The Hands-Off Way This 26-Year-Old is Ensuring Her 401(k) is Saving a Ton
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Last November, Kelsey Buxton, at 26, opened her first 401(k) through her employer.
(Fun fact: Her employer is The Penny Hoarder.)
It felt like a good first step in saving for retirement.
Occasionally, she’d check in on her balance, which ticked up slowly. But that $1.8 million a retirement calculator had once suggested she’d need for retirement felt like an impossible feat.
Rather than settle for the account’s default settings, Buxton resolved to dig into her 401(k) and better tailor it to her goals. But she wasn’t sure how to take the first step, so the mental to-do task collected dust.
After looking around online, she found an answer. It didn’t require her to do heavy research, meet with a financial advisor or wait on the phone for hours with a representative.
What Buxton Needed to Do But Didn’t Know How to Start
When Buxton opened her 401(k) back in November, she intended to research her options.
“But that’s a full-time job,” she said. “Well, that’s what a financial advisor is for.”
She understood there was the whole high-risk versus low-risk adage. When you’re younger, you’re supposed to take higher risks with your retirement account. But Buxton didn’t totally understand what that meant in terms of her 401(k)’s stocks and bonds.
Here’s a 60-second refresher to the matter:
- Stocks carry more risk than bonds, but they have the potential to bring in more money. That’s why most advisors suggest young investors push their funds to stocks, because they have more time to earn until retirement, allowing them to ride out the ups and downs of the market.
- Bonds are a little more of a sure thing. Bonds come with a time frame for payoff, so investors will know when they’ll get that money. (Most of the time, at least.)
On top of that, advisors talk about diversifying these assets — having a healthy mix of stocks and bonds.
Of course, it’s going to be different for everyone, and Buxton still had questions.
How do I figure out if I should have more stocks or bonds? What percentage of stocks should I have? Where can I adjust all of this?
Finally, she found some answers through an online service called Blooom.
(And, yes, that extra “o” is supposed to be in there.)
How a Website Automatically Optimized This Woman’s 401(k)
Blooom claims it’ll maximize your investments by managing your 401(k). A robo-advisor automatically rebalances your investments — so you’re getting the most bang for your buck.
That means it figures out the whole stocks versus bonds thing for you, too.
Buxton decided to give it a go. She entered her name, birthday and the age she’d like to retire.
She logged in with her 401(k) plan. (Pro tip: You’ll need that username and password, so go ahead and dig it up.)
Buxton was then able to access a free “health” report, where the robo-advisors told her the account “isn’t looking too great.” She had the wrong mix of stocks and bonds and needed better diversification. Her hidden investment fees were only about $5 a year, though, which was good.
Naturally, Blooom uses a flower to represent an account’s health. Buxton’s was wilting.
So she decided to opt in for the $10/month automated service.
Within a few hours, she received an email that her 401(k) had been rebalanced.
She was done. The once wilted flower was as fresh as a daisy.
Blooom had rebalanced her 401(k) without Buxton having to touch a thing. Since it seemed too good to be true, she confirmed with a nice representative through a live chat that she didn’t have to handle anything else.
“Once we've taken care of that rebalance, you should be all set,” the representative told her. “You won't need to do anything else within your account!”
Now, Buxton Watches Her 401(k) “Blooom”
At any time, Buxton can check her Blooom dashboard and change her investment preferences. If she’d rather not invest 100% in stocks, for example, she can cut that percentage.
“All of the funds and stuff can get overwhelming, so I like the idea of having someone manage it for me but I can still tweak it if I learn more about it,” she says.
Each time Blooom rebalances her account, Buxton will receive an update.
“It’s totally worth it as a set-it-and-forget-it tool,” she says. “If you get an actual financial advisor, it would be a lot more than $10 a month.”
In addition to 401(k)s, Blooom manages 403b, 457 and TSP accounts.
Now that Buxton has started using Blooom, she’s been able to set herself on a track to retire a lot earlier than 70, which is the age her 401(k) had previously projected.
Her next step? Open a Roth IRA account.
Carson Kohler (@CarsonKohler) is a junior writer at The Penny Hoarder. Before she signed up for Blooom, she admittedly had never checked her 401(k). Now she feels a lot better that someone else is managing it.
This article contains general information and explains options you may have, but it is not intended to be investment advice or a personal recommendation. We can't personalize articles for our readers, so your situation may vary from the one discussed here. Please seek a licensed professional for tax advice, legal advice, financial planning advice or investment advice.