Author Archives: Claire Harrison

Claire Harrison
Claire Harrison is a Campaign Manager at blooom. A high-fiver, thinker, and coffee drinker, Claire loves the Oxford comma and clean design. She’s werkin’ hard to help people learn about their retirement savings and how easy blooom is to use.

I am Thankful for Staying the Course!

As the Thanksgiving holiday is upon us and we prepare for the awkward discussions around the dinner table, we thought it was a good time to reflect upon what we should be thankful for regarding our retirement savings. At a minimum, maybe we can provide you with some fodder to redirect the awkward political discussions into something more positive and productive.

But before we can talk about what we are thankful for, it is important to reflect back on the condition of the stock market just 12 short months ago. As a reminder, from early October 2018 through late December 2018 the stock market (S&P 500) declined by 19.9%! Technically, a Bear Market is defined by a decline in the stock market of 20% or more. I’m sorry, but this was close enough in my book! Let’s be honest, it was a brutal 50 day period and, true to form, the media helped to exacerbate the panic with headlines like this:

“Stock markets on track for the worst December since the Great Depression”

“The Stock market just booked its ugliest Christmas Eve plunge – ever”

“US stocks log worst year since 2008”

Candidly, it is entirely possible that you have put that whole 4th quarter 2018, and all its trappings, out of your mind but the point of this article is to highlight what you can be thankful for. Clearly, by NOT reacting to the fear and panic of late 2018 – you are (hopefully) wealthier today than you were just 12 months ago – at least as far as your blooom managed retirement account is concerned. 

Since Christmas Eve 2018, the stock market is up nearly 25%. Or in other words, Santa Claus delivered quite a gift to all those investors that had the fortitude to tune out the noise of late last year, focus on their long-term goals, and stay the course. As you may know by now, this is a pretty consistent message we think is essential for our clients to hear. As many of you probably remember, here was our take then.

It’s all too easy to make bad investment decisions in times of stress that, in the moment, often seem like the next big crash or financial crisis. But it’s important to also look back and be thankful for the good decisions we make as investors, like tuning out the noise and staying focused on the long-term. These last 12 months have given us great perspective and reinforced solid investing lessons we all can be thankful for.

I’ll leave you with this – Remember that there will certainly be times in the future similar to what we experienced in late 2018. And once again, as history has always shown, staying the course and not panicking out of your portfolio is, and will continue to be, the right thing to do. 

From all of us here at Blooom, Happy Thanksgiving!

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What is a 401k?

“Why aren’t you signed up for the company’s 401k?”
“Oh, I’d never be able to run that far…”

 

Not bad as far as finance jokes go. But kidding aside, what exactly is a 401k and why on Earth is that the name?

The actual history behind the 401k is something we’ll get into with another post. But the name comes from our lengthy, wordy, largely impossible to comprehend, tax code. Section 401-K, to be exact. See what they did there?

The 401k is a plan that allows employees to save and invest with money they are paid before income taxes are taken out. Since the money is deposited directly through payroll before the employee actually receives it, it is not seen as income and therefore, it is not taxed at this time.

Choosing to have a portion of your pay contributed directly to your 401k at work effectively reduces the amount of income the IRS comes asking for a chunk of each year. But there’s more…

The money you save and invest in your 401k also grows without concern for taxes until you take the money out, ideally not until retirement. This is where the term tax-deferred comes from.

 

Roth 401k Contributions

Your employer may also offer what is called Roth 401k contributions. This is a term used to describe money that is contributed directly to the 401k, but after taxes are taken from your paycheck. By choosing roth contributions, you are paying taxes today so that you don’t have to pay taxes at all on that money, or the growth of that money, in retirement.

Roth contributions allow the contributions to grow tax-free vs. tax-deferred. The downside is that roth 401k contributions do not reduce your taxable income like regular pre-tax contributions do. Figuring out which is best for you really depends on your own personal situation, but we generally recommend choosing some combination of both, if your plan allows.

 

The Icing on the 401-Kake

Reducing taxes. Deferring taxes. It’s all pretty great. But arguably the biggest benefit to the 401k is available in about half of all plans – the employer match. This is where your employer agrees to match a portion, typically dollar-for-dollar or 50 cents on the dollar, for every dollar you contribute, up to a certain limit. A common example would be a 50% match up to 4% of your salary. 

So if you contribute 4% of every paycheck to your 401k, your employer kicks in another 2%. That’s free money folks. And an immediate 50% return on your investment. It truly doesn’t get much better than that. So as a general rule, if your employer offers one, take full advantage of the match, at the very least.

