09.18.23 A Reset On Auto Insurance / Longevity Insurance

It's great to have you here on the Clark Howard show our missions to serve you with knowledge. So you are empowered to be able to make smarter financial decisions in your life. And I want to tell you I am just back from Habitat for Humanity Build in Oklahoma. It was the second annual Clark Howard Blitz build in Tulsa. We completed six homes and it was a really heartwarming event. Six hardworking families will be moving into these homes that they will buy. On sale at lower prices with lower mortgage payments because of the wonderful volunteers who volunteer at Habitat weekend after weekend. The sponsors who put in the seed money to be able to buy the materials to build the homes. And you personally this you're up to house ninety eight is ninety seven ninety seven. You're exaggerating so much. Oh yeah, you're going to hit a hundred hundred and February of twenty four, which had been a goal of mine long, long ago I set that goal 22 years ago with the goal of being able to sponsor and volunteer on a hundred Habitat homes by 2020 and I didn't make it be twenty four instead. Oh my well, I have to say that's a lot of money. I don't even want to add up all the money, but you talked about saving money all the time. But in this case, in the case with so many charities, I know you hate me doing this, but I just I have to say you are so incredibly generous and you've given you've given a lot of money. So that's important to you. So many other areas and you give it to people, which is incredible. Well, I, you know, thank you, I'm supposed to say thank you, but it's not about me, but the reason I do donate to Habitat and the reason I've been involved as a volunteer since nineteen ninety three is because I've seen it work. You know, it creates independence, housing affordability in the United States as we talk about all the time on our podcast and on our website, it's a brutal problem right now for people. The high interest rates, the much higher home prices than we had is recently as four years ago. And so the thing that Habitat does in other housing organizations is so important to give people an opportunity to climb on to that ladder for the American dream. And with Habitat, you don't pay, you don't stay. A lot of people have this misunderstanding that you get your house for free if you're a Habitat homeowner like some TV reality show. So for me, Habitat works because it's the best of community. People come together and people, you know, I know anything about construction. You come in on a Saturday or whatever day the build is going on and you volunteer and you help make those houses happen one step at a time. You'll be amazed at what you're able to do on a Habitat site that you never could do on your own at your own home unless you're handy, which I'm not. But I've done everything there is to do on a Habitat home at some point over the last thirty years. And so if you don't think you can help, you don't think you can contribute. Of course you can't. Others great, money's great, the combination's great, whatever it is. And if Habitat's not your thing, get involved. We're always complaining about our country, you know, we're on the wrong track. We're blah, blah, blah, blah. So where are you making things better? How are you making things better? Where could you take your interests and provide help to your community, your neighborhood, your city, your state? Think about it and think about making a difference. And so as we said earlier, we'll be building houses 98, 99 and 100 over this winter in Atlanta, Georgia. So if any of our Clarksters or the Clark Squad want to come build on a Saturday, we're going to be posting information on how to volunteer. If you want to come into town, Clark is usually there on every single weekend builds and we'd love to have you come help if you want to take a trip. We've had volunteers, you know, we built in a number of states. We've had volunteers come from far and wide to our Habitat builds, wherever we built in the country. I know when we built in Missouri, we had volunteers from all over the Midwest who came in to help build, rebuild Joplin, Missouri after the devastating tornado last decade in Joplin and the build we just did in Oklahoma. We have volunteers come from around the Midwest to volunteer. In Atlanta, we've had volunteers come from Europe, believe it or not. And from all over the country, we have people who combine it, they'll be going to Florida on vacation since we're a winter build in Atlanta. And they'll come in from wherever they'll come to Atlanta, they'll volunteer and then they'll go on to Florida, which depending on where you're going in Florida is six to 12 hours away, whatever beach you're going to. I mean, it's volunteer tourism. Is there some term for that volunteer tourism? Yeah. If we just invented a new term, it's been around a long time, but enough about that. You didn't come here for that. You came here for advice for your wallet and first we're going to talk about something. We're getting one question after another, after another about, and that's Bill Shock from auto insurance. And there's enormous change going on in the auto insurance market. I want to tell you the nuts and bolts of what you need to do about your auto insurance. And later, I'm going to address something a lot of people fear and that is being broke as they age after they stop working. And I want to talk about a possible solution that lets you rest easy, that you're not going to be impoverished, starving, late in life, if you are blessed with extreme longevity in years. So let's talk about the auto insurance market. I shared recently the financial turmoil facing all state, all state has told the Wall Street crowd that they're going to push up rates for auto insurance customers as much as 40 percent is all states been losing a lot of money on auto insurance. And they've just been the most public about it. This has been a problem throughout the auto insurance industry. I've addressed before in questions I've had the factors, so I'll just be very brief explaining those. The auto insurance market is in a world of hurt because the cost of repairing vehicles has gone up a whole lot in recent years, way behind