How To Analyze And Optimize Your 401(k) [Free 401(k) Analysis Tools]

The Ultimate Guide to Making Smart 401(k) Decisions + How to Get a Free 401(k) Analysis

Key Ideas

  1. What is the 401(k) trap and why do so many people fall victim to it?
  2. The most important things you’ll learn from a free 401(k) analysis.
  3. How to optimize your 401(k) savings to achieve your dream retirement.

Do you want to retire with a million dollars in your 401(k)?

It’s entirely possible. People do it every day, and you could be one of them.

But you need to know how to avoid the most common mistakes that can take hundreds of thousands of dollars from your pocket.

Without the proper guidance, you could allocate your savings incorrectly, pay excessive expenses, and miss opportunities for investment growth.

Learn how an investment in knowledge today can you pay you dividends in greater 401(k) growth tomorrow with this ultimate guide to getting a free 401(k) analysis.

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Image of hand, holding a pen, looking over a chart, and text, "Optimize your 401(k) Today". From article describing how to get free 401(k) analysis.

The 401(k) Trap

Signing up for your company 401(k) is most people’s first foray into the investment world.

It’s a powerful first step towards achieving a healthy retirement. In many cases, your 401(k) will also end up being your single largest investment.

Despite the importance of this decision, it’s surprising how little guidance is given to many 401(k) plan participants:

The problem is, many businesses lack the investment expertise needed to provide you with guidance, and they don’t want the liability associated with giving you investment advice. The result? You’re on your own — and that can be a very expensive mistake.

The surprising reality is many employees are just handed a worksheet, or given access to a website, because this type of generic education information places no responsibility on the company if something goes wrong. You’re given a list of “approved” investment choices like target date funds, stock funds, and bond funds of various colors and descriptions. From this menu, you’re expected to choose your financial future. If you make the wrong choice then it’s your responsibility.

Worse yet, few employees are taught the critically important role that investment expenses play in your future expected return. It’s one of the simplest and most significant lessons you can learn because multiple research studies, including this one from Morningstar, have shown how investment expenses are the single greatest factor affecting long term relative investment performance. Unfortunately, 401(k)s often have some of the highest fees of any investment alternative! You can avoid getting sucked into this trap, but only if you know what to watch out for and how to manage the problem.

How Your Financial Advisor is Taking 75% of Your Retirement Income (or More!) Video, PDF download, or Audio.

If you’re not an investment professional, it can feel overwhelming to make these important investment decisions without background or knowledge.

The sad result is most people end up just taking a guess and hoping for the best.

That’s no way to plan your financial future!

If you’re not completely confident that you know exactly what you own in your 401(k), how much you’re paying in fees, and whether the allocation is appropriate for your specific circumstances, then you’re not putting yourself in a position to maximize the growth of your hard-earned savings.

Making the wrong 401(k) choices now will significantly impact your ability to retire with the nest egg you desire. A 401(k) analysis can give you the knowledge and guidance you need to set yourself up for financial success. Best of all, it’s free and only takes a few minutes of your time! Today, we’ll explain:

  • What you can expect from a 401(k) analysis
  • How to use two different free 401(k) analysis tools we recommend
  • How to take action on your results

What Will You Learn From a 401(k) Analysis?

To properly optimize your 401(k), you’ll need to have a full understanding of two things: the investment choices available in your plan and the annual fees you’re paying to invest in your plan.

When you know this information then you can choose an allocation that’s appropriate for your expected retirement date and tolerance for risk. The good news is, a free 401(k) analysis will provide you with all of this information… and more.

The Low-Down on 401(k) Fees

While close to 95% of 401(k) plan participants pay fees and charges, most people really don’t understand them.

In fact, TD Ameritrade conducted a survey in which they found that 37% of 401(k) plan participants didn’t believe they were paying any fees, 22% didn’t know whether they were paying fees or not, and 14% weren’t sure how to figure out how much they were paying. That’s a whopping 73% of people who are losing a portion of their retirement savings and don’t know how to minimize the damage!

To further complicate things, there are different types of fees you’ll find within your plan. Some are easy to spot if you know where to look, and others are cleverly hidden.

