Most Americans have their retirement savings inside a 401(k) or another type of employer-sponsored plan.
But ask someone what age they can retire based on their 401(k) and you’ll get a blank look.
If that’s not enough, ask someone how much they’re paying in fees and watch them walk away.
Most people don’t realize that retirement age and 401(k) fees are closely related.
I like to tell this story as an example:
Three 30-year old friends Emily, Mary, and Natalie all make $40,000 a year at different employers.
- Emily’s 401(k) has an above average fee of 2.25%
- Mary’s 401(k) has an average fee of 1.5%
- Natalie’s 401(k) plan has a below average fee of 0.5%
Emily, Mary, and Natalie each invest 10% of their salary until age 65. They each get a 3% raise each year and all three earn 7% per year on their investment.
What impact do fees have?
- Paying 2.25% in fees, Emily’s 401(k) balance is $529,911
- Paying 1.5% in fees, Mary’s 401(k) balance is $609,486
- Paying 0.5% in fees, Natalie’s 401(k) balance is $739,002
Blooom Review: The Free Tool That Tells If You’re On Track For Retirement In 30-Seconds
Same returns and Natalie has over $209,000 more in her retirement account than Emily!
That could be the difference between running out of money vs. leaving money behind.
Learning whether you’re on track for retirement is difficult.
First off, there’s a lot of math involved. As important, many 401(k) providers don’t make it easy for you to find the fees they charge.
Fortunately, there’s a free tool that tells you in 30-seconds the health of your 401(k) based on your retirement goals and the exact fees you’re paying.
I first heard of Blooom when the Wall Street Journal called it, “One of the best online tools for retirement planning.”
Blooom is an SEC-registered investment advisory firm that offers a 401(k) check-up as a free service.
To get the free-check up, I entered my first name (RJ), birthday (I’m 34), and age I want to retire (55).
Then, linked my 401(k) account.
Here’s what I learned:
- I was happy to see I was doing OK with fees
- Based on my risk tolerance, I could benefit by adjusting my asset allocation
- There was room for improvement with diversification
Then, Blooom puts this into context showing the impact these changes have:
Just as the example above showed how Natalie had over $209,000 in her 401(k) than Emily, I’m missing out on $169,641 by not optimizing my 401(k).
*Note: Beyond a 401(k) plan, Blooom offers the free check-uo to those in a 401a, 403b, 457 and TSP.
A 401(k) Robo-Advisor for Hands-Off-Investors
While I recommend you check out Blooom’s free 401(k) check-up, Blooom has more to offer.
Blooom’s core service is 401(k) management.
When you sign up for their management service, Blooom optimizes your fund choices, rebalances your investments, and minimizes fees.
As you saw in the above examples, these small tweaks add up over the course of your working life.
What’s important to understand is that this management is done inside of your 401(k). In other words, you don’t move your 401(k) to Blooom, the funds stay right in your 401(k).
Instead of charging you a fee based on the amount of money you invest, Blooom charges $10 a month.
Using an online platform is a lot cheaper though than some alternatives. For example, hiring a Financial Planner could cost you $150 an hour. In contrast, Blooom charges $120 a year.
If this hands-off approach sounds interesting, below you’ll find a complete Blooom review.
If not, use their free check-up to uncover how fees are impacting your retirement.
Blooom Review: How Does Blooom Work
Blooom is a lot different than most investment institutions.
Instead of opening a new account and moving your money to Blooom, Blooom manages what’s inside of your 401(k).
The process starts with the free check-up of your 401(k).
Again, here’s what you get:
To get to this point you have to complete a quick risk-tolerance questionnaire.
Here’s a quick video that details the process in full:
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One of the first things to understand about Blooom is that they’re are a fiduciary. Which means they’re required by law to act in your best interests.
The company itself is headquartered in Leawood, Kansas. It was founded in 2013 by Randy AufDerHeide, Kevin Conard, and Chris Costello.
In that short-time, Blooom has grown fast. They now manage over $3 billion in assets total.
Blooom’s Investment Process & Philosophy
In their FAQ Page, Blooom has the following:
Q: What is the rationale behind the allocation you chose for me?”
A: We focus on three main things…
Here is the order of importance within our methodology:
- Get the stock:bond ratio appropriate for your timeframe to retirement.
- Get you exposed to every appropriate asset class possible within your 401k fund lineup.
- Select the lowest cost funds for each asset class.
What exactly does that mean?
Risk tolerance. Blooom starts you off with a risk-tolerance questionnaire. Your answers here determine the appropriate level of risk you’re willing to take.
Knowing your risk tolerance is vital because having a portfolio that’s too aggressive could cause you to sell at the wrong time. A portfolio that’s too conservative might mean you’re missing on potential returns.
Asset allocation. Knowing your risk, Blooom determines an appropriate level of stocks and bonds, e.g. asset allocation given your desired retirement age.
Fund selection. Next Blooom’s algorithm selects the best funds you have available in your 401(k).