Click here to find out what the IRS will allow you to contribute to your 401k.

 

Managed 401K with Blooom

There are many reasons to allocate contributions to both a Roth & traditional 401k. Now that you know what a 401k is, know that Blooom is here to guide your way through the world of retirement savings. With Blooom in your corner, you can rest easy knowing we are with you every step of the 401k way. Check out our approach to managing your account or see how your 401k is doing with our free 401k analysis.

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2020 Elections, The Stock Market, & Your Retirement Savings: Shining A Light on What Scares Us Most

Unless you have sequestered yourself from all forms of media, it has been hard to escape the rampant hyperbole surrounding the 2020 Presidential Election.  Crazy to think we are still over a year away from it! If you are like many other investors you might be wondering how all of this uncertainty and, at times, chaos will affect you and your retirement savings.

First off, know that the anxiety or trepidation you might be feeling is absolutely normal. Unfortunately today, in the world we live in, it is virtually impossible to stay current on the days’ news without subjecting yourself to massive amounts of sensationalism, opinions over facts, and all too often fearmongering. It takes a very unique person to be able to digest this kind of content and remain unaffected or stoic in their beliefs.

But I digress, the purpose of this piece is not to expose the flaws of the modern-day media machine but to rather prepare – or better yet – inoculate you, our Blooom client (or prospective) client from the inevitable media circus that is gearing up for what will likely be the single most-watched Presidential election in our Nation’s history.

Your Retirement Savings are Important

There are 4 little words that have often been the un-doing for countless well-minded investors: This. Time. Is. Different.

Allow me to explain how this can wreak havoc on your retirement savings. Most people know that the right thing to do is to focus on the long term when it comes to your retirement savings. Heck, you might not need to touch this money for 10, 20 or maybe even 40 years, right? And when the markets appear to be relatively calm it is easy to have this long term perspective. The problem surfaces when markets drop and the media fear-mongering starts to pick up steam. It is precisely in these times when many of those well intentioned “long term” investors start to utter those 4 dangerous words: “This time is different.”

What they really mean by saying or feeling that is: “I know that historically speaking the right thing to do has been to maintain a long term focus knowing that every single dip in the stock market has been followed by a recovery and still to this day we continue to make new, all-time highs in the market. But….THIS TIME IS DIFFERENT.”  

“We have never had a President like this.”

“We have never had this much trade dispute with China.”

“We have never had this kind of Congressional dispute.”

“We have never seen our country this divided.” (although our ancestors who fought in the Civil War would beg to differ on this one!)

etc.

etc.

The problem with saying or feeling “this time is different” is that you are, in essence, giving yourself an excuse or permission to go against ALL of the historical evidence that the stock market has always recovered. In fact, so far in history, the market has recovered 100% of the time that it took a dive.  Not 90% of the time, not even 99% of the time. 100% OF THE TIME.   

Think with your Head, Not with your Stomach.

So take a moment now to prepare yourself mentally for what you will likely be feeling at some point over the next year or so.  It will very likely sound very scary to be an investor. So I say again, it is entirely normal to be fearful or anxious about your retirement savings in times of great uncertainty.  What is NOT normal or prudent behavior though is to ACT on that fear by doing something rash like bailing out of your investments or stopping your retirement account contributions. Be very mindful of your emotions taking you down the “this time is different” road.  

Secure Your Retirement Savings with Blooom

At Blooom, we have a deeply rooted belief that the biggest opportunity we have to add value to our clients is by properly inoculating you from all the nefarious forces working to deplete your retirement savings.  More so that standing guard against hidden fees in your portfolio, more so than making sure you have a balanced, appropriate mix of investments in sync with your retirement goals – Blooom aims to arm our clients with the proper perspective and truths to help each client make smarter decisions with their money.  Often times this centers around managing emotions (fear and greed) when it comes to our clients’ life savings. 

We know that countless individual investors will make terrible decisions with their retirement savings in future times of great uncertainty and fear – we just want to help prevent OUR clients from doing such. 

Click here for a free analysis of your portfolio and see what Blooom can do for your retirement plan today!

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3 Ways to Generate Passive Income

When it comes to building wealth, you can only do much through saving.

Don’t get me wrong – saving money is important. But it’s only the start.

You want to make sure you’ve cut out all the frivolous spending. You’ll want to contribute as much as you can into a 401(k) or some other retirement account. You’ll want to make sure you’re keeping your rent to a third of your income and pay down all your high-interest debt.

But once you’ve optimized the savings side of the equation, it’s time to look elsewhere.

