Money Management

Buying more life insurance in 2024 could make sense if lifestyle changes occurred. Here’s what you need to know about adding coverage. 

Buying life insurance isn’t something most people like to think about, but it’s something almost everyone needs to do. Anyone who has people depending on them for financial support or the services they provide should have a policy in place to protect those they love in case of an untimely death.

Once life insurance is purchased, it’s tempting to try to never think about the issue again, aside from paying premiums out of a bank account. But, it may be a smart move in some situations to buy more coverage. Here are a few circumstances where it may make sense to buy more coverage in 2024.

When you have new financial obligations

Buying more life insurance could be especially important after committing to a new financial obligation that would continue to exist after death.

Say, for example, someone with life insurance bought a house with their stay-at-home spouse and they took on a $400,000 mortgage. It could be important in this situation to increase the death benefit by enough to pay off the mortgage. Otherwise, the surviving spouse might not be able to keep the family home.

The point of life insurance is to help surviving loved ones avoid a decline in their standard of living. Not being able to cover what were once shared financial obligations can be stressful and lead to a major lifestyle downgrade. So, when committing to payments that will have to be made over the long term, consider buying added life insurance so the money will be there to make those payments no matter what happens.

When you have major lifestyle changes

Aside from acquiring new debt, other lifestyle changes could happen in 2024 that make buying more insurance coverage important Specifically, any life change that leaves more people depending on the policyholder for income or services should lead to more coverage. The same is true for any lifestyle change that increases the cost of providing for those left behind.

Say, for example, that a person gets married. They now have a spouse and they may commit to accomplishing some financial goals together. This major lifestyle change means that now a death could lead to the surviving spouse experiencing a decline in quality of life because they can no longer afford the lifestyle they lived when two incomes were coming in. Life insurance could help that spouse maintain their standard of living established during the marriage.

Other big lifestyle changes that could necessitate more life insurance coverage could include:

The birth of a new child or grandchildA loved one becoming disabled and needing lifelong careAging parents requiring more assistance

Basically, if a change in circumstance results in more dependence on the policyholder in any way — for either money or services — then buying more life insurance coverage should go on the to-do list.

For policyholders who decide to get more coverage, they can contact their current insurer to see about raising the amount of their death benefit or can shop for a new policy from a different carrier.

No matter what, they’ll need to meet the insurer’s requirements for getting additional protection, but it can be well worth the effort to do that to ensure no one left behind is left in bad shape due to a lack of financial support.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Want to save money on taxes? Using itemized deductions isn’t always easy, but it can be done with careful tax planning. See how. 

If you can itemize deductions on your tax return instead of taking the standard deduction, this can help you reduce your taxable income and save money at tax time. However, most people can’t itemize. According to IRS data, almost 90% of taxpayers take the standard deduction, because that gives them a bigger tax break than itemizing deductions.

But for people who can itemize — who have itemizable deductions that add up to more than $13,850 for a single person, or $27,700 for a married couple filing jointly in 2023 — itemized deductions can lead to bigger tax breaks. If you want to maximize your tax savings, it’s important to understand which deductions are itemizable, and how to make the most of them.

Here are a few quick tips to use itemized deductions to reduce your taxes.

1. Don’t forget the SALT deduction cap

One of the big changes from the 2017 Tax Cuts and Jobs Act that still might be causing confusion for a lot of people’s tax prep sessions is the $10,000 SALT deduction cap. This new IRS rule means that you are only allowed to deduct up to $10,000 of state and local taxes (“SALT”), which includes real estate property taxes. Because of this limit, many people in higher-tax states like New York and California might not be able to itemize.

2. Include your mortgage interest

The SALT deduction makes it harder for some homeowners to itemize deductions. But don’t forget: you can still itemize home mortgage interest, and tax-deductible interest on home equity loans and HELOCs. You can deduct home mortgage interest that is used to buy, build, or make substantial improvements to the home.

Not every cash-out refinance is eligible for mortgage interest tax deductions; it depends on how you use the money. For example, pulling money out of your home equity to pay off higher-interest credit card debt can be a smart financial move, but it won’t be tax-deductible interest. You can only get a tax deduction for the full amount of interest on a cash-out refinance if you use all the money for home improvements.

3. Some medical and dental expenses can be itemized

Have you had a big year of medical expenses? Whether it’s welcoming the birth of a new baby, a major surgery, or an expensive dental procedure, you might be able to deduct those healthcare costs from your taxable income. Deductible medical expenses include a wide range of care and services, including prescription drugs, weight-loss programs under diagnosis of a doctor, eye glasses, hearing aids, and laser eye surgery.