Once the optimal mix of funds is determined, Blooom buys and sells the funds inside of your portfolio to get the right mix.
Rebalancing. Blooom will rebalance your portfolio when it’s in your best interests. Regular rebalancing has been shown to increase returns and decrease risk over time.
Most investment institutions charge a fee for the percent of assets you carry. For example, Betterment’s fees start a .25%. So, for every $100,000 in your portfolio, you’re charged $250 a year.
Blooom does things a bit different. Since they’re not managing your assets, they charge you a fee outside of your investment account. You can pay this monthly via a credit card while having the option to cancel at any time.
Blooom Account Options
Right now Blooom manages 401(k), 401(a), 403(b), 457 and TSP plans.
Blooom not only doesn’t manage outside accounts such as an IRA, but they also don’t adjust your asset allocation based on your investments in these accounts.
For example, a common strategy is to put tax-inefficient investments inside a 401(k). Then, put tax-efficient investments in a taxable account.
As Blooom doesn’t use outside investments to determine your asset allocation inside of your 401(k), this could skew your overall asset allocation.
Blooom vs. Betterment vs. Wealthfront
Blooom works within your 401(k) or other type of employer-sponsored plan only. You don’t need to move your assets to Blooom or request your employer offer them as a provider.
Betterment and Wealthfront do require you move your assets to them. They can then manage multiple accounts such as an IRA or taxable account.
Blooom vs. Personal Capital
Blooom’s 401(k) management is very unique in the marketplace. The robo-adviser Personal Capital, however, offers services that overlap. This includes a free audit of your 401(k) and other investments. For a fee, Personal Capital can then offer 401(k) guidance but not the direct management of your 401(k).
What I like about Personal Capital’s investment checkup is that it takes into equation every investment accounts you have (401(k), IRA, taxable account, cash, etc…).
Blooom Pros and Cons
Investing with Blooom can help a lot of people increase the value of their 401(k) but 401(k) management is not for everyone.
To help you decide if Blooom is right for you, here’s a complete list of pros and cons.
- Blooom is a fiduciary. Simply put they’re required by law to act in your best interest.
- Affordable. Blooom’s management fee is a simple $10 a month. There are no hidden fees.
- No balance requirements. You can start with Blooom with $1 in your 401(k) account or a million or more.
- No long-term contracts. You can cancel at anytime.
- First month is free. This is exclusive for readers of this website but your first month is managed for free. That means you can get your 401(k) optimized at no charge.
- Customized for retirement age and risk tolerance. Your 401(k) asset allocation is customized based on your desired retirement age and answers to a risk tolerance questionnaire.
- Multiple accounts. If you have more than one 401(k), Blooom can manage them all for the same $10 fee.
- Employer-sponsored plans only. Blooom doesn’t factor in outside assets when choosing your asset allocation.
Who Is Blooom Best For?
By reading this Blooom review, you should now know the ins-and-outs.
If you’re considering the 401(k) management service, here are a few scenarios where it makes a lot of sense, along with some circumstances where it doesn’t.
Blooom is ideal for the hands-off investor. Someone who hasn’t read a book on investing or eyes glaze when they hear rebalancing.
As someone who has seen their share of 401(k) plans and talked to people about their investment strategy–this is a vast majority of people.
Blooom isn’t ideal for the higher-net worth investor who has a tax-efficient asset allocation plan in place. As Blooom only optimizes your 401(k) and not other investments, it’s this situation where tax-efficiency may trump the value Blooom can bring.
Another scenario I wouldn’t generally recommend is when a balance is under $500 and someone isn’t adding a significant amount to their portfolio.
Since the balance is small, I’d recommend picking the lowest cost stock index fund and revisit once you’re ready to ramp up your 401(k) contribution.
Again, at the bare minimum, it’s important for every investor to check in on fees. This can be done with Blooom’s free analysis tool, which you can find here.
Blooom Promo Code
As a reader of The Ways to Wealth, you get your first month free when you use this or any other link on the page.
This is exclusive to readers of this website and not available if you go to Blooom’s homepage through Google.
What’s great about the promo code is it allows someone to get their 401(k) optimized at no-charge. For someone with a smaller 401(k), who wants to get their investments looked, this is a nice benefit.
Is Blooom Legit?
As a CFP™, I’ve seen my share of 401(k) horror stories and mistakes.
With regards to horror stories, 401(k) fees can be outrageous. This is especially true for those working at small to medium-sized companies, where fees above 2% is common.
With regards to mistakes, asset allocation is difficult. Some plans have target retirement fund which may simplify things. Yet, fees on target retirement funds can be quite high. As such, someone might be better off picking low-cost index funds instead.
But this person then must allocate their assets based on their risk tolerance. Then, rebalance when it’s in their favor. This is not easy.
That’s where a tool like Blooom helps.
If you plan on having a significant percent of your assets in a 401(k), it’s important you get it right.
At $10 a month, Blooom is a a way to do just that.
I’d start with the free-check up. If there is at least one red flag, chances are you’ll benefit from the monthly subscription plan.
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