Auto Insurance Terms, Explained

Auto Insurance Terms, Explained

Shopping for auto insurance or dealing with an insurance claim? It’s common to hit a few potholes on the way to understanding car insurance.

Auto insurance terminology can be difficult to navigate, so this glossary may help you find your way.

Key Points

•   Accident forgiveness ensures no premium hikes after the first at-fault accident.

•   Actual cash value factors in depreciation when assessing vehicle worth.

•   Liability insurance covers damages to other parties in accidents.

•   Collision coverage is for repairs resulting from vehicle crashes.

•   Comprehensive coverage addresses damage from non-collision incidents.

Car Insurance Terminology

Here are basic auto insurance terms explained:

Accident Forgiveness

Accident forgiveness is a benefit that can be added to a car insurance policy to prevent a driver’s premium from increasing after their first at-fault accident.

Each insurer’s definition of accident forgiveness may vary, and it isn’t available in every state. Some insurers include it at no charge, or it may be an add-on, which means it could be earned or purchased.

Actual Cash Value

Actual cash value is the term used to describe what a vehicle was worth before it was damaged or stolen, taking depreciation into consideration. The amount is calculated by the insurer.

Adjuster

An adjuster is an employee who evaluates claims for an insurance company. The adjuster investigates the claim and is expected to make a fair and informed decision regarding how much the insurance company should pay.

Agent or Broker

Both agents and brokers help consumers obtain auto insurance, but there are differences in their roles. An agent represents an insurance company (or companies) and sells insurance to and performs services for policyholders.

A broker represents the consumer and may evaluate several companies to find a policy that best suits that individual, family, or organization’s needs.

Both agents and brokers are licensed and regulated by state laws, and both may be paid commissions from insurance companies.

At Fault

Drivers are considered “at fault” in an accident when it’s determined something they did or didn’t do caused the collision to occur. A driver may still be considered at fault even if no ticket was issued or if the insurance company divides the blame between the parties involved in the accident.

In some states, drivers can’t receive an insurance payout if they are found to be more than 50% at fault.

Casualty Insurance

Casualty insurance protects a driver who is legally responsible for another person’s injuries or property damage in a car accident.

Claim

When an insured person asks their insurance company to cover a loss, it’s called a claim.

Claimant

A claimant is a person who submits an insurance claim.

Collision Coverage

Collision coverage helps pay for damage to an insured driver’s car if the driver causes a crash with another car, hits an object (a mailbox or fence, for example), or causes a rollover.

It also may help if another driver is responsible for the accident but doesn’t have any insurance or enough insurance to cover the costs.

Collision coverage is usually required with an auto loan. Learn more about smarter ways to get a car loan.

Comprehensive Coverage

Comprehensive coverage pays for damage that’s caused by hitting an animal on the road, as well as specified noncollision events, such as car theft, a fire, or a falling object. It is usually required with an auto loan.

Recommended: How Much Auto Insurance Do I Really Need?

Damage Appraisal

When a car is in an accident, an insurance company’s claims adjuster may appraise the damage, and/or the car owner may get repair estimates from one or two body shops that can do the repairs.

Policyholders can appeal an appraisal if it seems low and they have some backup to prove it.

Declarations Page

This page in an insurance policy includes its most significant details, including who is insured, information about the vehicle that’s covered, types of coverage, and coverage limits.

Deductible

This is the predetermined amount the policyholder will pay for repairs before insurance coverage kicks in. Generally, the higher the deductible, the lower the monthly premium.

Depreciation

Depreciation is the value lost from a vehicle’s original price due to age, mileage, overall condition, and other factors. Depreciation is used to determine the actual cash value of a car when the insurer decides it’s a total loss.

Effective Date

This is the exact date that an auto insurance policy starts to cover a vehicle.

Endorsement

An endorsement, or rider, is a written agreement that adds or modifies the coverage provided by an insurance policy.

Exclusion

Exclusions are things that aren’t covered by an auto insurance policy. (Some common exclusions are wear and tear, mechanical breakdowns, and having an accident while racing.)

Full Coverage

Full coverage usually refers to a car insurance policy that includes liability, collision, and comprehensive coverage.

GAP Coverage

Guaranteed asset protection insurance is optional coverage that helps pay off an auto loan if a car is destroyed or stolen and the insured person owes more than the car’s depreciated value. It covers the difference, or gap, between what is owed and what the insurance company would pay on the claim.

Indemnity

Indemnity is the insurance company’s promise to help return policyholders to the position they were in before a covered incident caused a loss. The insurer “indemnifies” the policyholder from losses by taking on some of the financial responsibility.

Liability Insurance

If you’re at fault in an accident, your liability coverage pays for the other driver’s (or drivers’) car repairs and medical bills.

Coverage limits are often expressed in three numbers. For example, if a policy is written as 25/50/15, it means coverage of up to $25,000 for each person injured in an accident and $50,000 for the entire accident and $15,000 worth of property damage.

The cost of liability-only car insurance varies by state, as does the required minimum level of liability insurance.