The Ugly Truth About How 401(k) Fees Impact Your Retirement

When you first start looking at the expenses in your 401(k) plan, you might wonder what all the fuss is about. After all, in percentage terms, it seems like a pretty small amount. While plan expenses vary depending on a number of factors, participants in very large plans may pay as little as 0.50% per year while those in smaller plans often come in at 2% or higher. However, when you look at these numbers in real dollar terms then you’ll see just how quickly they add up. Consider this example:

A 30-year-old investor has a 401(k) plan with a $10,000 balance that charges 2% per year in fees. If that investor contributes just $5,000 per year for the next 30 years, he will end up paying $153,208 in fees over the course of his career! By learning how to make small changes that resulted in bringing the fee down to 1%, he could save an additional $77,302.

Consider, also, that the cost of 401(k) fees compound in the same way dividends and interest do. When additional money is added to your account, it’s then available to grow exponentially for the entire time it’s in there. Conversely, when money is deducted for fees, you lose the compounded value of that earning power for the rest of your investment term. To show just how big of an impact this can have, let’s look at another example:

A $100,000 investment that earned 5% per year for 30 years with no additional fees or costs would have an ending balance of $432,194. If you added a 2% fee, reducing the performance to 3% per year, that same account would have an ending balance of $242,726. That’s a difference of $189,468 — meaning that little 2% fee actually cost you 43% of your total investment return.

It’s clear that minimizing investment fees can have a huge impact on your retirement. At the same time, the 401(k) can be one of the most expensive investment vehicles. So what’s an investor to do?

This is a case where knowledge is power. By law, you’re required to receive a plan disclosure document for your 401(k) that explains all of the fees you’re paying. Unfortunately, even with the disclosure, it’s not always easy to determine your “all in” cost. Completing a free 401(k) analysis will help you see exactly what fees you’re paying and the steps you can take to reduce them.

When you review your analysis, it’s helpful to understand the types of fees you’ll be looking for, and what services each of these fees covers.

3 Common Types of 401(k) Fees

The three primary types of fees you’ll see in your 401(k) plan are plan administration fees, investment fees, and individual service fees.

1. Plan Administration Fees 

Your plan administration fees cover the cost of everything that’s needed to keep the plan going. This includes services like accounting, recordkeeping, legal, and trustee services. If your plan includes online account access, telephone access to customer service representatives, or a live advisor who offers educational seminars, these perks are usually also built into the plan administration fee.

Sometimes your employer will cover this cost, but it’s more common to see it passed on to the employee as a percentage of assets or a flat annual fee. The average plan administration fee is around $100 to $200 per person, per year. If your plan charges an administration fee, there’s really nothing you can do to avoid it. You will want to make note of it, however, so you can include this downward drag in your performance expectations.

2. Investment Fees

Investment fees are the cost for actually managing your investments, and they’re usually your biggest expense. Some of the most common investment fees include expense ratios, sales loads, and 12b-1 fees.

The annual cost of owning a mutual fund is called an “expense ratio.” It covers the expenses the mutual fund company incurs to manage the fund. Some mutual funds also have a sales charge, called a load. Depending on the type of fund, you may pay the sales load upfront or when you sell the shares. In most 401(K) plans, the load is waived. If not, you’ll want to lower your fees by choosing “no-load” funds.

Many fund expense ratios also include a 12b-1 fee. This charge covers the mutual fund company’s costs for marketing, distribution, and paying commissions to brokers. When the sales load is waived on a mutual fund, the 12b-1 fee usually makes up for it. You can find a breakdown of each mutual fund’s fees in its prospectus and/or annual report. You’ll want to evaluate all of the different types of fees so you can determine the “all in” cost of owning each fund.

When you receive the list of approved funds for your plan, the expense ratio for each investment option should be included on this list. You can save yourself a significant amount of money by designing a portfolio using the fund options with the lowest possible expense ratios (as long as the investment performance is comparable).

