Blooom’s Year-End Financial Planning Checklist (Updated For 2019)

The end of the year is a great time to reflect on your financial goals, the progress you’ve made, and plan ahead for the upcoming year. Read our financial planning checklist below for things you may want to consider:

1. Update wills/trusts and beneficiaries.

Get married this year? Have kids? Get divorced? Big life events mean it’s time to make sure legal docs like your will or trust, powers of attorney, life insurance policies, and account beneficiaries are all up-to-date. Forgetting to make these updates can be disastrous for families at some of the worst possible moments in their lives. Get in the habit of reviewing these things annually so nothing is missed.

2. Get a handle on your debt and plan ahead for the next holiday shopping season.

Lay it all out there to get ready to tackle debt in the new year. If you’re like most Americans, you probably racked up some credit card debt you aren’t proud of this holiday season. What can you learn from that going into next year? Figure out how much of a holiday spending budget you need to plan for, divide that by 10 or 11 months and automate your savings into a savings account dedicated to holiday spending.

3. Use any potential raise you may receive (and possibly your bonus) to increase your 401k contributions.

Starting this year, get into the habit of taking a portion of any raise you receive and dedicating it to your 401k. For example, if you get a 5% raise, consider bumping up your contributions by 1% or more. Your paycheck still goes up, but your 401k also gets a boost. This habit can help you work toward maximizing your contributions over time while having no real impact on your cash flow or budget. Also, see if your employer will allow you to contribute all or part of any year-end bonus you may receive, toward your 401k. This can help reduce your taxable income come tax season and it also means you avoid the extra tax withholding on bonuses for that money.

4. If your employer’s health plan is changing in the coming year, evaluate the potential range of costs for each option, before choosing.

Health-related costs are often hard to plan for, but can cause serious unexpected damage to any financial plan that doesn’t adequately account for them. To get an idea of what your total health care costs might be under any specific plan in the coming year, take the monthly insurance premium and multiply it by 12. This will give you your minimum cost of healthcare for the coming year. Next, look up your insurance plan’s out-of-pocket maximum.

This can help indicate the most you can expect to pay, should you or someone in your family face a serious medical expense, or several, in the coming year. Once you understand the potential costs you could face and select the plan you’re most comfortable with, it’s important to then revisit things like HSA (Health Savings Account) contributions (if you have a high-deductible plan) and exactly how much you may want to maintain in the cash portion of your account for easy access, before investing.

5. Don’t forget about RMDs (for those over 70.5)

Required minimum distributions (RMDs) can be a nightmare tax situation for those over age 70, if not planned for and handled appropriately. The key thing to be aware of is that once most individuals reach 70.5 yrs old, there is a specific minimum amount the IRS will require them to withdraw from most retirement accounts, including 401ks and IRAs. Failing to withdraw the required minimum by Dec 31st of each year, may lead to a 50% tax penalty on the amount, which is one of the harshest tax penalties around.

Not even close to 70.5 yrs old just yet? Consider passing this reminder on to any family members that are. They’ll likely thank you later.

6. Set aside time for a year-end financial review

Look back on the year and take note of what you were able to accomplish financially and what setbacks you may have had. Use this past year as an opportunity to continue making smart financial decisions in the new year and learn from any of the times you may have stumbled. If you have a family, talk about upcoming trips, savings goals, and any other things you need to focus on next year. Set goals and even plan to celebrate financial accomplishments as a family throughout the year. Make money fun and before you know it, you’ll feel the freedom that comes along with financial security and eventually, financial independence!

Automate your long-term investments, like your 401k management!

Blooom is here to make your life easier in the coming year. Now that you’ve read our financial planning checklist for 2019, link your account with us today for a free analysis to see just how much you could save in hidden fees with a managed 401k via Blooom. Contact us today for further questions!

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401K Fees Decoded

 

401k Fees Decoded

At the end of every month, I sit down and catalogue my spending in an excel spreadsheet. I find it oddly calming (yeah okay, I’m a nerd). While I don’t have a strict budget in the traditional sense, I’ve found that tracking my spending helps me to see where I may be overdoing it. (This past month the gingersnap lattes put me over budget. So, no surprises there.)