Limit

This is the maximum amount a car insurance policy will pay for a particular incident. Coverage limits can vary greatly from one policy to the next.

Medical Payments Coverage

Medical payments coverage (or medical expense coverage, or MedPay) is optional coverage that can help pay medical expenses related to a vehicle accident.

It covers the insured driver, their passengers, and any pedestrians who are injured when there’s an accident, regardless of who caused it.

It also may cover the policyholder when that person is a passenger in another vehicle or is injured by a vehicle when walking, riding a bike, or riding public transportation. This coverage is not available in all states.

No-Fault Insurance

Several states have no-fault laws, which generally means that when there’s a car accident, everyone involved files a claim with their own insurance company, regardless of fault.

Also known as personal injury protection, no-fault insurance covers medical expenses regardless of who’s at fault. It doesn’t mean, however, that fault won’t be determined. No-fault insurance refers to injuries and medical bills. If a person’s car is damaged in an accident and they were not at fault, the at-fault driver’s insurance company will be responsible for the repairs.

Optional Coverage

Optional coverage refers to any car insurance coverage that is not required by law.

Personal Injury Protection

Several states require personal injury protection (PIP) coverage to help pay for medical expenses that an insured driver and any passengers suffer in an accident, regardless of who’s at fault.

PIP also may cover loss of income, funeral expenses, and other costs. PIP is the basic coverage required by no-fault insurance states.

Primary (and Secondary) Driver

The person who drives an insured car the most often is considered its primary driver. Typically, the primary driver is the person who owns or leases the vehicle. If spouses share an insurance policy, they may both be listed as primary drivers on a car or cars.

A car may have multiple secondary, or occasional, drivers. These are generally licensed drivers who live in the same household (children, grandparents, roommates, nannies, etc.) and may use the insured car occasionally but are not the car’s primary driver.

Recommended: Cost of Car Insurance for Young Drivers

Primary Use

This term refers to how a vehicle will most often be used — for commuting to work, for business, for farming, or for pleasure.

Premium

A premium is the amount a person pays for auto insurance. Premiums may be paid monthly, quarterly, twice a year, or annually, depending on personal choice and what the provider allows.

Replacement Cost

Some insurance companies offer replacement cost coverage for newer vehicles. This means that if a car is damaged or stolen, the insurer will pay to replace it with the same vehicle.

Coverage varies by company, and not every insurance company offers replacement coverage.

State-Required Minimum

Every state has different legal minimum requirements for the types and amounts of insurance coverage drivers must have. The limits are usually low. Lenders may require more coverage for those who are buying or leasing a car.

Total Loss or ‘Totaled’

If a car is severely damaged, the insurer may determine that it is a total loss. That usually means the car is so badly damaged that it either can’t be safely repaired or its market value is less than the price of putting it back together.

If a state has a total-loss threshold, an insurer considers the car a total loss when the cost of the damage exceeds the limit set by the state.

Underwriting

The underwriting process involves evaluating the risks (and determining appropriate rates) in insuring a particular driver.

Insurance underwriting these days is often done with a computer program. But if a case is unusual, a professional may step in to further assess the situation.

Uninsured and Underinsured Motorist Coverage

Uninsured motorist and underinsured motorist coverage protects drivers and their passengers who are involved in an accident with a motorist who has little or no insurance. Some states require this coverage, but the limits vary.

Some states require this coverage, but the limits vary.

Uninsured/underinsured motorist bodily injury insurance covers medical costs. Uninsured/underinsured motorist property damage pays to repair a vehicle.

The Takeaway

Understanding car insurance basics is important for drivers. Knowing auto insurance terms, coverage your state or lender may require, and what other types of coverage could further safeguard your finances can make you a more informed consumer.

When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

SoFi brings you real rates, with no bait and switch.


Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Leasing vs. Buying a Car: What’s Right for You?

So you’ve decided to get a new car. You’ve picked out everything from the color to the floor mats. But pump the brakes. Should you lease or buy? There are many factors to consider.

Check out this overview of leasing vs. buying, plus get help deciding how to save for your next set of wheels.

Key Points

•   Owning a car provides unlimited mileage and the flexibility to sell the vehicle at any time.

•   Leasing a car results in lower monthly payments and the opportunity to drive newer models frequently.

•   Leasing imposes mileage limits and potential fees for excessive wear and tear.

•   Buying a car involves higher upfront costs and ongoing loan payments, but builds equity.

•   Lifestyle and financial stability should be considered when choosing between leasing and buying.

Owning vs. Leasing a Car

When you own a car, you purchase the vehicle outright from a dealer or private owner with cash or by financing it. You can keep it for as long as you want, and you can sell it in the future, if you wish.

When you lease a car, you do not own the vehicle. Instead, you make monthly payments to the owner for the right to use the vehicle. You must return the car at the end of your lease agreement or buy it at that time.

Initial Costs

When buying a car, the upfront costs are fairly obvious. You either need enough money to buy the car outright, or you need a big enough down payment to start financing the vehicle. Financing will also involve taxes, registration fees, and other charges.