3. Individual Service Fees

Individual service fees come into play when you seek services beyond the plan basics. This can include things like taking out a 401(k) loan, rolling over assets to an IRA account, or seeking personal financial advisory services. Before you take advantage of any of these types of offers, you’ll want to find out whether there is a fee involved and how much it’s going to cost you. A summary of all these charges should be listed in your summary plan description, and may also be listed on your account statements.

Once you have a firm grasp of the fees you’re paying in your plan, it’s time to take a closer look at your investment options and which ones you’ve used to design your portfolio.

How To Evaluate Your 401(k) Investment Options

When you’re building a portfolio in your 401(k) plan, you can’t just choose any investment you want. Instead, you’re limited to the plan’s list of pre-approved investment options.

To learn about the investment options in your plan, start with the brochure you should have received when you enrolled. If you didn’t receive a brochure or you can’t find it, check your plan’s website or ask your HR department to provide you with a list of allowed 401(k) investment options.

You’ll typically find that your plan offers a variety of mutual funds that fall into categories like growth, growth and income, equity income, balanced, bond, and cash-equivalent money market. Most plans also offer a selection of target date funds, and some plans give you the option to purchase index funds, exchange-traded funds (ETFs), and company stock.

So which investments are best for building your portfolio? Let’s take a deeper dive.

Active vs. Passive Investments

The term “passive investing” generally refers to the use of indexed funds or ETFs. These investment options aren’t controlled by an active investment manager. Instead, they track an index, like the S&P 500. Because you’re not paying a manager for his or her research, the fees in these investments tend to be much lower.

While passive investments generally aim to track the market, active investments strive to beat it. However, when you factor in the negative drag that high fees create, you’ll often find that passive investments outpace their active counterparts net of fees. In almost all cases, a properly-allocated portfolio made up of passive mutual funds or ETFs will be the best way for the non-professional investor to grow a retirement nest egg while minimizing the negative impact of unnecessary fees.

Target Date Funds

When you review your plan’s investment materials, one of the first things you’ll probably notice is the push for you to choose a target date fund. These are mutual funds that have a predetermined mix of stocks, bonds, and other investments which gradually shift to become more conservative as you get closer to your retirement date. While some people like the “set it and forget it” methodology these funds offer, selecting them can sometimes be a mistake.

If you’re young and have 30 or so years until retirement then you’ll start out with a decent mix, but when you move closer to your retirement date, these portfolios often become far too conservative. An overly conservative investment can lead to low returns which might not be enough to get you through all your retirement years. If you choose a target date fund, you’ll want to periodically reevaluate whether the allocation is still appropriate for your needs. Since these funds are actively managed, there’s also a good chance that you’ll be paying higher fees than you would if you chose your own allocation. In most cases, the convenience these funds offer isn’t worth the challenges they create.

It should also be noted that some plans will automatically put you in a target date fund if you haven’t made your own investment election. If you’re not sure which investments you chose when you enrolled in the plan, now is the time to check.

Company stock

Many 401(k) plans also offer employees the opportunity to purchase company stock at a discounted price. While this offer may be tempting, you should generally avoid allocating more than a limited percentage of your portfolio to any single stock holding. Otherwise, you’re taking a chance of losing a significant portion of your assets if the company goes under. Worse yet, when it’s your own company you could lose your job at the same time you lose your savings.

Don’t make the mistake of thinking this can’t happen to you. No matter how successful a company is, there’s always the chance that it could fail. That’s not a risk you want to take.

Determining Your Ideal Portfolio Allocation

Once you understand your investment options, it’s time to start building your portfolio. When determining your ideal investment allocation, start with your goals and your risk tolerance. The first part is usually easy. It requires you to decide what age you would like to retire so you can determine your investment time horizon, or how long you have before it’s time to start taking withdrawals.

If you’re in your 20s or 30s, you have plenty of time to grow your investments. With an investment horizon of 25 to 30 years or longer, you’ll also have enough time to recover from market losses. This allows you to choose more aggressive investments designed for long-term gains.

If you’re nearing retirement, however, significant losses could be devastating. That’s why many older investors choose more conservative options that are weighted more heavily in bonds and cash. Although this might be an effective way to minimize your losses, it will also impact the size of your gains.