I realized something in my latest catalogue though: there are certain expenses I have every month that actually never make it to my spreadsheet. Namely, the fees I pay associated with my 401k account, since they are taken out of the account itself rather than my checking or credit accounts. Without including these fees, I realized I wasn’t really seeing the full picture of my spending. I decided to start the year off by making sure I am accounting for those expenses along with everything else.

As I started to look into it, I found that these fees fall into three main categories: administrative/record keeping fees, internal fund expenses, and management fees.

Administrative/Record Keeping Fees

Least controllable.

The first category is the one that unfortunately we all have the least control over when it comes to our 401k accounts. Our employers choose the record keeper that houses our 401k and they set their own administrative fees which they charge automatically. Beyond petitioning your employer to change record keepers, there’s not a lot you can do about this one. Luckily for me, the record keeper that holds my 401k charges a flat fee that’s pretty easy to swallow: $5/month. Other record keepers may charge fees that are a little less straightforward. These fees should be itemized on your account statement or at least available in a fee disclosure within your account or on request. If you don’t know how much you’re paying, call your record keeper and ask!

Internal Fund Expenses

Slightly controllable.

The second category is one we start to have a little more control over (though less than we would in an IRA or traditional brokerage account, due to the limited fund line ups available in employer-sponsored accounts). Each fund you’re invested in within your 401k also charges a fee, typically as a percentage of the amount invested. I’m also lucky in this category that many of the options available to me within my 401k are low cost, so the weighted expense ratio of all the funds in my portfolio is currently about 0.07%. Market fluctuations make it difficult to get an exact dollar amount on this unless your record keeper provides one, but you can estimate using the following formula: [weighted expense ratio (keep in mind that my 0.07% would translate to 0.0007 for this calculation) / 12 months] * total account value at the end of the month. So for December, my internal fund expenses would have cost me about $1.46. Not too bad!

In comparison, let’s assume my weighted expense ratio was 1% higher, at 1.07%. This would have made my cost for December jump to $3.57. That still seems pretty low, but over a full year, that would have been an increase of over $25, and that amount only grows as the account does! Making sure your internal fund expenses are as low as possible can have a huge impact on your account growth over time. This is one area where it’s definitely worth reaching out to your HR department if your current options aren’t up to snuff. If you need help building a case, reach out to us! We’ve got your back.

Management Fees

Full control.

The last category is the one we finally have full control over. This is the amount we pay for help managing the account. If you’re a blooom client, you already know exactly what you’re paying in this category, because it’s a flat fee that came out of a separate funding source, rather than being buried in the other fees of your 401k account.A blooom client paying annually at a discounted rate of $99 year would pay $8.25/month.

If you’re paying for a traditional management service however, you’re likely in for some math again: these services typically charge by a percentage of the account’s value. So like we saw with internal fund expenses, that expense will only grow over time. Given that, the obvious choice is to go it alone and bring your cost down to $0, right? Well, maybe not.

A study by Financial Engines that looked at defined contribution plan participants from 2006-2012 found that the median return was 3.32% higher for those with professional guidance. According to this study, for a 45-year old, this could translate to 79% more wealth at age 65! This seems to suggest that getting some help with your investments is worth it in the long term, but there’s still no reason to pay more than you should. To save money in this category, look for low cost services that are up front about their fee structure and fit with your goals and risk tolerance.

The Full Picture

So looking at all of these fees together, I paid $14.71 towards servicing my 401k in December. But since the blooom subscription was already accounted for, it’s actually just the additional $6.46 that I’ll need to add to my spreadsheet this time around.  One study estimates that a typical worker — earning the median income and paying the average 401(k) fees over their lifetime — will be assessed a total of $138,336 in fees. And it’s estimated to be worse for high-income workers, thanks to the fee structure of the average 401(k) plan.The fees you uncovered in your own account might be higher or lower, but hopefully just the act of looking them up was empowering and eye-opening. In this case, ignorance is definitely not bliss! After all, it’s only once you know how much you’re paying that you can take steps to lower it.

