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.

How Often Should You Check Your 401k?

The quick answer is more often than checking the oil in your lawn mower (seven years for me – still going strong) and less often than your email. Workers saving in 401k’s are notorious for having a “set it and forget it” strategy. Honestly, we see some accounts where people haven’t done anything for years – sometimes it works out, other times not so much. Meanwhile, other savers can’t seem to let their 401k just be – constantly tinkering with it, which can often be even more harmful than had they just left it. We’re here today to set the record straight on how we approach this, why we believe that, and how it impacts our clients.

Where to start?

Your 401k is a retirement account, not a brokerage account. This means it was purposely built for long term investing. Most plans have built in mechanisms to prevent employees from making frequent changes to their investments, attempts at market timing, and other tactical approaches. For instance, it’s common for plans to limit the number of transactions a participant can submit within a given period, like thirty, sixty, or ninety days. If that limit is exceeded, the plan can place future restrictions on the ability to make any changes and may even charge fees. Why all of these limitations? Great question! In a traditional brokerage account, the account holder is responsible for the cost of trading, commissions, and other fees. In an employer-sponsored plan, the employer and the custodian either foot the bill  or pass those fees on to the plan participants, meaning active traders make the plan more expensive for everyone in it. Therefore, many plans employ the restrictions mentioned above to deter excessive trading activities that incur the extra costs.

But what if the market is up (or down)?

We’re constantly getting questions about market pull-backs, inverted yield curves, and the next recession, all while a separate group is asking about the hot market, all-time highs, and fund performance. What to do with people who view the exact same market completely differently? Well, blooom’s philosophy is that the plan we’ve put into place was created to help our clients weather any market environment, given the level of risk they are comfortable with and need to be exposed to in order to reach their long-term goals. We’d prefer to respond rather than react. We likely aren’t going to change things in either an up or down environment because 1) your plan wasn’t created with a short term goal, 2) your blooom advisor doesn’t believe in reacting, and 3) chasing performance typically results in getting in your own way..

Now, we aren’t saying that everything should be ignored… don’t be like that Karen (no Karen’s were harmed in the writing of this post). You change, your goals change, your plan could change; hell your employer could change!

There are plenty of reasons to check your investments and your approach:

  • You Change: You’re not a static being – you’ll age (unless you’re our Director of Client Service) and your comfort with risk may change, as will your requirements for income and access to your savings. Your portfolio should become more conservative as you age, but still have equity exposure to allow your investments to grow with inflation (hopefully above) and participate in market growth. Blooom has a built in glidepath that will do this for you on your blooomiversary (it’s a real thing, we just don’t quite yet have our gift guide setup). If you’re attempting to change your risk preference through blooom’s portal every other month, that’s likely a result of attempts to time the market. We encourage you to reach out and chat with our advisors.
  • Plan Changes: There are a number of potential changes that can occur, here are a few of the most common – new funds added, others removed, expenses change, institutions change, additional plan features are added, among others. Setting your contributions and then never checking on the account again means you could miss out on some incredible opportunities. We recently saw a large employer make some great changes – among them were three new funds that lowered the average portfolio cost from 0.30% to below 0.10% (varies based on company stock holdings and allocation). Any given year, that may not add up to much or seem like a big deal, but that savings compounded annually means a lot more in their pockets.
  • Employer Changes: Earlier in the year, we put out a nice article on what to do with old employer accounts. You have options, and likely, you can benefit from putting a small amount of thought and time into reviewing them. Those options likely include: keeping it in the current account, moving it to a new plan (if you have one AND if they accept rollovers), or moving it to a Rollover IRA. You can withdraw it, sure, but we probably are not going to recommend that (it’s the exception, not the norm). We are here to help with this decision and can lay out your options for you and work through them with you.
  • Market Changes: 2009 to 2019 was an unprecedented decade of growth, and during that time, a lot of investors seem to have forgotten that markets move down sometimes (even though the stock market has shown a long term upward bias). Short term volatility isn’t a reason to move all of your investments into a Stable Value fund – because to do this right, you need to sell at the high and buy back in at the low. In other words, you need to be right twice, when being right once is already hard enough. We do advocate for making some changes when necessary though, just not the type that will give your account whiplash because a talking head hits “Sell Sell Sell” and throws a coffee at the camera recording the show.
  • Rebalancing & Reallocation: We’ve established that markets move, as a result your portfolio will eventually drift out of the recommended portfolio. We’re here to keep an eye on this for you and have established various tests for your account to make trades only when necessary.