Your risk tolerance is another important factor in determining your ideal investment allocation. This is a measure that aims to determine how you’ll react when faced with inevitable market losses. If you’re likely to panic in the face of a market decline, you’re better off choosing an investment allocation that will generally stay within the range of your comfort zone. This will help avoid a situation where you make a knee-jerk reaction that causes you to compound your losses.

Creating the right portfolio requires you to balance your desire to minimize losses, the need to maximize gains, and the time you have to take advantage of compounding and growth. If you choose an allocation that’s too conservative too soon, you might find yourself coming up short during your retirement years.

The Importance of Diversification

While it may be tempting to put all your assets in a high-performing growth fund or a conservative bond fund, it’s never a good idea to put all your eggs in one basket. Properly diversifying your investments gives your portfolio more room for growth while helping to shield it from some of the worst market losses.

Target date funds are already diversified, but if you choose any of the other investment options in your plan, you’ll be responsible for diversifying appropriately. You can either take the time to learn about your options and develop a scientific approach to investing your money or make things easy for yourself by following the recommendations you’ll receive as part of your free 401(k) analysis.

Where to Get Your Free 401(k) Analysis

There are two websites you can visit to get a free 401(k) analysis and the entire process will only take five minutes of your time!

Most analysis programs will begin by asking you to enter your age (or date of birth) and the age at which you would like to retire. You’ll then typically complete a series of questions that will help determine your tolerance for risk. The last step is to link your 401(k) account to the platform. This will give the program what it needs to conduct a fast and thorough evaluation of your plan, including investment options and fees.

After inputting your information, you’ll receive a list of ways you can improve your current plan. This often includes changes that can help reduce your fees and adjustments to your allocation that will get you closer to the proper risk level. Your analysis will likely recommend changes to your fund choices that could help improve your diversification, reduce your fees, or improve your forecasted returns.

While you’ll be able to get all this information without paying a cent, it’ll be up to you to follow through on making the recommended adjustments. With that said,  these same sites also offer premium services including investment allocation recommendations, trading, and rebalancing for a flat fee. Many investors find that the convenience this offers is well worth the extra cost, and these programs often save you enough in fees to pay for themselves many times over.

401(k) Analysis Tools: Blooom vs. Personal Capital

The two free web apps we recommend for 401(k) analysis are Blooom and Personal Capital. Both sites will give you free insights into your 401(k) fees, investment choices, and forecasted performance, but there are differences:


The largest difference is that Blooom’s entire business is employer-sponsored retirement account analysis and management—that’s all they do. This covers 401(k) accounts, as well as 403(b), 401(a) and 457 accounts. Because 401(k)s and other employer-sponsored accounts are all Blooom does, Blooom’s premium 401(k) management services have some advantages over Personal Capital because they have direct links with hundreds of different 401(k) providers. This enables them to make changes directly to your account if you engage their premium plan.

At the same time, the fact that Blooom only deals with 401(k)s may be a limiting factor for you; if you have IRAs or taxable investment accounts, Personal Capital can give you insights into those, too. Consequently, if you only have investable assets in a 401(k)—or you are confident that your other accounts are already optimized—go with Blooom.

Personal Capital

Personal Capital, on the other hand, provides optimization tools for all of your finances. While Blooom can only make recommendations for how to optimize your 401(k), Personal Capital can analyze your other investments, including IRAs, 529 plans, health savings accounts (HSAs) and taxable accounts. Personal Capital also provides cash flow analysis tools to help you build a budget and analyze your spending. If you’re interested in analyzing other investments in addition to your 401(k), choose Personal Capital.

Remember, however, that both sites’ free services will merely give you recommended changes. If you want the services to implement changes on your behalf, you’ll need to enroll in their premium offerings, which are quite different.