The key to building wealth is discovering and cultivating additional streams of passive income. Getting a second job helps in the short term but if you’re trading time for money, you’re going to burn out. You only have 24 hours in a day and you’ll need some of that to sleep and recuperate.

What is passive income? Passive income is what you can earn without actively trading your time for money. When you go to work, you’re paid for your time. You may be salaried and not paid by the hour, but you’re still being paid for your time and your contributions to the company.

These are investments that pay you even though they don’t require daily attention. It’s often said that millionaires have 7+ streams of income and that’s only possible with passive income.

What are three great ways to generate passive income?

1. Real Estate

Real estate has long been touted as the path towards wealth. While you’re never guaranteed a positive return, in real estate or in any other type of investment, having a diversified portfolio of property has often been one of the most reliable ways.

If you buy property, it’s not passive. Being a landlord can be lucrative but requires quite a bit of work, from making repairs to handling phone calls to finding tenants for your rental. You take care of a lot of these problems by working with a property management company, but even that can be expensive and risky.

If you want to become involved in real estate and be truly passive, you must invest in real estate investment trusts (REITs) or crowdfunded real estate investment properties.

A REIT is a mutual fund that invests in property. The big funds own shopping malls, commercial districts, and storage facilities. They’re required by law to have the bulk of its assets and income connected to real estate investment and they must distribute 90% of its taxable income to shareholders each year as a dividend.

Another option for passive income in real estate is to invest in crowdfunded real estate. These are platforms that help curate real estate deals and let you invest in a share of a new property. It could be in the form of a note to the developer or even include some equity in the project. Some platforms have themes, like single-family homes or single-tenant commercial properties, while others only invest with certain types of developers, such as retired military.

Whatever the case, it offers the ability to invest in real estate without having to own any property.

2. Dividend Stock Funds

One of my favorite ways to generate passive income is by investing in companies that pay dividends. When it comes to truly passive income, it doesn’t get much better than dividend stocks. You simply buy the shares and collect the dividends!

What makes this even more powerful is that dividends are taxed at a lower rate than ordinary income, sometimes much lower depending on your tax bracket. If you follow a few simple rules, you pay the same as long term capital gains rates.

If you are nearing or in retirement, buying low volatility dividend stocks can help you build a monthly dividend paycheck that rivals some pensions. If you can handle the swings of the market, it’s a great strategy.

As a younger investor, I look to invest in dividend growth stock funds. These are funds that invest in strong blue-chip companies that regularly increase their dividend payouts each year. By increasing the dividend, usually faster than inflation, I can build a portfolio of stocks that pay out a large dividend relative to my cost basis.

Much like real estate, this stream of income isn’t without risk. The stock market is volatile, and your investments can lose value. If you have a long-term outlook, for me that means greater than five years, I feel like I can weather the downturns and wait until stocks recover.

And if stocks are volatile to the upside, even better!

3. Rent Out a Spare Bedroom

How big is your place? Is it in a popular area?

And do you have a spare bedroom?

Consider renting it out on a website like AirBnB for some extra income.

Renting a room on AirBnb is super simple and it’s a great way to earn a few hundred dollars, to a few thousand dollars depending on how popular it is, a month.

Our neighbor has an in-law suite in her basement and rents it out for $100 – $120 a night. It has separate access from the patio, so they almost never have to interact with guests, which is a plus.

We live in the Washington D.C. area and the suite is almost always rented out on the weekends. All she must do is launder the sheets, pick up a little bit, and the extra income is hers.

Of the three options on this list, this one is the least passive because you’ll have to list your bedroom and attend to the guests who arrive, but it’s monetizing something extra that you already have.

Once you’ve taken care of and optimized the basics, start looking to build additional streams of income to help build wealth that you can pass down to future generations.

 

About the Author

Jim Wang is the founder of Wallet Hacks, a personal finance blog where he shares his strategies for getting ahead financially. Jim uses his engineering background to break down complicated personal finance topics into easy to understand pieces so you can better manage your money.

The information is provided for discussion purposes only and should not be considered as advice for your investments. The information does not represent a recommendation to buy or sell securities. Please consult an investment advisor before you invest. Investing involves risk. Your investments are subject to loss of principal and are not guaranteed. Even diversification doesn’t guarantee a profit and can still result in losses in declining markets.

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3 Ways to Save for Retirement Without an Employee-Sponsored 401k

Retirement advice always starts out like this: “Put 15% of your gross pay in your 401(k) — and be sure to get that company match!” 

Okay, sure. I mean, not everyone has an employer-sponsored 401(k), but thanks for the tip?