If you’ve made it this far and you’re thinking “Will they please tell me how often I should check my investments?!”, hopefully everything you’ve read so far has made enough sense. So here you go: you should check your investments enough to be familiar with the direction that you’re going, confirm that your account is up-to-date on any plan changes, and that you have adjusted for any life/employment changes that may impact your plan. If you’re losing sleep over weekly or monthly performance you’re probably checking it too often. If you’re wondering why the S&P 500 is up 13% and your globally diversified portfolio that is 20% bonds is only up 7.5%, then you are not familiar enough with the intention of your portfolio

Never forget – this is your account, you’re in charge, even if someone is helping you with it. Advisors, including blooom, are only here to help incorporate their philosophies into your portfolio. There are plenty of items that you can control and plenty others that you can’t. Identifying these early on and taking advantage of the opportunities that you do have will lead to the greatest probability of success. Keep up the great work gang. Final thought: if you have questions or are fretting over your portfolio choices, reach out! After all, that’s what we are here for and we’d love to help however we can.

 

-blooom

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3 Ways to Free Up Cash to Save for Retirement

Whether you’re saving for the down payment on a new home or stashing money for your retirement, you’ll need a hefty sum.

As it stands, the average home goes for around $340,000, which means a down payment of as much as $68,000 is required to avoid private mortgage insurance, while healthcare in retirement can set you back at least $5,000 per year. There are also other costs associated with homeownership and the everyday expenses of retirement that you need to save for.

Getting a side-gig to shore up cash is the quickest way to meet your savings goals, but if that’s not an option, there are alternatives. They may require sacrifice or an overhaul of your lifestyle, but after a while, they will become money-saving habits.

If you throw all the cash you free up into your savings account, you may be well on your way to amassing a sizeable nest egg. With that in mind, check out these three hacks to free up more money to stash for retirement.

3 Ways to Free Up More Cash to Fund Your Retirement

1. Cut Expenses Everywhere

Minimalists and spenders alike need to cut expenses to save more. It’s a fast and effective way to boost your savings account and create positive habits. However, it takes sacrifice and commitment — and it isn’t as simple as cutting back on the coffee runs each week.

Before you can get to the business of slashing your costs, you have to create a budget. List all of your outlays, including everything down to the cost of your daily commute. Compare that with the money you bring in. The excess is what you have to save and to spend on discretionary purchases. If you want to increase the amount that goes into savings, you have to identify ways to lower your bills, and you must vow to curb your spending outside of necessities.

Take utilities for starters. You may be able to get a lower rate from your existing energy provider or find a more economical alternative. Converting to solar panels may save you money on your monthly utility bills, freeing up more cash. Even making an effort to shut off lights, use water sparingly and not overheat or cool the home can save you cash. The same is true for reducing the number of vehicles you own or getting rid of your vehicles altogether. Thanks to ride-hailing apps, short term rentals, and vehicle sharing programs, it’s much easier to get from point A to point B without owning a vehicle. Plus, you won’t have to pay to park it or pay for insurance.

Your cost cutting search shouldn’t stop there. Shop your car insurance, homeowners insurance, renters insurance, and medical insurance to see if there are lower cost plans. Financial technology startups have been disrupting the financial services industry for some time now, offering consumers cheaper rates on everything from banking to homeowners insurance. Even if you only identify $50 per month in savings, that adds up to an extra $600 per year in savings.

Once you get utilities and insurance obligations out of the way, it’s time to tackle your entertainment and daily expenditures. Find ways to lower your outlays from eating, commuting, cable, outings, and splurges. The more you’re willing to sacrifice, the greater the savings will be.