When financing a car, it’s a good idea to look at the total cost: Multiply the monthly payment by the number of months in the loan, add the cost of taxes, fees, and add-ons, and finally subtract the value of any trade-in or down payment. The result is your total cost.

With leasing, the upfront costs can vary. Typically, the initial costs to lease a car include at least the first month’s payment, a security deposit, taxes, registration fees, and an acquisition fee.

Some lease charges are negotiable, according to Edmunds. They include the cap cost, or basically what the vehicle would sell for, and sometimes the “money factor,” or interest rate.

If you suspect that a dealer is marking up the money factor, you could ask for a lease based on its “buy rate” — the rate you could get from one of the dealer’s lending partners without the dealer markup.

Many other factors that may be negotiable during the leasing process are the mileage allowance (you can always try to get a higher allowance without paying extra fees); the trade-in value of any car you’re trading in; and, if you plan to buy the leased vehicle after the term, the buyout price (you can try to haggle for an amount lower than the anticipated value of the vehicle at the end of the lease).

Monthly Costs

If you buy a vehicle outright, you will not have to make any monthly payments, of course. If you take out a loan, you will need to make a payment toward the principal, plus interest, each month. You’ll also need a good credit score to finance a car.

When leasing a car, you will be required to make monthly payments that include interest charges and taxes.

Regardless of whether you lease or buy your car, remember to budget for recurring costs, such as fuel and auto insurance.

Recommended: Car vs Truck Value: Comparing How They Depreciate

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Better to Lease or Buy a Vehicle?

When you own your car, it’s yours, and you can drive it as often as you’d like. If it’s a new purchase, you’ll get a manufacturer’s warranty for three years and sometimes longer.

When you lease, typically for three or four years, the number of miles you can drive in a given year is usually limited to 10,000 to 15,000. If you exceed the mileage limit, you will pay an additional fee per mile.

Beyond mileage, you may have to be more careful when driving a leased car. Any scratches, dents, or dings could come with wear-and-tear penalties.

What about repairs? A leased car is usually still covered by the manufacturer’s warranty. Basic maintenance may also be covered.

Two other broad thoughts:

Consider Your Lifestyle

If you’re someone who simply loves to go on road trips with your mountain bike, surfboard, and camping gear in tow, owning may be a good option. That way, you never have to worry about how many miles you’ll log or the scratches your car will get during your adventures.

If you’re looking for a commuter car, or if you like to have the newest model with the latest tech accessories, leasing a car may be the way to go. When your lease is up, you can look for something new.

Just realize that when the lease ends, you may face a turn-in fee if you don’t lease another car from the dealer.

Recommended: How to Spot Good vs. Bad Car Value Estimates

Consider Your Finances

Before deciding to buy or lease a car, it’s crucial to look at your current financial situation.

If you have enough money tucked away to purchase the car outright, would you still have money in savings?

Or if you’re looking to take out a loan, do you have enough money coming in each month to cover the payments? Do you have enough money in an emergency fund to cover unforeseen events? If you can answer yes to these questions, you may be in good shape to buy a vehicle.

As for leasing, you should assess whether you have enough income to cover the lease payments for the entire term. Breaking a lease can be an expensive proposition: It means paying the balance due, including any penalties and fees.

You also want to ensure that you have enough money to cover any unexpected expenses, including costs for going over your mileage limit.

Recommended: Does Paying Off a Car Loan Help Your Credit?

Dollars & Sense of Leasing or Buying a Car

The monthly cost of leasing a vehicle is often lower than auto loan payments. But to parse it further, consider the costs of buying a new vs. used car. (Buying a high-mileage car has its own pros and cons.)

In one detailed comparison of leasing a car, buying a new car, and buying a used car, over the course of six years the total costs for a used car were the lowest (the comparison did not include any repairs). Leasing was the next lowest. Buying a new car had the highest total costs.

Here’s another wrinkle if you do lease: If you decide to buy the car at the end of the contract, you’ll likely pay thousands of dollars more than if you had bought it from the get-go.

The Takeaway

The decision to lease vs. buy a car can rest on factors like total costs, annual mileage, and the urge to drive the latest model every few years. As you weigh your options, consider how you plan on using the car and what your financial situation will allow.

When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

SoFi brings you real rates, with no bait and switch.


Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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How to Send Money Using a Credit Card: All You Need to Know

How to Send Money Using a Credit Card: All You Need to Know

If you need to send money with a credit card, there are several ways you can complete the transaction, including taking a cash advance, using a peer-to-peer (P2P) app, or using a money transfer service. While it’s convenient to send money by credit card, it may be costly and it could impact your credit.

Before you transfer money, here’s a rundown on how to send money with a credit card and what you need to know about doing so.

Transferring Money From a Credit Card to a Bank Account or Debit Card

You usually have three methods to choose from in order to send money by credit card. Here’s a breakdown of how each one works.

1. Cash Advance

The first way you can send money using a credit card is through a cash advance, which is one of the ways credit cards work. Essentially, a cash advance is like a personal loan that you can use to pay bills or make purchases.