general inflation, the economy, the cost of vehicles has been one of the big factors in inflation. And yes, the cost of used vehicles has started to decline, but from a very high base still with the average cost of a used vehicle much higher than it was pre pandemic. So if I'm an insurer and auto insurer and I total your car following an accident, when I'm having to pay you for that total vehicle is way higher than it was just a few years ago. So the insurers facing these much higher costs for both repairing vehicles that are repairable, paying for your rental vehicle that you're in a lot longer because the repairs are taking longer, totaling a vehicle and having to pay you more money, the math is not working for them. So that's why people are getting these very large increase in costs at renewal time for auto insurance. All auto insurers that were not created equal and auto insurers slice and dice the market differently. One insurer may look at me as a much higher risk or charge me much more money based on the risk profile I am than another insurer, another another. So a lot of us have been very loyal to a particular auto insurer for a long, long time and this is a time to test that loyalty. You get a notice of a giant increase in your premium, go re-shop your auto insurance with others. Make sure you're getting quotes for equivalent coverage. There's also a time as I talk about with homeowners to rethink what deductible you have on auto insurance. People commonly have deductibles that are way too low. You typically want a deductible of $1,000 on your auto insurance. The reason is for the $1,000 is that insurers have a big cost in processing claims. Not just paying them, but processing them. If they don't have to worry about you for something that's hundreds of dollars instead of thousands of dollars, then they're going to give you a lower premium for that. In addition, claims really hurt you. So you make a small claim against your auto insurance, it's going to eat up your wallet for years to come and make it tough for you to compare us in shop with other insurers. So you raise that deductible and you're going to lower that cost. Now here's the bad news. The other thing is that if you are a high income earner or you have a decent amount of assets, look at how much liability coverage you have. Now I want you to spend more money if you have minimal amounts of liability. So the story I told two years ago is just one example where a doctor's daughter had an accident that was her fault. And the doctor who had a really successful practice, a lot of assets, lost everything and had to file bankruptcy because he actually had state minimums for liability and got wiped out by the liability claims for his daughter's accident. So think about all these things as you reset with auto insurance and know that shopping around is one of the great ways for you to get this cost under control. Okay, the first question is from David and Hawaii. For premium or travel credit cards, how much does one need to spend annually to make it worth the $500 plus fees? Multiple cards cost $1,000 plus. I understand high income earners and frequent flyers, but I know many people chasing the credit card hype and status that they see being promoted on the internet. I see many people in my day to day life who are in the 40 to 70K income range who only travel a few times a year and they have two to three premium cards. So my question is excluding any sign up bonuses and extra random perks that go unused about how much should one be spending to justify these credit card fees? So this is one that people cringe when I answer this. If you are carrying, let's say, the three-full fair lands, an American Airlines Delta United tied in credit card or you're looking at one of the independent American Express Platinum, the Chase Sapphire Reserve or the Capital One Venture X. With any of these, to make them work at a minimum, you need an average charge volume of $5,000 a month, 60,000 a year. So when you asked me about somebody with a $40 to $70,000 annual income, obviously, after tax, they would have spent their entire annual income plus in what they would need to charge on one of these premium airline cards to make it worth having. And people will throw out very specific circumstances to me that sometimes make an exception to this. But use that as a trigger point. And if you have more than one, we're talking about you having another 60,000 a year spent on the second one, on the third one. So if you have two of them, you need to be spending the equivalent of $120,000 a year between these two cards to make it worth it. If you have $380,000 a year in charge volume to make it worth having those airline cards, which means we're telling a tiny sliver of the market or people who travel continually for work. For everybody else, a cashback card, if you pay your balances in full is where the action is, or a card with a very low ongoing interest rate, if you run balances, which almost always will be a credit union issued credit card, not one from a bank. John in Virginia says, Clark, my wife still working remotely for now. And I recently retired age 50 with a pension and mental cover would like to rent out our paid off house in Virginia for a passive income of $21,000 a year after property management fees and taxes. We would then purchase an RV and travel full time, but also looking for our forever home, leaning towards tax-friendly Tennessee. We will pay cash for the RV and tow vehicle and save the estimated annual RV operating costs of $80,000 to do this for eight years. We know we would need to sell the Virginia house within five years to not get clobbered by taxes. We also know there are better options than investing in a depreciating asset like an RV. Yet this is about experiencing the national parks and sites our country has to offer more than it's about the investment. We know going into this that will be lucky to even get half of our money back when it comes time to sell the RV and the associated equipment. What are your thoughts on this? What advice would you give someone embarking on this type of adventure? So first thing, John, if I got everything right, you were like the lucky bug. You not only qualified for a full pension at age 