We recently sat down with Chris Costello, co-founder and CEO of blooom, an online financial advisor that helps the average investor make better investment decisions and save for retirement.
Blooom started in 2013 with the goal of providing expert retirement help to those previously overlooked by traditional financial advisors. Today, Blooom manages tens of thousands of retirement savings accounts, so we asked Costello about common mistakes people make while saving for retirement.
💡There is no such thing as earning too little to start saving for retirement
“I don’t make enough to save for retirement,” is the sentiment expressed by some 20-something year-olds, and unfortunately can be costly in the long run.
“Human nature is to think you're going to live forever,” says Costello. “It’s not until you’re in your 30s when you get married or you’re starting a family that you start thinking about retirement. By then the balance in your 401k is getting to a level that is not insignificant. But depending on your saving habits in the early days, that balance could have missed out on some significant earnings power.”
Those folks who took the retirement challenge seriously in their 20s and contributed consistently to their retirement plans are the ones who wound up with much higher account balances. It’s the early days that count the most, since interest and earnings within your account compound over time. Simply put, the longer you stay invested, the greater the opportunity for growth on top of growth.
💡Smart and busy people are neglecting retirement savings, leading to costly outcomes
“The next pattern I see is, smart people making silly retirement mistakes costing them thousands of dollars,” says Costello. “Those are people doing pretty darn well in life, having great careers, college education and smarts, but they are way too busy to worry about investing and so they wind up neglecting their money.”
“And if you don't have a lot of money,” says Costello, “you're kind of forced to DIY it, which is a problem for some people.”
In this bucket, you’ll find people who approach retirement planning like an arithmetic exercise. Imagine you have 15 funds in your 401k portfolio and allocate an equal amount to each of those funds. Silly you may think, but it happens more often than you could possibly imagine.
💡Overconfidence is your enemy in retirement planning
A recent study conducted by blooom shows that even among Americans with some type of retirement account, only about half are confident that they will be able to retire comfortably. And when it comes to our financial goals, overconfidence can drive poor outcomes.
“It’s not that people are not capable, quite the contrary. They do their homework and educate themselves. But at the end of the day, they make choices which are not appropriate for their age, life goals and risk tolerance,” says Costello.
There are some things in life you can and should DIY, like booking your own travel. But there are some things you shouldn’t DIY, or at least get a second opinion on, such as an appendectomy if you think you’ve got appendicitis.
And maybe personal financial security isn't as important to you as your health. But it shouldn’t be far behind. Studies show that financial insecurity can lead to problems in other parts of our lives, including relationships, health and careers.
Our take. If you’re a DIYer when it comes to investing and retirement planning, don’t have a financial advisor, or perhaps have one but want a second opinion, blooom can help you by leveraging their technology and team of human advisors. Unlike traditional advisors that charge a percentage of your account, blooom charges a low flat annual fee to then fix and manage those accounts.
They are on a mission to bring badly needed affordable financial advice to a massively underserved segment of the American population today.
Get a complimentary retirement account analysis. Think of it as a free check-up of your investments!
Get $20 off if you sign up for blooom's paid service. Use promo code FINNNY (yes, that's 3 Ns!).