Since you’re borrowing money from your creditor, the cash advance will begin accruing interest immediately. Also, you must pay a fee. Therefore, it’s best to be timely when repaying the loan amount.

Depending on your credit card issuer, you may have several options for taking a cash advance, including:

•   Visiting an ATM

•   Requesting a convenience check

•   Going to a bank branch in person

•   Getting a cash advance from a loan agency (though you’ll need a credit card PIN for the agency to distribute the funds, which is different from the CVV number on a credit card)

If you’re requesting a cash advance from your local bank, they may allow you to visit a bank branch and deposit the funds directly into your bank account. A convenience check works similarly to a traditional check, except the funds come from the line of credit on your credit card instead of directly from your bank account. You can then deposit the money into your bank account or use it to pay for another expense.

2. Peer-to-Peer Applications

Another option is to download a P2P app like Venmo, Cash App, or PayPal. Then, you can link your account to your credit card and send money to another receiver.

It’s important to note that all P2P apps have different requirements for sending funds, and they can charge a fee to do so. For example, if you choose to use the Cash App to send money with a credit card, you’ll pay a 3% fee.

3. Money Transfer Services

Lastly, you could use a money transfer service to send money by credit card. For example, Western Union allows customers to pay for a money transfer using a credit card. You can do so via the app, in person, or online. But, like the other solutions for transferring money with a credit card, a money transfer service may charge a fee.

You may also be able to transfer funds from your credit card to your bank account through your bank.

Banks vs Money Transfer Providers for Credit Card Payments

Here’s a difference to consider if you are deciding between how a bank vs. money transfer service may look at credit card payments.

•   Usually, if you decide to transfer money using your bank, your creditor will categorize the transfer as a cash advance. Your creditor will charge a fee, and if you’re sending the money internationally, you also may have to pay a foreign transaction fee. A cash advance interest rate — which is usually higher than the average credit card interest rate for purchases — will also apply.

You can request that the cash advance get directly deposited into your bank account, or you can take the cash advance from an ATM or request a convenience check. Once you receive the funds or the check, you can deposit the money into your bank account.

•   On the other hand, when you use a money transfer service, you will link a credit card to your account. This gives you the ability to send money, often within minutes. However, depending on the company, you may have to pay a fee for the transaction. Creditors generally treat this transaction just like any other purchase transaction, meaning the purchase APR on a credit card will apply.

Things to Consider When Transferring Money From a Credit Card

Although using credit cards to send money is a convenient solution, it’s not always advisable. When you have the choice, using cash or your savings is a better option since you can avoid paying high fees or going into debt that might not be easy to shake (here’s what happens to credit card debt when you die, for instance).

But, if you find yourself in a bind and have limited options, you may need to send money with a credit card. Before you do so, however, here are a few considerations to keep in mind.

Credit

When you take a cash advance from your credit card, it can negatively impact your credit. Credit bureaus use your credit utilization ratio to determine your credit score, which is the amount of credit you’re using versus the amount of credit you have available. Ideally, you want your credit utilization ratio to fall under 30%, ideally closer to 10%.

If you take a cash advance, there’s a chance it will spike your credit utilization ratio and ding your credit. For example, let’s say your credit limit is $5,000, and you take a $3,000 cash advance. This would make your credit utilization ratio 60% — double the recommended benchmark. Keeping your credit limit above this threshold for too long can affect your credit score.

Likewise, not handling your credit card usage responsibility can harm your credit. So, even when using a P2P app to send money, it’s important to make on-time credit card payments (ideally of more than the credit card minimum payment) to avoid late fees or potential damage to your credit score.

Fees

Most options for using a credit card to transfer money will involve your paying transfer fee. This may be a fixed amount or a percentage of the cash advance.

While you can compare options to identify the cheapest solution, it’s best to find a solution that doesn’t charge any fees. This way, you don’t have to worry about losing money on the extra fees you must pay.

Interest

In addition to fees, you must pay interest on all of your credit card purchases — including money transfers — if you don’t (or can’t) pay off your balance in full each billing cycle given what a credit card is and how it works.

And, if you take a cash advance, your interest rate is usually higher on those transactions. Further, interest on cash advances starts accruing immediately. (You may have noticed these points when applying for a credit card and reviewing the disclosures.)

So, even if it is an emergency, you must consider the interest you’ll pay if you choose to send money with a credit card.

Pros and Cons of Sending Money With a Credit Card

Understanding the advantages and disadvantages of sending money with a credit card will help you make a more informed decision. Like with most financial decisions, there are pros and cons to using a credit card to send funds.

Pros

•   Rewards. You could earn credit card rewards if you have a card that offers cashback, miles, or bonus points when you spend money. Purchases may include a money transfer if you decide to use a money transfer service.

•   Convenience. Using a money transfer service can help you transfer funds from your credit card to another party within minutes. So, if you need money fast, this could be a good solution.

•   Security. Using a credit card is often more secure than using a debit card. Credit cards typically have stronger fraud protection and other security features to keep your money and identity safe, especially when sending money abroad. For instance, if you believe a charge is fraudulent, you can request a credit card chargeback.