Depending on your circumstances, you can take drastic steps to free up money. Take your living arrangements, which is typically the largest outlay each month. If you rent a smaller apartment or downsize your home, you can quickly amass the necessary money. That’s particularly helpful for people who are trying to come up with a down payment for a home or are nearing retirement with little in the way of savings.

Don’t forget to restructure your debt. If you’re able to refinance your mortgage, a high-interest rate credit card or other debt into lower interest rate products, it can free up a lot of money. Remember, the idea is to put extra money away each month — not spend it — so make sure to be disciplined with this strategy.

2. Go Automatic

To stash more cash, you have to be consistent. You can’t do it for one month and then forget about it the next month. You have to be disciplined, which means saving regularly — whether it’s weekly, bi-weekly or monthly. The best way to do that is to make it automatic. With zero intervention on your part, you won’t self-destruct. If it’s the choice between concert tickets and savings, the latter might lose out if left to your own devices. Automatic is effective. A study by the Center for Retirement Research at Boston College found that automatic saving is more effective than a tax subsidy in increasing Denmark’s savings rate.

Automatic savings comes in many flavors. If you’re employed full time, there’s a chance your employer offers automatic savings plans. Money is taken out of your paycheck and automatically deposited into a savings account. Since it comes out of your paycheck before you see it, you’ll never miss it. It’s similar to a 401(k)-account offered by employers across the country. Pre-tax money is withdrawn from your paycheck and invested on your behalf. Outside of a company savings plan, banks and fintech companies offer the ability for you to save automatically. You choose the day and the amount you want to be saved each month, and they will withdraw it for you. When choosing contributions for your 401(k), make sure to save enough to at least meet the company match if it’s offered. If you aren’t saving that much in your 401(k), you are leaving free money on the table.

Mobile apps have also exploded on the scene providing a plethora of ways to save. Some help you move money into savings buckets, while others try to shame you into saving more. Moreover, some round up and save your spare change for you. You link your credit or debit card, and every time you make a purchase, it is rounded up to the next $1.00 with the difference going into the app’s savings or investment account. The savings are small, but they can add up over time. Some have partnered with well-known brands, doubling the savings when you make purchases with their partners.

3. Choose Low-Cost Investments

When it comes to investing, fees can make a big dent in your savings prospects. Go with an actively managed mutual fund, and you may pay 1% or more of your investable assets. That is money that isn’t going toward investments and isn’t benefiting from compounding. Compounding occurs when the interest on earned investments is reinvested, earning even more money.

One way to increase your savings is to choose low-cost investments. Exchange-traded funds, index funds, and passive investments all have lower fees than those that are actively managed by a human. With an index fund, for example, the average fee is 0.25% of invested assets, much lower than an actively managed mutual fund.

Make sure to look at the fee disclosure statements when choosing investments or assessing current ones to prevent overpaying. That includes your 401(k) plan at work. You may have chosen a fund a few years back and stuck with it, not knowing if fees are eating away at your returns. If you find an investment that has a high expense ratio, swap it out for one with a lower one. The expense ratio measures how much of the assets in a fund goes to operating and administrative costs. Those expenses reduce the investable assets, which means fewer returns for you. Rule of thumb: choose a fund with an expense ratio of 0.25% or lower.

If you are looking for an even cheaper way to invest, go with a robo advisor (or mobile trading app). Robo advisors are online investment platforms that use algorithms to determine asset allocations for investors, managing their investment dollars with little in the way of human intervention. Because it utilizes technology rather than active management by a human, robo advisors charge lower fees than what most financial advisors typically charge. Mobile trading apps that provide free and low-cost trading are popping up all over, and they’re ideal for DIY investors who are looking to save on their trades.

Final Thoughts

Life is expensive. It’s true if you want to buy a car or a home, or stash money for your golden ages. If you have a family, you also have to worry about medical expenses and college tuition. All of that requires real money. The more of it you don’t have to borrow, the better off you’ll be. That’s why throwing your bonuses and tax refunds toward your savings should be an important part of your strategy.

Instead of blowing it on something you don’t need or won’t remember in a year, save it. You’ll thank your future self for it. Remember, any increase in your savings rate puts you that much closer to achieving your financial goals.

