It is no question that Americans need all the help they can get when it comes to retirement. As pension plans become increasingly uncommon, more and more Americans must bear the risk and responsibility of funding their own retirement. To make matters worse, navigating a personal retirement plan such as a 401(k) or IRA and ensuring that one’s plan is allocated in an age-appropriate manner requires a level of knowledge that many of us simply do not possess.
Although the internet offers a host of free tools to help investors plan their retirement funds, our recent study—The Looming Problems with Retirement Planners—which examined the outputs of 12 public-facing retirement income calculators, found that these tools are generating wildly different results. These results can further investors’ confusion and in some cases foster a false sense of financial security. To combat these issues, fintech startups are beginning to offer algorithm-based investment advice designated specifically for 401(k)s. Blooom, a startup founded in 2013, offers online retirement plan advice and direct management services specifically for individual participant accounts within employer-sponsored retirement plans.
Blooom is a registered investment advisory firm that uses automated investment technology to manage a user’s 401(k). Users can sign up by filling out an online form, providing information such as gender, date of birth and expected retirement date. Next, users select where their 401(k) accounts are held or type their provider into the search box, and Blooom analyzes the user’s 401(k) holdings across more than 25,000 different funds, using an image of a flower to depict the health of the account. After that, the interface’s proprietary algorithm creates a target allocation comprised of the funds that are available in the plan that most closely align with the user’s desired allocation. Blooom’s website states that it takes up to 30 days to fully adjust a users’ 401(k) plan and, once the allocation is set, the firm will rebalance the account every 90 days. The service charges a flat monthly fee of $5 to $99 depending on the size of the account.
Up to this point, the market has been flooded with non-retirement-related investment advice. Blooom and other similar fintech firms have a real opportunity to shift the focus of the personal finance landscape by offering quality advice in 401(k) investing. Millions of people already have their non-taxable investment accounts managed for them by a third party. Why not seek third-party management for a retirement account? After all, a retirement account is usually the largest investment account a person possesses.