Here’s the thing about that advice: Not everyone works for an employer that offers a 401(k). And contractors, freelancers and small-business owners certainly don’t! That’s why it’s important to find alternate methods of saving for retirement when you don’t have access to a 401(k) or that sought-after company match. 

You can still put away money for your retirement if you don’t have a 401(k). There are actually a bunch of ways to do it, depending on your situation, your income, and your goals. 

Here are the top 3 ways to save for retirement outside of an employer-sponsored 401(k).

1. Get an IRA and max it out

The best advice for saving for retirement without a 401(k) is to sign up for an IRA and max out your contributions. These accounts are fairly simple to set up, give you lots of choice when it comes to investments, and have their own particular tax advantages.

Traditional IRA 

You can open a traditional IRA (Individual Retirement Account) at most brokers, even online ones. Contributions are tax-deductible, although when you retire, you’ll have to pay taxes on the distributions. Contribution limits for a traditional IRA are $6,000 if you’re under age 50 and $7,000 for age 50 and older.

Roth IRA

A Roth IRA works a little differently: You get no tax deduction on your contributions when you make them, but when you collect the distributions later they are tax-free. As with the traditional IRA, the limits are $6,000 for under 50 and $7,000 for 50 and older.

Spousal IRA

If you or your partner is a stay-at-home parent, they can still save for retirement, too, with a Spousal IRA. 

2. Try a SEP-IRA or a Solo 401(k)

Just because you don’t have an employer-sponsored 401(k) doesn’t mean you can’t have a 401(k) at all! Solo 401(k)s are perfect for a company of one: the self-employed. Also known as a one-participant 401(k), these accounts are for business owners who have no employees. The IRS will let you use the plan to cover your spouse, though.

Solo 401(k)s have a contribution limit that makes IRAs look like small potatoes — $56,000 in 2019. If you’re older than 50, the IRS permits additional catch-up contributions of $6,000 a year. Plus, contributions can reduce your taxable income. There is such a thing as a Roth 401(k), which doesn’t reduce your tax liability now but allows you to take distributions tax-free down the road. However, know that the IRS will level penalties for distributions before age 59 ½.

SEP-IRAs

Similar to a Solo 401(k) is a SEP-IRA, but with a couple key differences. A SEP-IRA is also great for small-business owners with few or no employees, A SEP-IRA also has contribution limits of $56,000 total. And a SEP-IRA’s contributions are tax-deductible. However, a SEP-IRA differs from a Solo 401(k) because, as a small-business owner, you may have employees and, if they’re eligible, you must contribute to their plans as well. That means, if you contribute 10% to your plan, you must contribute 10% of an employee’s gross pay to their plan as well.

3. Use a Regular Taxable Investment Account

Finally, a regular old taxable investment account is another option for saving for retirement. It’s not tax-advantaged like retirement-specific accounts, but you can certainly sock away a healthy nest egg until your golden years. 

If you don’t have access to an employer-sponsored 401(k) and want to invest more than the $6,000 cap of an Roth IRA, then a simple taxable investment account could help you get your retirement savings to 15% of your income. Plus, a regular investment account doesn’t come with rules about required distributions or tax penalties if you withdraw before age 59 ½.

Taxable investment accounts are simple to start and can be opened online at a number of online investment sites. You can choose your investments yourself, work with an advisor or even let a robo-advisor do the heavy lifting.

Depending on your allocations of stocks, bonds, mutual funds and other investments, you can successfully balance your portfolio, minimize risk and maximize any potential gains. 

Don’t let the lack of an employer-sponsored 401(k) hold you back from saving for your future. Depending on your situation, your income and your goals, you can definitely put away a healthy sum and invest in your golden years without one.

 

About the Author

Mary Beth Eastman serves as the content manager for Simple. Thrifty. Living, where she is dedicated to helping readers use money and credit wisely. Mary Beth believes that access to the right financial information paired with a growth mindset are essential tools for getting out of debt and building wealth. Mary Beth has a degree in Journalism from Bowling Green State University and has focused her 20-year journalism career on putting readers front and center, carefully considering their concerns and presenting information that will help them in their everyday lives. She has won numerous statewide journalism awards. Her writing on personal finance as been featured on numerous websites in addition to Simple. Thrifty. Living, including Huffington Post and Lexington Law blog. Mary Beth resides in Pittsburgh, Pa., with her family and two rescue dogs.

 

The information does not represent a recommendation to buy or sell securities. Investing involves risk. Your investments are subject to loss of principal and are not guaranteed. Blooom does not provide tax advice. Consult a tax expert for tax-specific questions.

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