MONEY

Schwab’s Pitch to Millennials: Talk to (Robot) Chuck

Charles Schwab Corp. courts young investors with low-cost online financial advice.

Charles Schwab Corp. became an icon of the 1980s and ’90s bull market by helping individual investors make cheap stock trades.

Schwab made a smart bet that people were willing to research and pick stocks without the advice of a broker, if only they were given the technology (first just the telephone, and later online) to do it for themselves. But the new generation of investors is already comfortable with technology—what they’re increasingly wary of is picking stocks.

Enter the so-called “robo-advisers,” investment firms that rely on computer algorithms to help investors pick a slate of mutual or exchange-traded funds, typically for a lower cost than traditional advisers. Companies like Betterment and Wealthfront have gained thousands of clients and millions in start-up money, hoping that they might become, essentially, the Schwab of the millennial generation.

Not surprisingly, the actual Charles Schwab wants a piece of the action too.

On Monday the San Francisco discount brokerage unveiled its plan for a product called “Schwab Intelligent Porfolios,” which will launch in the first quarter of 2015.

Schwab isn’t the only investment incumbent to try to jump on this trend. Vanguard has been running a pilot version of a program that takes a similar approach. Fidelity recently announced a venture with Betterment, one of the new upstart firms.

All the new web-driven advice services take for granted that many investors—already used to banking online, shopping on Amazon and sharing personal details on Facebook—will be willing to interact with a financial adviser only online or over the phone. In some cases, the services do away with the flesh-and-blood advisers altogether. Instead, a computer model creates a portfolio of stock and bond funds after a customers fill out an online questionnaire about their goals and risk tolerance. Just as with books and music, putting money advice online has been pushing costs down. Working with a traditional financial adviser, you might pay 1% or more assets per years in fees. Advisers like Wealthfront and Betterment charge less than 0.5%.

The new services also tend to be available to a wider group on investors, with minimum portfolios of $25,000 or less. Many traditional advisers look won’t work with clients unless they have at least ten times that amount.

How does Schwab’s planned new service compare the upstarts? The details about Intelligent Portfolios are still a bit thin. Schwab describes the service as offering “technology-driven automated portfolios” but also says “live help from investment professionals” is available. Schwab is being aggressive on cost: It will not levy any asset-based fee at all, and will require as little as $5,000 to invest. Schwab says it will make money when Schwab’s own exchange-traded funds are included as investment recommendations, and from portfolios’ cash holdings which will be in Schwab bank products. Without knowing which ETFs Schwab ends up recommending, it’s difficult to get a sense of the total amount investors will pay. (Some Schwab ETFs are very low-cost, however.)

What is clear is that the new services have changed the game, pushing companies to get the sticker price for basic advice down as low as possible. For example, an older Schwab investment program, it’s ETF “managed portfolio,” allows investors to talk to advisers over the phone and in branches. It charges investors up to 0.9% of their assets a year.

MONEY Financial Planning

Here’s What Millennial Savers Still Haven’t Figured Out

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Lester Lefkowitz—Getty Images

Gen Y is taking saving seriously, a new survey shows. But they still don't know who to trust for financial advice.

The oldest millennials were toddlers in 1984, when a hit movie had even adults asking en masse “Who you gonna call?” Now this younger generation is asking the same question, though over a more real-world dilemma: where to get financial advice.

Millennials mistrust of financial institutions runs deep. One survey found they would rather go to the dentist than talk to a banker. They often turn to peers rather than a professional. One in four don’t trust anyone for sound money counseling, according to new research from Fidelity Investments.

Millennials’ most trusted source, Fidelity found, is their parents. A third look for financial advice at home, where at least they are confident that their own interests will be put first. Yet perhaps sensing that even Mom and Dad, to say nothing of peers, may have limited financial acumen, 39% of millennials say they worry about their financial future at least once a week.