Cons

•   High interest rates and fees. If you choose the credit card cash advance route, you must pay the cash advance fee and cash advance interest rate. Even if you use a money transfer service, you’ll usually pay a fee.

•   Not accepted everywhere. Some companies may not accept a credit card as a form of payment for a money transfer.

•   Potential impact to your credit. If you’re unable to pay off the cash advance or your credit card balance, it could impact your credit score. This can make it harder to get approved for a loan or a mortgage in the future.

Alternatives to Using Credit Cards for Sending Money

Again, if you send money with a credit card, you’ll have to pay fees and interest. With this in mind, there are other alternative solutions that can help you save money. Some other options you may consider include:

•   Low-interest personal loan. If you have a good credit score, you could qualify for a competitive interest rate, potentially one that’s lower than your credit interest rate. Also, personal loan approval can happen quickly, so you may not have to wait too long for the money to come through.

•   Credit card with 0% introductory offer. Some credit cards offer promotional periods where the APR is 0%. Some may simply offer a good APR on a credit card that’s lower than the standard APR. This means you could make purchases and not have to pay interest. However, you’ll still have to pay the transfer or cash advance fee if you go this route, and that introductory period will end at some point.

•   Home equity line of credit. A home equity line of credit (HELOC) lets you access the equity you have in your home. You may have a lower interest rate compared to unsecured lines of credit, and your lender may even waive the closing cost for the line of credit. Keep in mind that this loan is secured by your home though, so if you fail to repay it, your home may be on the line. An unsecured credit card, meanwhile, doesn’t require any collateral.

The Takeaway

It is possible to send money via a credit card in certain situations. However, this can involve significant fees. It may be wise to consider your options before sending money with a credit card. Doing so can help ensure you use your credit card wisely.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Can you transfer money with a credit card?

Yes, you can transfer money using a credit card via a cash advance, P2P app, or a money transfer service. But, many of these options come with extra fees, so before you choose one, make sure you understand the costs involved.

Is it secure to use a credit card to transfer money?

Yes, usually credit cards provide fraud protection and additional security features to protect your money. This can make them more secure to use than debit cards, for instance.


About the author

Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.



Photo credit: iStock/Damir Khabirov

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Typical Retirement Expenses to Prepare For

Retirement goals — whether they include traveling or relocating to a desired area — are achievable if you can plan for the expenses that need to be covered during those years.

However, not all Americans know what to expect regarding living expenses during their retirement. They may not know how to budget for ordinary costs in retirement, like housing and transportation, or make the most out of retirement income. Here’s a look at typical retirement expenses so individuals can get a handle on how much they’re likely to spend, and how much they need to budget for retirement, and how that might inform their strategies for padding their retirement and investment accounts.

Key Points

•   Annual big-ticket costs for retirees include housing, transportation, health care, food, and entertainment.

•   Housing is the largest expense, with average annual costs in the tens of thousands of dollars.

•   Unexpected expenses can include uncovered health care costs and home repairs, while spending may decrease on insurance, taxes, and transportation.

•   Effective retirement financial management involves categorizing expenses, estimating income, and planning for unexpected costs.

•   Regularly reviewing and adjusting the budget is crucial to align with changing retirement goals and financial situations.

This article is part of SoFi’s Retirement Planning Guide, our coverage of all the steps you need to create a successful retirement plan.


money management guide for beginners

Average Monthly Cost of Retirement Expenses

According to the Bureau of Labor Statistics’ 2023 Consumer Expenditures report, Americans age 65 and over spent $60,087 on average during 2023, while those aged 65 to 74 spent $65,149, and those 75 and over spent $53,031.

Looking at those figures by month, a retiree aged 65 and over spent just above $5,000 on average each month, while those aged 65 to 74 spent about $5,400 per month, and those 77 and over spent close to $4,400 per month.

Retirees generally spent less than the average American in 2023, which was $77,280 (or about $6,440 a month). Retirees also spent less than people nearing retirement, those aged 55 to 64, who spent an average of $83,379 that year (just under $7,000 a month).

💡 Recommended: Average Retirement Savings by Age

5 Common Retirement Expenses by Category

The typical budget for retirees needs to cover expenses for a retirement that could stretch over two or three decades. Drilling down to specific categories can help retirement savers determine benchmarks for their own budget.

1. Housing

Housing expenses, such as mortgage payments, insurance, and maintenance costs, are among the highest costs retirees face.

Housing
65 and older 65-75 75+
$21,445 $22,216 $20,370

Source: Bureau of Labor Statistics’ 2023 Consumer Expenditures report

In 2023, Americans over the age of 65 spent an average of $21,445 on housing. Those between the ages of 65 and 74 spent an average of $22,216, and those 75 and over spent $20,370.

These expenses can vary dramatically by location and housing type. For example, housing costs are typically much higher in a coastal California community than in a real estate market in a state with relatively low property taxes, such as Wyoming, South Carolina, or Colorado. This might be a factor to consider when weighing the best states to retire in.

2. Transportation

Many retirees want an action-packed retirement full of entertainment, socializing, visiting family, and traveling the country. That means that transportation costs can be a significant factor in retirement expenses, especially early in retirement.