However, keep in mind that you can only deduct medical and dental expenses that are greater than 7.5% of your adjusted gross income (AGI). For example, if your AGI is $100,000, that means your medical and dental expenses must be more than $7,500 in order to qualify for this itemized deduction. And you can only itemize the amount that’s more than $7,500. If you had $10,000 of medical expenses, you could itemize $2,500.

4. Make extra charitable donations so you can itemize

Lots of itemizable deductions are beyond your control. You can’t just decide to go out and pay higher property taxes or incur additional medical expenses. But there’s one itemizable deduction that you can decide to get more of: it’s called charitable giving. If you are close to having enough itemizable deductions to get over the top of your standard deduction amount, giving a little extra money to charity can help you.

For example, if you’re a single person with $8,000 of state and local taxes and $5,000 of home mortgage interest, that makes $13,000. With just another $851, you can itemize. Writing a check to charity for $851 (or $1,000, or more) can boost your tax deductions beyond the “standard” and help you get bigger tax savings.

Bottom line: Most people don’t itemize deductions because the standard deduction is a better deal for their taxes. (The best tax prep software can help figure out which deduction is right for you.) But if you have the financial flexibility to donate extra money to charity, giving money to nonprofits can help you get money back at tax time. This is a simple strategy to include charitable giving in your tax planning.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Electric vehicles are known for being pricey, but there are ways to take the edge off that sticker shock. Here are five ways to keep EV costs down. 

Everyone knows that electric vehicles can help the environment by reducing dependence on fossil fuels, but unfortunately, we also have to think of our wallets when purchasing a new vehicle. And that’s one area where gas-powered vehicles are still winning by a mile. It costs about $2,800 more to purchase a new EV than a new gas-powered vehicle, according to Cox Automotive, and while that represents a significant drop from years past, it’s still a lot for many people.

Fortunately, there are things drivers can do to reduce the upfront and ongoing costs of owning an EV so they can purchase one now. Here are five of them.

1. Buy used

There aren’t that many used EVs on the market yet, since EVs themselves haven’t been around all that long. But some are starting to come up, and they’re significantly cheaper than new models. Before investing in a new EV, it doesn’t hurt to take a stroll through your local used car dealership lots to see if there are any used models for sale.

Buying a used EV could also help drivers save on auto insurance costs. But insurance costs will depend on the driver’s record, their location, and the vehicle make and model. It’s best to compare quotes from several top car insurance companies before settling on one.

2. Take advantage of tax credits

The federal government offers tax credits of up to $7,500 for drivers who purchase qualifying new EVs and credits of up to $4,000 for buyers of qualifying used EVs. Unfortunately, determining which models qualify is a bit of a moving target to hit. You can check them out at FuelEconomy.gov. Be sure to verify the vehicle’s eligibility before you purchase one if you want to claim the credit.

In 2023 and previous years, those who purchased EVs had to wait until they filed their tax return to claim their credit. But beginning in 2024, drivers can apply this credit to the point of sale, so it effectively reduces the sale price of the vehicle itself.

3. Consider a green auto loan

Green auto loans are available through some banks and credit unions for those seeking to purchase EVs. They offer more favorable loan terms than a standard auto loan, so drivers should pay less in interest over the long term.

Check with lenders in your area to see if any of them offer loans like this. You may want to check with some online banks as well. Compare rates from a few providers before settling on one to ensure you’re getting the best deal.

4. Get a home charging station

Putting in a home charging station means another upfront cost for EV owners — potentially thousands of dollars. But it could save drivers a lot over the long term, compared to using public charging stations. Public stations can cost drivers up to three times as much as a home charging station, according to Qmerit. But a lot depends on location and what type of charger we’re talking about.

If you can’t afford to purchase a home charger right away, consider saving up for one over time. You may also want to look for a vehicle that comes with a free charging offer. This typically includes a certain number of minutes or hours of free charging. Inquire with the dealer to see if your vehicle’s manufacturer offers anything like this.

5. Charge at off-peak times

Those with home chargers could save money by charging at off-peak times, like overnight. Electric companies typically charge less for electricity during times when fewer people are using it. It might not result in significant savings, but even a few dollars saved per month could make a significant difference to your budget over the long term.