50, but your retirement came with full health coverage at age 50, which deals with the biggest problem for people who retire in their 50s or early 60s, and that's nursing their wallet forward with health care coverage till they become Medicare eligible at age 65. I mean, you've got a clean sweep of good financial circumstances here, just incredible. And you've been great savers and all that. So RV, you may have already done what I'm going to suggest, but the first lengthy trip you take, rent an RV for a month, live the RV life for a month, and see if it is what you dreamt it would be and you love doing it. If you already have done that, then ignore what I just said. The good news, the RV market is in a really bad down cycle for the RV industry right now, which is great for you. A lot of people, their COVID puppy, was buying an RV when people hit the road during COVID and were living at RV parks, living in RVs, campers, things like that. And so the use market is depressed. The new market is depressed too. But the opportunity for you, you were talking about the depreciation is you will likely be able to find a pretty new RV at a giant discount to what a new one would be. And so this is a time that the depreciation curve is absolutely going to be your friend because RVs have a giant loss of value in the first couple of years, much more than a car does. So you are not going to have to worry likely about the depreciation you expect. If you buy instead of one that you tow, one that's an engine based, a full RV, you've got to have it checked out by a big engine mechanic to make sure that the condition of it is rock solid. As for looking to retire with a target since you're in Virginia looking at Tennessee, because the tax difference is keeping open mind is you travel America in your RV. You may find that after your years on the road, you want to settle a very different place than where you first think you want to settle. And so don't narrow your options down to potentially moving to Tennessee. Think wider as you travel and your math is all fine, you're going to be in great shape. Coming up ahead, we're going to talk about longevity. How do you deal with something that can be both a blessing and a curse? You live longer than you expect, but you may not have the money to be able to make that work in your life. Hi, I'm Don MacDonald from the Talking Real Money Podcast. Simple, honest financial advice is hard to find because there are too many people in the financial services industry and even the media who will do or say anything to get your money. Well, for decades, my co-host Tom and I have been trying to help people better manage money on the radio, TV, and in our podcast. About five times a week, we share simple, low-cost advice on building the wealth you need to enjoy a better future without making your broker richer and ironically, you broker. Listening to Talking Real Money could not be easier because you're already listening to a podcast. Just search for talking real money on your podcast service or ask your smart speaker. Give us a try. You have absolutely nothing to lose except a few minutes of time and you might just discover something to help you enjoy a more prosperous and secure future along with a simpler present. Just visit TalkingRealMoney.com or search for talking real money in this podcast service. It's that easy. This episode is brought to you by SAP. Welcome to the window, the window of opportunity. When your next move can either make your business famous or obsolete, so you need to be ready. Be handling good surprises and bad ones ready. Be opening a Portland, Houston, and Providence location on the same day ready. Be stock options plus paid family leave ready. SAP has been there and can help you be ready for anything that happens next because it will. Be ready with SAP. We have an aging population in the United States and that's no surprise. We know that but what is surprising is how long so many of us are living. My two grandfathers died 65 and 62 years old. My father died 72 years old. Today I have siblings and first cousins that are way, way past those ages and many of them look like they're going to make it into their 90s or maybe past 100 in terms of their health profile. That's happening more and more that we don't do dangerous work like we used to medicine. Most of us medicine has made enormous advancements and a lot of people pay a lot of attention to things that improve their health. People who are doing those things to live a healthier life whether it's what they eat or exercise they do or getting the right amount of sleep, whatever it is, people are living longer and longer and longer and so this is a huge dilemma for you if you're older or for your parents or grandparents based on their age and the big problem is where you as you get older you get to a point where you're not well enough to work but your cash is dwindled or it's gone and the only thing you have to live on like roughly a third of retirees do now is a monthly social security check and it's really hard to get it done with that. So life expectancy is a big role of the dice and you can look a certain amount is genetic but most of it is just randomized, it's luck and it's the things I talked about about how you take care of yourself and see you could have somebody say well you know the actual table say you're going to live to 82, you're going to live to 85, you're going to live to 78, you're going to live to 79 or whatever it is, you're thinking well wonder if I got enough money to get to that and the thing is when you look at a life expectancy it's something that's hard for people to get their arms around roughly half a people are going to live longer than that expected life expectancy the other half probably less but the point is this is a hard number to pen down unless you're daddy war bucks and you're just rolling in money this is something to solidly think about there's a solution that's almost impossible for me or anyone else to get anyone to consider it's what's known as longevity insurance the way it works is when you're going into retirement or you're approaching retirement or you're already retired you figure out okay I got to have so much money to make it to age 80 or age 85 or whatever