Transportation
65 and older 65-75 75+
$9,033 $10,899 $6,448

Americans over 65 spent an average of $9,033 on transportation during 2023, and that figure was $10,899 for those between 65 and 74. For those 75 and over, the average was $6,448.

Retirees who don’t own a car may still need to factor the cost of public transportation into their annual retirement costs. Buses, subways, and other public transportation sources cost older generations hundreds of dollars per year.

3. Healthcare

Americans’ healthcare costs — including health insurance, medical services, medical supplies, and prescription drugs — increase as they grow older. With age comes aching joints, injuries from falling, and sometimes chronic diseases like arthritis, diabetes, or Alzheimer’s. Americans spent an average of $4,976 on healthcare annually between 2016 and 2020, but this is one area where retirees spend more than their younger peers.

Health Care
65 and older 65-75 75+
$8,027 $7,942 $8,145

Americans’ health care costs — including health insurance, medical services, medical supplies, and prescription drugs — increase as they grow older. With age comes aching joints, injuries from falling, and sometimes chronic diseases like arthritis, diabetes, or Alzheimer’s.

Americans over 65 spent a tad more than $8,000 annually, on average, on health care during 2023. Those between 65 and 74 spent an average of $7,942, and those 75 and over spent $8,145.

Costs vary from person to person depending on their genetics, injuries, and lifestyle choices. For example, if heart disease runs in the family or you are a smoker, you may want to save extra for retirement health care costs. If you have a high deductible health insurance plan, consider saving with a health savings account (HSA), which offers tax-advantaged savings to cover health care costs.

4. Food

Transportation
65 and older 65-75 75+
$7,714 $8,566 $6,508

When it comes to food expenses, Americans spent $7,714, on average, for those 65 and older, $8,566 for those between 65 and 74, and $6,508 for those 75 and over in 2023.

An individual’s food costs will vary depending on their diet and habits. For example, people who buy organic vegetables will likely spend more on produce than people who don’t. There’s also a good chance that eating at home more frequently will cost less than eating out five times per week.

5. Entertainment

Having fun isn’t just for the young. In 2023, Americans over age 65 spent an average of $2,898 annually on entertainment, which could include fees and admissions to places like museums, theater performances, and movies. Entertainment expenses also include hobbies and pet costs. Those between 65 and 74 spent an average of $3,447, and those 75 and over spent $2,131.

Entertainment
65 and older 65-75 75+
$2,898 $3,447 $2,131

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What Is the Most Costly Retirement Expense?

Of all of the expenses in retirement, the most expensive is generally housing. While of course exact retirement costs will vary from individual to individual depending on their situation, the average cost of housing even far exceeds costs like health care.

There are steps retirees can take to potentially reduce this expense though. For instance, they may aim to pay off their mortgage before they retire. Or, they could consider moving to a less costly state with lower taxes.

What Are Some Unexpected Retirement Expenses?

Even a well-laid retirement plan can leave someone open to surprise. Some unexpected retirement expenses that retirees might want to factor into their retirement planning include:

•   Uncovered health care costs: Health care might not cover anything, and to get total coverage, it might be necessary to get multiple plans under Medicare. However, it’s important to weigh the cost of that over any out-of-pocket costs. Of course, it’s hard to predict the future and because of that, it can be challenging to get the math just right.

•   Long-term care: This retirement expense can be steep, and the costs involved continue to rise. Especially for retirees who don’t have family to turn to for assistance, this can constitute a significant portion of a retirement budget. In-home care aids may cost tens of thousands of dollars per year, and a private room in a nursing home facility could easily run more than $100,000 per year.

•   Unanticipated housing costs: Retirees’ budgets might also get thrown off by housing costs they didn’t factor into their calculations. For instance, while a retiree may have noted the cost of their monthly mortgage payments, they may not have taken into account potential home repairs and maintenance, or needed additions, like a wheelchair-accessible ramp.

What Will You Spend Less on in Retirement?

We’ve talked a lot about the costs of retirement, but there are some areas where you’ll spend less in this stage of life. One place you’ll shell out less is on insurance (due to Medicare) and taxes (less income to be taxed) — though that’ll depend on each individual’s specific situation.

Other areas where costs might be lower in retirement include on pets and pet supplies; alcohol and tobacco; clothing; and, if you’re giving up your rush-hour commute, transportation.

5 Steps to Set Up a Retirement Budget

Once you have an idea of potential retirement expenses, you can start to save and comprehensively budget for them. Since every retirement looks different, there’s no average retirement budget — a good monthly retirement income for a couple will be different than for a single person. Nonetheless, these are the steps to create a budget that may work for you.

Step 1. Contribute to a Retirement Account

You may already have retirement savings in your company-sponsored 401(k) or a similar retirement plan. But those who don’t have access to a 401(k) or want to increase their savings can also save in an individual retirement account like a Traditional IRA or Roth IRA. These accounts can provide tax-advantaged ways to start retirement with adequate savings to build a budget.