What are you doing to prepare for your retirement years? What are your best money saving tips?

 

Beth Morrison is a freelance writer and former CPA. She writes about planning for retirement, budgeting, and traveling for a variety of websites. She lives and works in Austin, Texas.

 

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3 Ways to Live the Retired Lifestyle Long Before Your 401K Matures

Being smart about how you build your 401K is always a good idea.

Not only are there the obvious long-term benefits of being financially secure even after you retire, but there are also lots of great short-term benefits of putting away a little extra into this important savings account every year.

But setting yourself up for success after retirement doesn’t always mean you have to give up everything you want right now either.

In fact, millions of people around the world are discovering this liberating truth: you can live the retired lifestyle (at least in-part) long before you ever retire.

Who are these people? They’re entrepreneurs. More specifically, they’re bootstrapping entrepreneurs who realize that work is a side-attraction to their daily life—not the other way around.

I happen to be one of them. I choose my own schedule every day. When my son wants to play catch in the backyard, I stop working early—a decision I have never once regretted.

Every morning, I eat breakfast with my family and then go for a nice long jog before working in the yard, showering, studying some French, and getting ready for the day.

I don’t rush into work at 8:00 am to impress my boss. I start my work day around 10:00 am, I take a long lunch and I’m usually done at 5:00pm or before.

I’ve made friends with all the retired people in my neighborhood because we all share similar schedules.

Because I’m extremely focused during the day, I make way more money being self-employed than I ever made with a salary working for someone else—and the future is extremely bright.

You can have a more intentional lifestyle where your passions, ambitions, and personal growth take center-stage (instead of the 50-slide presentation your boss needs done before you go home today).

Here are a few ways to get started yourself:

 

1. Bring in revenue that doesn’t depend on your day job.

There is nothing more freeing than making money on the side of your day job.

Why? Because it moves the scales of power and decision in your favor—even if just by a little bit.

Imagine if you were making even just an extra thousand dollars every month from a side-business.

You could put away more for retirement. You could take more vacations. You could buy that new motorcycle you’ve had your eye one, yes. All of those are possibilities.

But more importantly, you’ll find you suddenly have leverage—a safety net. Which means you can ask for more at work. Ask for a raise. Ask to work from home 2 days of the week. Ask for that exciting project you really want to tackle. Or ask to go golfing with that new client you just won.

More leverage is the quickest path to changing your lifestyle.

When your boss knows they’re not your sole source of income it changes things. Ultimately, the better you get at building a side-business, the more positive changes will come your way.

2. Start building an asset that will bring passive cash.

In addition to bringing in side-revenue, you should try to build assets that don’t require you to put in a standard workday’s hours in order to collect a paycheck.

In my case, I have spent the last 10+ years learning how to start a blog and make money from it. Today, that asset brings me a substantial amount of income.

For others, building some sort of side-hustle or software-as-a-service business is the best path. Maybe writing a book or creating a course around what you do best could be a nice asset that can work for you as you continue to save for retirement.

Whatever it is, it should (eventually) function without you. Building a business that relies on you in order to run each day is simply just another job.

If you’re worried you’re too far along in life to start building a valuable asset from scratch, remember this adage: the best time to plant a tree was 50 years ago—but the second-best time is today.

3. Set your priorities in order and be willing to sacrifice.

If you truly want to start enjoying a lifestyle that feels a bit more “retired” than your current one does, you’re going to have to adjust your priorities.

Too many people are focused on getting to the next rung on their career ladder, boosting their paycheck by 15%, getting a corner office, or getting their startup acquired.

None of those things lead to living a more free lifestyle—at least not before you’re 65.

That’s not to say you can’t make loads of money along the way (plenty of people manage to make lots of money and still maintain a beautifully flexible lifestyle).

But if your entire focus is to work hard until your 65 when you’ll finally start living, then that’s probably what you’re going to do.

Instead, do well at your day job, but do your best (I know it’s not always easy) to leave work at the office and focus on your side-business, family, and life outside of normal work hours.