the number is and those are the two most common for what I'm going to talk about and so you have this money that would be okay to exhaust completely by age 80 or 85 because then you can buy a longevity insurance policy that pays you check every month for living longer than what you might have expected so if you buy it starting at age 80 for 80 plus the number of years you live you live to 100 for the next 20 years it's going to pay you every single month a good amount of money 85 if you wait till then then it's going to pay you a lot more money per month every month going forward and so there's no free lunch here the way it works is you buy one of these policies make sure it's from a really solid insurance coming rated eight plus or eight plus plus by am best you buy one usually people buy it in their 60s and then it starts paying at 80 or 85 most common so it pays you so much because it's a role of the dice so many people who buy these pass away before they turn that age so the insurance keeping all that money and then if you're somebody who lives longer than they expect then you trigger that policy payment starting at 80 or 85 and you're getting a really hefty check from the years the insurance company was able to make money on your money that you already paid them to buy this longevity insurance so you get that plus you get additional money because so many other people didn't make it so the policies can be really generous the insurance company can make money your money earned money and then your money has more money because of all the people didn't make it now I don't know anybody will never know right because they're going who's like oh man I never should have bought that policy because I'm not going to live long enough to benefit from it so what the whole purpose of this is to not outlive your money and that's why I love these I have a briefing on longevity insurance how it works how you buy one policy at Clark dot com but it is a solution to a real problem and that we're living longer than people thought we would but a lot of us as we got later in our years we're not truth be told is healthy as it would be fun to live with and it requires more expenses more care potentially and the longevity insurance is there to help you through that time of your life so Christa how long would you if you close your eyes and think how long do you think you're going to live because you would eat all this healthy food all the time and you exercise like a maniac recently you did a September 11th challenge and you walked how many steps up went up to two thousand seventy one steps which is the number of steps in the world trade center buildings and after you did that my cancer yeah they heard a lot but that's nothing obviously right but it's really cool the remembrance you are part of but you are fit as a fiddle you eat all this stuff I don't understand and you do all these things to stay healthy so you're going to live to a hundred and ten I mean I would hope so but to me it's more the quality of life like you were saying I mean I don't want to be not able to really live and be older and just be taken care of so I think it just depends we'll see what happens you know none of us really know when our time is up but as I get older I just want to feel good you know and I want to be able to enjoy my from my family and friends and my life so that's what matters I just saw that there's a great thing on Netflix live to one hundred I think it's called it's a series docu-series with Dan I'm going to mess with his name I think it's butiner and he wrote the Blue Zones original Blue Zones book about these places in the world where people tend to live to one hundred or older and really the main factors are community you know they're taking care of each other they're in close community and they're not lonely that's what I mean yeah that's the big thing about community they do eat you know pretty simple meals together but they're not exercising like maniacs or anything like that and they keep working they have a reason for living which is really really cool so on that point regardless of what age you are we don't join organizations like we used to we're not part of things like we used to be people don't go to church or religious congregations like they used to they don't join civic groups like they used to all these things we used to do and so people spend a lot of time in isolation and so regardless of your age overcoming that whether it's volunteering somewhere whatever it is being with other people is one of the best medicines you can ever have for life today and life going forward and longevity of your life as well all right let's get some questions and this one's from a younger person named Mia in Georgia she says hi I'm 12 and I love your podcast thank you for all your free advice and having a clean family friendly show I appreciate you're being humble on the Clark Stink segment I do have a question I'm new to the savings game I would like to open a retirement fund so I spoke with my accountant but I don't have a consistent salary and I know what car I want to get and I want to save for it are there any tips you have that can help me save all right first of all your industriousness is really great 12 years old I started working when I was 11 it's more uncommon today that you say you're working irregularly fact that you're working at 12 is great what you do with that money is really going to be your choice but the smartest thing anyone can do through your teenage years coming up is as you work as much money as you can you want in a Roth IRA Roth IRAs are incredibly flexible and the money grows tax-free through the years and when a teenager puts money in a Roth it means the amount of money they have to have for financial independence later in life is so much less because of money you put aside now I was talking with a kid who has a business where he grows watermelons and then he goes out and sells them and he's making decent money right now doing that he asked me what to do and I said open a Roth IRA with fidelity investments and start putting money in that Roth IRA in your case that would be great to do the car though is a whole different thing if your goal is four or five years from now to be able to buy