There’s no getting around the fact that EVs have a pretty high upfront cost. The above steps can help, but if EVs are still beyond your reach right now, don’t get too discouraged. Like all new technologies, prices will come down eventually and they’ll become more available to the masses.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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The popular financial guru recently gave an opinion on retirement withdrawals. Here’s why you shouldn’t listen to this particular Ramsey advice. 

Popular personal finance expert Dave Ramsey recently gave some retirement advice that made many financial planners shudder. It has to do with Ramsey’s definition of a safe withdrawal rate from retirement savings, and to put it mildly, he is suggesting an unsustainable withdrawal rate that could leave retirees broke at a time of their life when they really don’t need to be running out of money.

What most financial planners recommend

The most commonly used retirement savings withdrawal guideline is known as the “4% rule” of retirement. Some planners advise a more conservative rate of 3%, but the 4% rule is one that has been around for decades.

The basic idea is that you’ll withdraw 4% of your retirement savings during your first year of retirement and give yourself cost of living adjustments to keep up with inflation in subsequent years. If you do this and maintain a 60% stock and 40% bond asset allocation, this gives you a very high chance that your nest egg will last for at least 30 years.

Of course, this isn’t a set-in-stone rule. The 4% rule admittedly has its shortcomings and makes a lot of assumptions itself. Plus, personal situations should be taken into consideration — for example, if you wait until age 75 to retire, you can probably safely withdraw a bit more than someone who retires at 60 and needs their money to last for 30 or more years.

However, the point is that Ramsey’s 8% withdrawal suggestion is wrong and dangerous, and as we’ll see in the next section, it could leave retirees financially vulnerable later in life.

Dave Ramsey’s retirement savings withdrawal advice

On a recent show, Ramsey called a 3% withdrawal rate “ridiculous,” advising listeners to take 8% of their money each year. And here’s his logic:

“If you’re making 12 (%) in good mutual funds, and the S&P is averaging 11.8 (%), and if inflation for the last 80 years has averaged four percent, if you make 12 (%) and you need to leave 4 (%) in there for inflation raises, that leaves you 8 (%). So I’m perfectly comfortable drawing 8 (%). But if you want to be a little bit conservative, 7 (%), but sure not 5 (%) or 3 (%).”

In addition to calling for an 8% withdrawal rate, Ramsey also suggested that retirees keep 100% of their money in stock-based mutual funds.

Why Ramsey’s advice is wrong and dangerous

To be fair, Ramsey’s numbers are generally correct when it comes to the S&P 500’s average returns and the long-term average inflation rate.

However, the biggest fatal flaw in Ramsey’s reasoning is that the stock market doesn’t deliver the same returns every year.

Consider this simplified example. Let’s say that you retire with $1 million in mutual funds. As Ramsey suggests, you withdraw $80,000 throughout your first year of retirement. And we’ll assume the market generates a 12% return, as Ramsey suggests it will, which replenishes your money and a little more. We’ll say inflation is running at 4%, so this means your second-year withdrawal rate should be $83,200.

However, what happens if the stock market drops by say, 30%, during the second year you retire? It’s happened before. Now, your roughly $1 million nest egg declines to $700,000. And you’re set to pull out $83,200. In this case, you’d be on track to end the year with just over $600,000 in retirement savings. Now your $83,200 withdrawal represents about 14% of your portfolio, and even Ramsey would likely agree that this level of withdrawal would be unsustainable at this point.

In fact, Morningstar recently completed an analysis of Ramsey’s 8% annual withdrawal rate over rolling 30-year periods. A 100% equity mutual fund portfolio would have survived for 30 or more years just 55% of the time. It would have lasted less than 20 years in 32% of cases, and the retiree would have been broke within 10 years in 6% of those 30-year periods. In short, an 8% withdrawal rate gives you a not-so-good chance that your money will last the rest of your life.

Credit where it’s due

To be clear, I’m not attempting to discredit Dave Ramsey. His advice has helped millions of people get out of debt and achieve levels of financial peace of mind that they previously only dreamed of. And having listened to his show occasionally, I can definitively say that he does an excellent job of helping people make sense out of seemingly complex financial situations, such as inheritance or divorce.

However, when it comes to a safe retirement withdrawal rate for a brokerage account, he is sadly mistaken. It’s one thing to be broke when you’re in your 40s or 50s. It’s quite another to run out of money when you’re in your 80s and are physically unable to go back to work. A realistic retirement savings withdrawal rate like the 4% rule that is most commonly used by financial planners will provide an excellent combination of current income and the likelihood that your money will last as long as you do.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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