Personal Capital is a wealth management company. It provides robust free analysis tools for everybody, but it makes money by offering investment management services. If desired, you can engage Personal Capital to manage all of your investments for you. As a paid client, Personal Capital will assign you a financial advisor who will propose ideal portfolios for all of your investment accounts and execute the necessary trades for you. On an ongoing basis, your advisor will rebalance your accounts based on market movements, new contributions, or changes to your investment goals. Personal Capital’s annual wealth management fees start at 0.89% for the first $1 million of assets under management. Additional assets are priced at 0.79% for $1-3 million; 0.69% for $3-5 million; 0.59% for $5-10 million; and 0.49% on assets over $10 million.

Blooom, by contrast, will manage just your 401(k) account for as low as $10 per month. If you have more than one 401(k), they can manage those, too, for an additional $90/year per additional account.

To learn more about Personal Capital, read our review of Personal Capital now.

Free vs. Paid Analysis: Does it Ever Make Sense to Pay?

In almost all cases, the free analysis is more than enough to provide you with the information you need to make good 401(k) decisions. While an investment advisor can give you a more personalized recommendation, the question remains whether it will produce greater (or worse) results, and it won’t come cheap. Many investment advisors charge a minimum of $350 just to look at your 401(k), and others charge as much as 1% or more of your account balance per year.

Although expensive, engaging an investment manager—whether it’s Personal Capital, another firm, or a solo manager—often makes sense for high-net-worth individuals who don’t have the interest or confidence to manage their money or are too busy working to do so. The thing is, you shouldn’t necessarily expect a wealth manager to cover their fees with improved investment returns. If they do, that’s great! However, they may not. Instead, think of hiring a wealth manager like hiring a professional painter in your home. With enough time and patience, you might be able to do an adequate job painting your house and save money in the process. A pro, however, will do the same job more efficiently and, most likely, you’ll be happy with the result. Hiring the painter isn’t cheap, but might be well worth it because it saves you the time and hassle of painting yourself. Keep in mind, though, that the money you’re paying an advisor will drag down the value of your nest egg. In fact, over your lifetime, working with a financial advisor could cost you 75 percent or more of your retirement income!

At about $10 per month, it may make sense to engage Blooom’s premium service. In fact, compared to engaging a wealth manager, Blooom is downright cheap. Of course, Blooom can only help with your 401(k), but that’s perfect for the millions of Americans who hold most of their invested assets within one or more 401(k) plans.

Are You Saving Enough in Your 401(k)?

Retiring with a million-dollar 401(k) requires a two-part strategy. Completing a 401(k) analysis and following the resulting recommendations will help you reduce fees and improve your investment returns. The second part of the strategy revolves around an aggressive and consistent savings plan. This may be easier said than done, but the results are well worth the effort.

Most 401(k) plans offer an employer match of 50 to 100 percent of what you put into your account, up to a certain percentage of your salary. Neglecting to enroll in your 401(k) or not contributing at least enough to receive the full employer match means you’re literally wasting money to lost opportunity. If you’re not sure you can afford to contribute the necessary amount to your 401(k), you’ll want to complete some budgeting exercises to find ways to free up this extra cash flow.

Balancing Your Savings Priorities

If you’re like most people, retirement isn’t your only savings goal. You’re likely also going to need money to buy your dream home, pay for your child’s college expenses, pay down debt, and meet other financial obligations. While this is all fine, it’s important not to let these things get in the way of saving for your retirement. Building a million-dollar nest egg requires commitment and prioritization.

You can use our 401(k) calculator to evaluate your current contribution strategy and determine what your balance will be at retirement if you don’t make any changes. If you’re not happy with the number you see here, you’ll need to make some adjustments so you can get closer to reaching your retirement goal.

Some Final Thoughts

If you want to have a comfortable retirement, you need to save and invest. A 401(k) is one of the easiest ways to get started and can be an excellent way to save for your future. If done incorrectly, however, it can also cost you big money.

The key to success is to make smart decisions that optimize your portfolio while minimizing fees. Due to the complexities of many 401(k) plans, this isn’t always easy.

By taking a few minutes to get your free 401(k) analysis, you’ll give yourself the gift of information that will help you make the smart financial decisions necessary to achieve your dream retirement.

Building wealth is about making smart risk/reward decisions. There’s no risk in getting your free portfolio analysis today, and it might just save you from excessive fees or expensive investment mistakes.

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