💡 Recommended: 5 Steps to Investing in Your 401(k) Savings Account

Step 2: Make a List of Expected Monthly Expenses

Most expenses can fit into one of three categories: fixed, variable, and one-time. Fixed expenses are payments that occur regularly and stay the same from month to month, like mortgage/rent payments, property taxes, and car payments.

Variable expenses change from month to month, depending on personal usage and price fluctuations. Standard variable costs include utility bills and groceries. Likewise, any entertainment expenses, medical expenses, pet care, and personal care expenses may be variable.

One-time or non-recurring expenses are costs that don’t occur regularly. These might include a new roof, a vacation, or a wedding. You may want to set aside money in an emergency fund for unexpected expenses (like that new roof) and have other funds earmarked for non-essential, one-time expenses (like a wedding or vacation).

To get an idea of your various expenses, gather payment information from bank statements, credit card statements, receipts, and bills. Take a look at what you spend now, then deduct expenses you won’t have at retirement (perhaps you’ll eliminate a car payment or pay off your mortgage). Then you can tally what’s left to get an estimate of your projected expenses and build a line-item budget.

Step 3: Estimate Retirement Income

To get a sense of your potential retirement income, look at projected monthly withdrawals from Social Security, retirement accounts, pensions, real estate investments (like a rental property), and any savings or part-time income. Total them up to figure out what your monthly income will be.

Step 4: Compare Expected Expenses to Expected Income

Ideally, your expected income will be larger than your projected expenses. If this is not the case, you can remedy this issue by reducing costs or increasing income.

To reduce expenses, you may consider downsizing your home or going from owning two cars to one. You may also consider streamlining entertainment expenses as a better way to cut costs.

To increase income, you may consider taking on a part-time job when you retire or look to passive income sources to boost the money that you have to spend during retirement.

Step 5: Figure Out When You Can Retire

Once you know how much money you may need in retirement and how long you’ll need to save to get there, you can plan a realistic timeline for when you can retire.

Keep in mind that the plan will likely change over time as you get closer to retirement, depending on how much you’re able to save and how your retirement goals change. Along the way, it could be necessary to boost your retirement savings if you decide you want to retire sooner than later, or you find you’re not quite on-track for your planned age.

The Takeaway

Budgeting for retirement can feel overwhelming, but taking it step by step allows you to create a plan for a retirement you’ll enjoy. It’s helpful to know the average monthly costs and to know in which major categories retirees regularly spend. You might be surprised by where you need to budget more, or where costs might be lower than expected.

Ready to start saving to cover your retirement expenses? Consider an investment account with SoFi Invest®. Investors can trade stocks, exchange-traded funds, and even fractional shares. SoFi members also have access to SoFi Financial Planners, who can provide personalized insights and financial advice so members can make the most of their retirement savings.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Help build your nest egg with a SoFi IRA.

FAQ

What are common expenses in retirement?

Common expenses in retirement include housing, health care, transportation, food, and entertainment. Of course, where you spend — and how much you spend in each category — will vary from retiree to retiree.

What is a reasonable retirement budget?

This depends on a person’s anticipated expenses and the lifestyle they’d like to lead in retirement. That said, the average American over the age of 65 spent just over $60,000 during 2023.

Which is the biggest expense for most retirees?

The largest cost in retirement is generally housing. In 2023, Americans over the age of 65 spent an average of $21,445 on housing.


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Best Scholarships for High School Juniors: Class of 2026

With average annual tuition and fees reaching $11,260 for in-state students at public four-year colleges and $41,540 for private universities, covering college expenses can feel overwhelming. Scholarships for high school juniors may be just what you need to make college more affordable.

Whether you’re aiming for a four-year university or a community college, there are plenty of scholarships designed specifically for high school juniors in the class of 2026. Unlike student loans, scholarships are free money for college and don’t need to be paid back.

Keep reading to learn about some of the best scholarships available for high school juniors and how they can help you take that next step toward your college career.

Key Points

•   Scholarships can help high school juniors reduce college costs without needing repayment.

•   Merit-based awards often require strong academic performance, leadership roles, or community service.

•   No-essay scholarships, like sweepstakes and video-based awards, are easier to apply for but highly competitive.

•   Top scholarships include the United States Senate Youth Program, Voice of Democracy, and Create-a-Greeting Card Contest.

•   Applying early and to multiple scholarships increases the chances of receiving financial aid for college.

How Do I Qualify for High School Junior Scholarships?

To qualify for scholarships as a high school junior, start by maintaining strong academic performance, since many scholarships are merit-based and require a minimum GPA.

Research scholarships that match your interests, background, or intended college major. You should also try to participate in extracurricular activities, leadership roles, and community service, which are often key factors for many scholarship applications.

Some scholarships may also consider financial need, requiring you to submit the Free Application for Federal Student Aid (FAFSA). Additionally, sign up and prepare for standardized tests like the SAT or ACT, because scores can be a qualifying factor for many awards. Keep deadlines in mind and apply early.

Recommended: What Types of Scholarships Are There?