your own car that's money that has to go in just a plain old savings account you can't invest money you're gonna need four or five years down the road and with money you're not having to pay mortgage or rent you're not having to pay utilities and I'm going to do any of those things so money you make is for walking around spending if you can resolve to save half of everything you make and put a lot of it in a Roth IRA and whatever of the rest you put in to savings account and the other half of your money you spend walking around it will change your life now and down the road awesome okay Tammy and Florida says I want to travel to Ireland with my three college age boys for the FSU versus Georgia Tech game in 2024 how can I plan for that by collecting points to offset the cost or just Clark have a better idea so Christa did this I did several years ago your beloved Boston college they played Georgia Tech in Dublin it was Georgia Tech then as well and Georgia Tech winner Boston college went boss snow I can't remember the trip was so far you were you were in the pub so much you don't remember the game not I definitely was not no I mean I had a blast I went with some friends and I traveled I think we might have lost that game actually but Tammy's going with three college age boys so how old do you have to be in Ireland to drink old enough to go up to the bar in order right yeah so no age 21 there for drinking so collecting points here's the weird thing you're gonna need four tickets to go to Ireland you live in Florida the airfares to Ireland out of Florida are so expensive the airfares out of New York to Ireland so cheap like it's not all unusual for the roundtrip airfair in the fall to be 300 and something roundtrip 400 and something roundtrip out of New York be better than thinking about points since you can fly far to New York New York far to so so cheap in the fall fairs recently have been a hundred roundtrip 120 roundtrip Florida to New York when you are looking at this you're gonna wait months and months and months to do this probably sometime next August believe it or not is when you want to be looking at these tickets July August and look from New York to save that month I would look from Boston to air lingus I mean there's some great deals out of Boston that's great advice too and you can get from Florida to Boston very cheaply as well when I went over the list recently the cheapest cities to fly out of in the United States to go overseas New York and Boston I think were numbers one in two or one in three New York was absolutely number one but Boston has a lot of cheap fairs for you and so many Irish descendants live in the Boston area that's where there's so much air service they basically have a shuttle there to Ireland yeah because it's five and a half hours yeah yeah okay Jared and Tennessee says I'm 28 years old and I've been listening to your show since college my wife and I currently max our Roth IRAs and I contribute up to the match with my companies Roth 401k we have an emergency fund of six plus months and high yield savings I'm curious on your thoughts about using a target date retirement income fund and they give an example as a simple well diversified and moderately less risky investment for part of the emergency fund and more so for additional intermediate term savings I thought about the retirement income fund that would be a clever way to store intermediate savings that might be accessed in three to five years for trips etc but I want your opinion Jared I love the way you think don't use a target retirement fund because the way they are managed if you read in the even the summary perspective they'll tell you that they don't worry about taxes on those because they're typically in a tax shelter to count an IRA 401k that kind of thing so the tax problems could be huge inside a targeted retirement fund if you were looking to do something that would have lower risk that would be for more intermediate term savings look at a balanced index fund there would be something that has minimal trade activity you'd be subject typically only to overwhelmingly long term capital gains which is an extremely low tax rate and all my three favorite children sell balanced index funds or balanced index ETFs exchange traded funds and that would be a viable alternative but no target retirement funds ever outside of a retirement account I'm a squeeze in one more extra long episode today Scott and Florida says fidelity says you can earn income by lending securities you already own with their fully paid lending program you can earn monthly income by lending securities that are in demand have you heard about this and if so what do you think of it yes I mean this is a strategy where you're on the safe side more speculative kind of activity that their investors that will do this is a safe way for you to have your investment have it earn or lose based on what's happening with the marketplace and your shares are available you're lending them out and you're earning money on lending them out it is a pretty esoteric part of the investing market and if you make your shares available it doesn't mean that they'll then be used because there may not be a counter party who wants to be able to borrow your securities but it is pretty much as low risk of transactions you could do they could earn you money on something you're hoping to earn money through over the years as part of your investment portfolio so I think it's fine to do so is for downsides and doing so I'm not sure there are any significant gotchas I'm sure that we will hear on Clark stinks though from people who work in the investment community if I'm missing whatever downsides there are and we'll share that on Clark stinks if I've missed part of that now I thank you so much for being part of today's episode know that although we serve you around the clock at carc.com and carcdeals.com I am broadcasting right now from the facilities of the team carc consumer action center I'm watching a number of people in our center giving advice right now to consumers who are calling in for advice a free service we've offered for just short of 31 years and you can see how to get free advice 30 hours each week by going to carc.com slash cac have a great day you