As a rule of thumb, you may be recommended to have enough dwelling coverage to rebuild your home in its current state, enough personal property coverage to cover the full value of your personal items and enough liability coverage to protect your personal assets.  

[ Read: What is Dwelling Insurance? ]

Reimbursement coverage types

There are three different coverage options commonly provided by home insurance companies. Each option affects your premium differently.

  • Actual cash value (ACV) is based on the current market value, or how much your home and personal property is worth, with depreciation factored in. Most home insurance policies offer ACV reimbursement by default. It can be the lowest option.  
  • Replacement cost value (RCV) works in the same way as ACV, but without depreciation factored in. That means you might get a higher payout after a covered claim. RCV home insurance policies can be more expensive than ACV policies, and you may need to purchase an endorsement to get it. Your agent may recommend this if you own valuables or have an expensive home.
  • Guaranteed replacement cost (GRC) is also referred to as extended replacement cost (ERC), and this option can cover the complete cost of rebuilding the home, even if that cost exceeds the policy limit. GRC can be the most expensive replacement cost type, and not all insurance companies offer it. Your agent may recommend this if you live in areas with extreme weather, wildfires, earthquakes or any place where home destruction is more likely. 

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Discounts and ways to save on home insurance

Homeowners insurance can be costly, so before selecting a plan, shop around to find the best deal based on your needs. It can be helpful to consult an insurance agent, read consumer reviews and check online insurance quotes to find companies with the lowest rates. Here are some other ways to save money on home insurance:

  1. Ask about available discounts: Some companies offer discounted policy rates if your home is in a gated community, if you bundle with your car insurance or if you’re part of a homeowner’s association.
  2. Bundle your insurance policies: Oftentimes, companies that sell home, auto and life coverage may deduct up to 15% off your premium if you buy two or more policies from them.
  3. Make your home safer: Some providers may offer a discount if you install fixtures that make your home safer, such as smoke alarms or a security system, that reduce the likelihood that damage or theft will occur in the first place.

How do past claims impact home insurance cost?

It depends on the nature of the claim. Just how much a claim raises your premium varies in part on the provider and the nature of the claim.

There are also further complications when you make the same type of claim twice. Not only can this increase what you pay each month, but, depending on you and your home’s history, it’s possible the provider may even decide to drop you.

Though your premium may increase if you are found at fault, it’s also possible for your monthly bill to increase even if you’re not found to be liable. Your home may be considered riskier to insure than other homes.

Home insurance cost FAQs

No, states do not require homeowners to get insurance when they purchase a home. However, if you choose to get a mortgage loan, most lenders will require you to have some insurance.

To determine how much coverage you should purchase, talk to your agent about your home inventory, your overall worth, and of course, comfort level. Also discuss factoring in the location of your home, and evaluate risks based on weather, fires and other events that could potentially damage or destroy your home.

There are a few ways to potentially get home insurance discounts. Discount options include things like:

  • Bundling your home insurance policy with another policy (such as auto).
  • Going claims free for extended periods of time.
  • Making certain home improvements.
  • Living in a gated community.
  • Installing a security system.

In 2018, 34.4% of home insurance losses were wind and hail related, 32.7% were fire or lightning related and 23.8% were water damage or freezing claims. Only 1% of claims were related to theft, and less than 2% of losses were liability claims. These figures are according to the Insurance Information Institute.

In Florida the most common claims may be related to hurricanes, wind damage, water damage and flooding. In California, earthquake, flood and wildfire claims may be more common. When you purchase insurance, talk to an agent about the specific risks in your area and ask about separate insurance policies you might need, like flood or earthquake coverage.

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

Does a High Credit Score Lower Car Insurance

You probably already know how your credit score can affect interest rates for any mortgages, loans, and credit cards you take out. But what about car insurance? Does having a good credit score lower the premiums you’ll pay for it?

The answer is “mostly yes,” as this article will attempt to explain. In all states except California, Massachusetts, and Hawaii, car insurance companies can use your credit score to determine your likelihood to pay, as well as to judge the risk you pose on the road. And while that may sound good on the surface, it does carry a fair bit of controversy.

How Car Insurance Companies Use Your Credit Score 

Many car insurance companies (except in the three states mentioned above) confidently use your credit score to come up with car insurance plans, primarily because multiple studies have shown that individuals with high credit scores tend to get into fewer road accidents than their low-scoring counterparts.

Unfortunately, the “score” these car insurance companies come up with is NOT exactly the credit score determined by FICO. Each individual car insurance company is free to consider any of the 30+ financial factors that make up the FICO score – and is likewise free to leave out any of those factors – in coming up with their own “score.”

And here’s the shady part: These car insurance companies are actually not obliged by law to tell you how they came up with their scores. That means they can put more weight on, say, how diligently you pay your bills, instead of putting more significance on your road safety track record.

On the other hand, most reputable car insurance companies do come up with fairly accurate “scores” to use in working out insurance plans. And the trend is still evident: The higher your credit score, the lower your premiums will be.

So What Should You Do? 

So as you can see, the way car insurance companies calculate how much you’ll need to pay each year is controversial at best. But it is how it is, and until things change, the best we can do is to make the most of it. Here’s how to make sure you find the best possible rates for your car insurance policy:

#1: Keep your credit score up. Keep a tab on your credit score, correct any mistakes you may find on your credit history, pay your bills on time, and use only 30% of your available credit. Remember, the higher your FICO score, the more you’ll save on car insurance premiums – even if there’s no way to tell exactly how much.

#2: Drive safely. Obey traffic rules, avoid getting into accidents, keep your papers up-to-date, and avoid whatever leads you to road rage. Car insurance companies WILL look into your road safety record when coming up with your policy.

#3: Shop around. Get quotes from as many reputable car insurance companies as you can afford to. While we can’t find out HOW they come up with their policies, we CAN compare prices.

Source: creditabsolute.com