Instead of having to have the biggest house and the newest car, find joy in free time, travel, loved ones, hobbies, and other fulfilling activities.

There’s so much more to life than work.

Does this mean you might miss out on a promotion? Yes. I know I most certainly have.

But it also means you’ll be one step closer to the lifestyle you want to enjoy—and if you do it right, you’ll get there long before you’re 65 and your 401K finally matures.

 

———

 

Preston Lee is the founder of Millo where he and his team help people start freelancing or growing their small business with a focus on a much happier lifestyle. If you’re ready to start exploring how life can take center stage for you, start here.

 

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3 Ways to Be a Scrappy Entrepreneur and Still Save for Retirement

As a long-time entrepreneur myself, it’s shocking to hear that a whopping 34% of small business owners have no retirement savings plan in place.

While the reasons for not having a retirement savings plan often varied widely for these busy entrepreneurs, surveys have shown that factors like insufficient income, investing their existing savings into growing their businesses, and planning to one day sell their company in order to fund retirement are amongst the top contributing factors.

Regardless of the reasons for finding yourself in a position of having little to no retirement savings as you reach the retirement age, it’s never too late to start doing something about it.

Here are three solid ways to keep growing your business today—while still setting aside a meaningful amount of income to pad your retirement fund for tomorrow.

1. Start a low-cost side project to grow your revenue

Offering your time, skills, and expertise as a consultant, freelancer or service provider is one of the best ways to begin generating additional side income beyond just what your current business does today.

Whether it’s working one-on-one at an hourly rate to consult people on how to achieve the types of feats you’ve accomplished in your business, offering small group coaching sessions on a monthly retainer, or public speaking, you’re leveraging your skills into a more advanced educational opportunity for others.

Finding customers doesn’t need to be a major hurdle, either. If you start a blog and begin strategically sharing your expertise online, you can eventually attract an audience of readers that want to learn more from you. Build your reputation by writing for other websites and publications with an established audience and then once you’ve got a steady stream of readers coming in, you’ll have many more opportunities to monetize your blog.

2. Share subscriptions and tool memberships with other business owners

If there’s a particular online tool or subscription that’d be helpful in more efficiently operating your business, but you can’t justify the additional expense to purchase it—cut down on costs by finding a friend who’s already using the product or getting another business owner to go in on splitting the monthly bill with you.

Whether it’s the Adobe Creative Suite, an advanced SEO researching tool, or another product that could make a meaningful difference in the operation of your business, this is a great tactic to reduce your monthly overhead and build up your savings.

3. Ditch the office and work from home (or a coworking space)

Is your business completely dependent upon operating out of an office or retail space? If not, then ditching what’s often the largest monthly expense for a small business, can really free up a sizable amount of capital to divert towards retirement savings.

Believe it or not, thousands of companies around the world are now choosing to go remote and hire employees in exclusively work from home jobs. If this strategy could fit your business model, then consider cutting ties with a physical office and manage your remote team from a much more affordable coworking space, the local library or a home office.

The best time to begin saving for retirement was ten, twenty or thirty years ago.

But your next best bet is to start taking it seriously today. Use these tactics to stay scrappy, keep growing your existing business and do more to proactively set aside a meaningful chunk of income for that beautiful retirement day on the horizon.

 

Guest-written by Ryan Robinson

Ryan Robinson is a blogger, podcaster and side project aficionado that teaches more than 400,000 monthly readers how to start and grow a profitable side business on his blog, ryrob.com.

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HSAs: 3 Cheers for Triple Tax Savings

Here at blooom, we’re huge fans of HSAs, or Health Savings Accounts. No really. We think they’re the best thing since employer matches. While the annual contribution limits may be small—$3,500 if you have self-coverage only or $7,000 for families in 2019—the benefits are mighty. So what’s the big to-do with HSAs, you ask? I have three words for you: triple tax advantaged. Here’s what I mean by that.

  1. Your contributions are pre-tax, which means that your contributions lower your taxable income (and your tax bill) in the years you contribute.
  2. Your withdrawals are not taxed if used for qualified medical expenses, which we all have from time to time and will certainly have in retirement.
  3. Your investment gains are not taxed (again, if used for qualified medical expenses—this is a crucial detail!)