We leave you with this 401k fee advice:

May you have the strength to accept the things you cannot change (Administrative/Record Keeping Fees)the courage to change the things you can (Internal Fund Expenses/Management Fees), and the wisdom to know the difference (blooom’s here to help).

 

 

 

[source: https://www.usatoday.com/story/money/markets/2018/02/08/ask-a-fool-how-much-does-my-401k-cost/110041408/]
[source: http://corp.financialengines.com/employers/FinancialEngines-2014-Help-Report.pdf]
[source: https://www.americanprogress.org/issues/economy/reports/2014/04/11/87503/fixing-the-drain-on-retirement-savings/]

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Keep Calm and Invest On

Remember when “breaking news” was actually worthy of the term? It’s thrown around so much by networks these days, it feels like everything leading off the news is cause for mass hysteria. Maybe there’s an asteroid heading right for us, or maybe the Sun is supposed to randomly burn out in the next few months.

If that’s the case, your investments aren’t going to do you any good anyway. But in the far-off chance that those things DON’T happen any time soon, it might be good for us to cover something EVERY long-term investor must understand. Just like any set of stairs you encounter, markets go up AND down. It happens ALL the time … so often that at some point investors saving for retirement owe it to themselves to stop paying so much attention to [insert major news network].

We can’t tell you how many times we’ve seen something similar to these following headlines over the years:

“Expert: Crash is Coming, Time to Sell”

“2008 All Over Again?: Analysts Think So”

“Dow Sheds 300: Pros Say Get Out!”

And the very next day…

“Dow Rebounds 350 Points: Bull Market Marches On”

“Analysts: This Year Could Be the Best Year in Decades for Stocks”

“Risk On: Never a Better Time to Buy!”

You get the point. In a world where we now have a 24-hour news cycle, the very existence of any news outlet is highly dependent upon one thing: RATINGS. There is simply nothing better for ratings than fear and panic, which is why those first three headlines will catch more attention than the last three. It’s why negative news will always net more ratings.

Why is this? Well, unfortunately negative events have a greater impact on our psychology than neutral or positive events. This is often referred to as negativity bias and it’s just another annoying and unavoidable part of our human nature. It’s why we tend to pay more attention to a celebrity’s life spiraling out of control than the daily acts of heroism displayed by any of our local fire departments. In the world of finance, it’s why we’re inclined to tune in on the down days and ignore the up days. The media knows this. They thrive on it. It’s also the reason that very simple facts that would likely relieve that fear for the average long-term investor are often left out of the story.

For example, how about the fact that, according to data from the Capital Group, in the last 115 years we’ve seen a decline in stocks of 10% or more on average once every single year? Or the fact that in that same span, we’ve averaged three declines of 5% or more every single year? What about the most comforting fact of all – that there has NEVER been a single time in U.S. history where the stock market has dropped and not recovered. Does that guarantee it will never happen? Absolutely not, but we would have far bigger concerns than our 401k accounts if we saw the first ever permanent crash. When the stock market is falling, viewers are more likely to stay tuned (can you say RATINGS BONANZA?) Do they usually balance it out with historical context and comforting facts? Not so much.

No one knows for sure what the rest of 2018 will bring to investing. Financial news will continue to keep us informed and sometimes on edge, but its role has little to do with the average investor saving for a far-off goal like retirement. Unless you’re a professional trader trying to interpret market data every second of your day, any news related to the day-to-day movements in the stock market should be irrelevant to you. Investing for your retirement is about retirement. If anything, most investors should embrace the volatility, since the market is really just going on sale. It’s not about today, tomorrow, or even five years from now. And if you ARE that close to retirement, you shouldn’t be heavily invested in stocks anyway.

So relax. Be patient. Chill. Sure, it’s a challenge to any investor, but it may also be what ultimately saves you from making enemies with future you.

