I analyzed my husband's 401(k) using a free online tool, and now we're rethinking our retirement strategy
Hoxton/Sam Edwards/Getty Images
- Retirement feels like a long way off for my husband and me, but we know we need to get serious about planning for our future.
- We've been focused on paying off credit card debt for the last couple of years, but we want to start putting more in my husband's 401(k).
- We used Blooom, a 401(k) software, to analyze my husband's 401(k) investments to see if we're optimizing our retirement savings.
- Analyze your 401(k) for free with Blooom and find out how to maximize your savings »
As young parents with kids barely out of diapers, retirement seems like a long way off. Add to the constant demands of parenting the financial burden of student loans and credit card debt, and you have a recipe for hardly ever thinking about the future.
Until recently, my husband Tim and I haven't. I'm a freelancer and don't have a retirement fund yet, and Tim has contributed the bare minimum to his 401(k), hoping that we'll have more capacity to invest in our future once our debt dissipates.
Thankfully, that time is now. In the last few months, we've been able to pay off more than $25,000 in credit card debt, which puts us in a position to focus less on reducing liability and more on building wealth.
We plan to meet with a financial adviser in January to come up with a plan, but in the meantime, we were curious about how Tim's 401(k) was looking, and whether or not we should consider adjusting his contribution.
To better understand our investment, we tried an online tool called Blooom, which analyzes individual 401(k) plans and suggests changes based on your preferences.
Our experience using Blooom
When we created an account, the first thing we did was fill out a basic profile, including when Tim plans to retire (we put age 65, since he got a late start in his career). Then, we answered a series of questions about risk preferences, which took just a few minutes.
Based on our answers - we tend to lean pretty conservative with investments, just because we don't know too much about the markets - Blooom suggested we put 90% of the contribution toward stocks and 10% in bonds.
Given that Tim is so far from retirement, the software said his account can likely weather the ups and downs of the stock market.
Next, the fun part: We linked my husband's retirement account to see how it measured up with Blooom's recommendations.
I was surprised to see that Blooom found we were paying less in 401(k) fees than the average user. My husband's account included $6 annually in automatic fees, and the average Blooom user's fees were around $22 each year.
Tim's account had "room for improvement" in two areas: risk and diversification. Right now, 100% of his contributions are in stocks. Blooom suggested investing in mostly stocks, like we are, but it also recommended we put 10% into bonds.
We will have to talk to our new financial adviser about what this entails and why this could be helpful for us, since I'm not sure if we'll purchase the full version of Blooom, which costs $108 a year and includes access to retirement advisers.
For diversification, the software suggested we invest his retirement money in a wider variety of funds. Right now, it's 100% U.S. Large Cap stocks, but Blooom recommended a pretty even mix of small- and medium-cap stocks along with international stocks and emerging market stocks.
I know it's smart not to have all your "eggs" in the same basket with investments, but there wasn't much information for the average layperson (read: someone who doesn't know a thing about stocks) on what all of this means. I'm guessing the full version of Blooom would make these things clear.
What I learned from Blooom
I had a few takeaways from the process of analyzing Tim's 401(k). The first was a reminder that we need to up our contribution and start saving more if we want to ensure financial security in the future.
As I said, we've been debt-focused (for good reason) for the last couple of years. I'm eager to talk to our financial planner about how much we can really afford to put into retirement and how much we should attempt to pay down our student loans.
My biggest takeaway, though, was that Tim and I could use a lesson in investments in general. It's so easy to thoughtlessly throw money around without thinking about things like risk and diversification.
If knowing more about where our money is going and how it's being invested could improve our future, then I'm excited to take some time to learn more.
We'll start with our financial adviser, and maybe when we get our loans and vehicle paid off, we'll consider a fee-based financial software like Blooom.
Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.