As investment nerds, it’s hard for us to overstate how awesome these benefits are.

 

Here’s how it works.

Your HSA can be used for any qualified medical expenses, such as annual physicals, glasses, dental care, and much more. Most come with debit cards that allow you to charge your medical expenses to your HSA directly. Alternatively, you can pay with cash or your regular credit/debit card and save your receipt for reimbursement from your HSA at a later date. Here’s an example: before learning about your HSA, you were using after-tax dollars from your checking account to pay for your contact lenses that cost you $50 a week—that money was already taxed at 25% (or whatever tax bracket you fancy). The point is that your tax-free dollars go a lot further!

Although originally intended to help Americans save on ballooning healthcare costs, HSAs can be thought of as a supplemental retirement savings vehicle for many. If you have the cash to pay for your medical expenses at the time that you incur them, you can save your receipts and invest your HSA contributions. Since you won’t have to pay capital gains taxes on HSA money used for qualified expenses, you can let your investments grow over time and get reimbursed retroactively for those past expenses when you actually need the cash.

Side note: If you’re an active blooom client, even though we can’t take over management of your HSA, send us a line if you’d like a recommendation on fund selection—we’ve got your back!

 

So who’s eligible?

Generally, those with high deductible health plans (HDHPs) are eligible to contribute to an HSA. Here’s the rundown:

HSA 2019 Eligibility Deductible minimum Maximum out-of-pocket costs
Single $1,350 $6,750
Family $2,700 $13,500

In addition to being covered under a high deductible health plan, to qualify you must also:

  • Not be enrolled in Medicare.
  • Not be claimed as a dependent on someone else’s tax return.
  • Have no other health coverage except what is covered under Other Employee Health Plans.

While many workplace insurance plans have their own HSAs for employees to use, you don’t have to have a workplace plan to be eligible. You simply need to be enrolled in a high deductible health plan and meet the above criteria. It’s also worth mentioning here that unlike some other retirement savings vehicles (we’re looking at you, IRAs), your income won’t disqualify you or ever phase you out from being able to contribute.  

 

How to get set up.

You can set your HSA contributions to come out of your paycheck each month if you use your company plan or you can transfer money over directly from your checking account. As an added benefit, contributions for prior years can be made up until tax day for that previous year, just like with IRAs. Many HSA providers have minimum cash balance requirements—typically $1,000—before you can actually start investing the money.

In most situations, we like to suggest building up and maintaining a cash balance equal to your plan’s annual deductible before you start investing your HSA dollars. This ensures that if you’re using an HSA with a debit card (the most common scenario we see), you always have enough to cover your deductible in an emergency situation without needing to sell any investments. After you hit that deductible equivalent in cash—game on!

 

Don’t get dinged.  

As with all tax advantaged accounts, there are rules to be mindful of when you’re taking withdrawals. The government attaches some strings when there’s tax savings involved because they want to incentivize you to use those accounts for their intended purpose. In the case of HSAs, there’s a 20% penalty if you withdrawal funds prior to age 65 for anything other than qualified medical expenses.

It’s also worth noting that there are several differences between FSAs, or Flexible Spending Accounts, and HSAs. Perhaps most significantly, FSAs generally operate on a use-it-or-lose basis, whereas the money you contribute to your HSA stays with you year after year—don’t confuse the two!

 

Prioritizing your HSA.

To put in perspective how beneficial these accounts are, our general recommendation is that savers work on funding their HSAs after they’ve met their employer match, started an emergency fund, and paid off all non-mortgage debt. You heard it here—we think your HSA should be funded before your IRA or your 401k (beyond getting that sweet, sweet employer match) and certainly before funding a brokerage account.

Now that you’re up to speed on the HSA basics, find out if you’re eligible to contribute to one and consider taking advantage of the rare opportunity to lock in those triple tax savings.

 

Written by Laura Wittmer, blooom Financial Advisor

 

The information is provided for discussion purposes only and should not be considered as advice for your investments. Blooom does not provide tax advice. Consult a tax expert for tax-specific questions.

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