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Don’t Sit: How to Rollover Your 401k

Congrats! You’ve landed a new job (never a doubt) and didn’t even have to list us as a reference (Oh, the accolades we would’ve thrown your way). While you’re busy getting acclimated to your new work digs, if you have a 401k with your previous employer, don’t forget to bring it with you, along with your trusty stapler. Here are a couple options on how to roll it over:    

Direct rollover to new company plan

If you plan on performing a direct rollover of your old account, first check to make sure your new employer’s retirement plan will accept 401k rollovers. If so, contact the 401k administrator at your new company for a new account address [Example: ABC 401k Plan FBO (for the benefit of) YOUR NAME]. Once you fill out all required paperwork, your 401k funds will either be transferred directly from your old plan to the new plan, or mailed to you as a check made out to the new account address. Just make sure to turn it over to your new company’s 401k administrator.

Rollover to an IRA

You can also roll over your 401k to a traditional IRA, either by transferring the funds to your existing traditional IRA, or by opening a new IRA to receive the funds. No dollar limit is required for either one. You can also roll over – or convert – your non-Roth 401k money to a Roth IRA. The taxable portion of your distribution from the 401k plan will be included in your income at the time of the rollover.

Leave it where it is.

Sometimes the best move you can make with your 401k is to not make any move at all. At least for the time being. For instance, If you’re happy with the investment alternatives your former job offers, or if you need some more time deciding your next move, or if your new company requires a certain amount of time before you can participate in their 401k plan, you may be able to simply leave your 401k where it is.  

Cash out.

Please advise, we only recommend this as a “last resort” option. After you leave your previous employer, you can choose to withdraw your 401k funds in a lump sum after leaving your previous employer. To do this, request that your 401k plan administrator cut you a check. While the check amount will look great in your hands, remember that cashing out could put a dent in your retirement savings, plus you may be faced with significant taxes and penalties in the short term, too.

Of course, not all 401k plans are created equal. So before you make a final decision, we’ll help you choose the best fit for your retirement goals. Hey, it’s what we’re here for, so let’s chat.  

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Pig playing soccer goalkeeper

Kick in More Now for Retirement: That’s the GOOOOOAAAALLLLL

Right now, in the thick of the FIFA World Cup, teams from across the globe are vying for the coveted gold trophy with the World Cup Final match taking place on July 15th. While these world-class soccer players aren’t likely focused on making any (ahem) BIG saves for retirement right now, they should be. According to the Telegraph, the average soccer career lasts only eight years with a standard retirement age of 35.

A More Offensive Game Plan

Considering the average World Cup player right now is in their mid-to-late 20s, according to Statista, these professional athletes need to be kicking in as much savings as they can to set themselves up for a successful financial life and a sustainable retirement. There’s only one Ronaldo, one Messi, one Beckham, so establishing the financial security needed to retire after a less-than-a-decade career can feel too far out of reach for most others.

Off the pitch, the savings a typical 35 year old should’ve netted at this point has received a lot of attention lately. A study published from Fidelity recommended having twice your annual salary saved for retirement by age 35. Considering the weight of student debt and the outsized cost of housing plaguing millennials, this number feels very out of reach for most of the population in or nearing their 30s.

While the amount you save is vital, what isn’t gameplanned enough is how you’re saving. You can argue that you can save all you want, but if you’re simply holding your savings in cash, it won’t be in the position to grow enough to enable you to retire. After you establish the habit of saving, you must maximize your ability to grow your investments.

More Coaching Required

Two big determinants of investment growth are derived from minimizing fees and maximizing returns, and Americans need help with both. Data from the Census Bureau suggests that 79 percent of Americans work for an employer that sponsors a 401k-style retirement plan, but only 27 percent know how much they’re paying in fees on their 401k accounts, according to a study by TD Ameritrade.

Fortunately, by hiring blooom as your trusted advisor, you can rest assured that we’re working on your behalf to reduce investment fees wherever we can. We make managing your 401k simple, smart and affordable by leveraging the right funds for your goals with lower fees to optimize your retirement savings, no matter what age you are. That’s our GOOOOAAAALLLLL.

Not a blooom member? Here’s your best shot … join now.

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