How to Find Scholarships for High School Juniors

While you’re completing your junior year, there are plenty of resources to help you find scholarships, including:

•   The financial aid office at the college or career school you’re considering

•   Organizations and professional groups connected to your interests

•   Federal agencies that offer financial aid

•   Free scholarship search tools, like the Scholarship Search Tool by SoFi

•   Local organizations, such as libraries, businesses, nonprofits, and other community groups

It’s important to understand that not all scholarship opportunities are legitimate. For example, it’s probably a red flag if someone asks you to pay to apply or find scholarships. Remember that you should never have to pay to enter a scholarship, so it’s best to avoid those kinds of offers.

What Is the Easiest Scholarship to Get in High School?

While some scholarships require a good amount of work, like writing essays or gathering recommendation letters, others are much easier to apply for. For example, no-essay scholarships are often the easiest to apply for because they typically have minimal requirements, such as being a certain age.

There are two main types of no-essay scholarships: sweepstakes and video scholarships. With sweepstakes scholarships, you don’t typically need to submit grades, test scores, or essays. Instead, you might just need to fill out a short form, provide some basic information about yourself, or answer a few questions.

Keep in mind that since these scholarships are easier to apply for, there’s often more competition, which can lower your chances of an award. Even though junior year is busy, it’s a good idea to apply to as many as you can to boost your chances of receiving a no-essay scholarship.

On the other hand, video scholarships require you to create something, like a five-minute video explaining why you deserve an award. For some, this may be easier than writing an essay and gives you a different way to showcase your strengths.

Recommended: Enter SoFi’s Scholarship Giveaway for $2,500

Best Scholarships for High School Juniors

Here are some of the best scholarships for high school juniors to apply for in 2025 and 2026:

1. United States Senate Youth Program

Award: $10,000

The United States Senate Youth Program (USSYP) is open to high school juniors and seniors interested in a career in public service. Applicants must demonstrate leadership skills by serving in an elected or appointed role, such as student government, education, public affairs, or community service.

2. G2 Overachievers Student Grant

Award: $15,000

The G2 Overachievers Student Grant is for middle and high school honor roll students between the ages of 13 and 19. To apply, you must submit a 1,000 to 2,000 word handwritten essay about how you (or the person you’re nominating) are making a difference in your community and deserve to be recognized for it.

3. The Christophers High School Poster Contest

Award: $1,000

U.S. high school students, from freshmen to seniors, can enter the Christophers 35th Annual Poster Contest. To apply, simply create a poster featuring the phrase “You can make a difference” and illustrate how one person can positively impact the world.

4. Create a Greeting Card Scholarship Contest

Award: $10,000

The Create-a-Greeting Card Scholarship Contest is open to all U.S. high school and college students that are 14 years and older. To enter, simply create an original greeting card design. Your design can be a Christmas card, holiday card, birthday card, or an all-occasion greeting card.

5. Voice of Democracy Scholarship Competition

Award: $35,000

High school students can win the Voice of Democracy award by submitting a three- to five-minute audio essay on the topic “Is America Today What Our Forefathers Imagined?” The Veterans of Foreign Wars (VFW) also offers other scholarships, with awards ranging from $1,000 to $21,000.

6. We the Future Contest

Award: $2,000 – $5,000

High school students starting in freshman year can win the We the Future Contest by creating a 500-700 word essay, song, STEM project, short film, social media video, or public service announcement (PSA) on a Constitution-related topic.

7. Carson Scholars Fund

Award: $1,000

The Carson Scholars Fund is for students in grades four through 11 who do well in school and are committed to making a difference in their communities. To apply, you need a GPA of at least 3.75 and must show a strong commitment to community service.

Carson Scholars Fund

8. International Public Policy Forum (IPPF)

Award: $10,000

The Brewer Foundation and New York University (NYU) offer the International Public Policy Forum award to teams of at least three students from the same school. As a team, you’ll write a 3,000-word essay on “Resolved: Equitable access to pharmaceuticals should be prioritized over protecting intellectual property rights.” The top 64 teams will move to a written round, and the top eight teams will compete in a final oral debate.

Recommended: How to Pay for College

The Takeaway

Kicking off your scholarship applications during junior year gives you a head start and helps you find more options to pay for college. The more scholarship money you earn, the less you’ll need to pay in tuition and other expenses.

In addition to scholarships, students can pay for college with cash savings, grants, federal student loans, and private student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.


Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

Should you start applying for scholarships as a junior?

Even though your junior year is a good time to apply for scholarships, you don’t need to wait until then. You can start anytime in high school, which gives you a jumpstart and can open up more scholarship opportunities.

What is the youngest age you can get a scholarship?

You might be able to find scholarship opportunities for kids as young as the age of four. While this may seem a tad early, starting as soon as possible gives you more time to plan for future college costs.

What are the most sought after college scholarships?

Some of the most sought-after scholarships include The Gates Scholarship and the Coca-Cola Scholars Program. However, these popular scholarships are usually available only to high school seniors and can be pretty competitive. So, to increase your chances of winning, it’s a good idea to apply for a mix of different scholarships.


About the author

Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.



Photo credit: iStock/shapecharge

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


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