Millennials aren’t necessarily looking for love in all the wrong places. Parents who have struggled with debt and budgets may have a lot of practical advice to offer. The school of hard knocks can be a valuable learning institution. And going it alone has gotten easier with things like auto enrollment and auto escalation of contributions, and defaulting to target-date funds in 401(k) plans.

Still, financial institutions increasingly understand that millennials are the next big wave of consumers and have their own views and needs as it relates to money. Bank branches are being re-envisioned as education centers. Mobile technology has surged front and center. There is a push to create the innovative investments millennials want to help change the world.

Eventually, millennials will build wealth and have to trust someone with their financial plan. They might start with the generally simple but competent information available at work through their 401(k) plan.

Clearly, today’s twentysomethings are taking this savings business seriously. Nearly half have begun saving, Fidelity found. Some 43% participate in a 401(k) plan and 23% have an IRA. Other surveys have found the generation to be even more committed to its financial future.

Transamerica Center for Retirement Studies found that 71% of millennials eligible for a 401(k) plan participate and that 70% of millennials began saving at an average age of 22. By way of comparison, Boomers started saving at an average age of 35. And more than half of millennials in the Fidelity survey said additional saving is a top priority. A lot of Boomers didn’t feel that way until they turned 50. They were too busy calling Ghostbusters.

MONEY 401(k)s

Why Workers Would Take a Pay Cut for This Retirement Benefit

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A 401(k) employer match is so valuable that many workers would be willing to lower their pay to get a bigger one, a survey finds.

Would you willingly take a pay cut? A surprising number of workers say yes—if it means getting a richer 401(k) match.

That’s one of the findings from a Fidelity Investments survey released today. When workers were asked if they’d prefer to have lower compensation in return for a higher 401(k) employer contribution, 43% chose the pay cut. As the responses show, many workers realize that it would be worthwhile to accept “a short-term pay cut for a long-term payoff,” says Fidelity vice president Jeanne Thompson.

The results also show that more people are worried about achieving a financially secure retirement, which seems increasingly out of reach. For many workers, a 401(k) plan is their sole means for saving for retirement, while an employer match is the closest thing to a free lunch that you can get. But a 401(k) match is more than a nice fringe benefit—depending on your ability to save, it may even make or break your retirement.

Why is a 401(k) match so crucial to retirement success? Consider that most workers need to put away 10% to 15% of salary in their plan to be on track to a comfortable retirement, financial advisers say. But the typical saver stashes away only 8%. So to get to that 10% or higher savings rate, the average worker needs a boost from a company match. Overall, employer matches account for more than 35% of total contributions to the average worker’s 401(k) account.

That brings up one bright spot in the survey: The typical employer match is now 4.3% of pay, which comes to an average of $3,450 per worker a year. That’s a jump of more than $1,000 compared with the average employer contribution 10 years ago.

There are good reasons for employers to offer tempting 401(k) matches. Companies can deduct the contributions from their corporate taxes, and the benefit is a valuable tool for attracting talent and retaining employees, especially as the job market improves. Only 13% of workers surveyed said they’d take a job with no company match, even if it came with higher pay.

Of course, the fact that Fidelity is asking workers to choose between a match and pay cut is another stark reminder that Americans are largely on their own when it comes to saving for retirement. “Many people used to have a pension plan. That’s not true for younger workers today, and even many Baby Boomers who had pension plans have had them frozen,” says Thompson.

If your 401(k) lacks a generous match, it’s crucial to step up your own savings. One relatively painless way to do it is start with a 1% increase in your savings rate. For each $33 reduction in your take-home pay, you will add $220 to $330 to your future retirement income. (To see how different savings rates will boost your nest egg, try this retirement income calculator.) At the very least, save enough to get your full 401(k) match.

MONEY financial advice

Where to Go for the Best Financial Advice

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Carolyn Hebbard—Getty Images/Flickr Open

Seeking help with investments or retirement planning? Here's how to sort through the overwhelming number of options you face.

The financial advice business is changing dramatically in every aspect, from how advisers spend their time, to what they charge, to how they label and promote themselves.

The result? Further confusion for consumers who probably sought help to find clarity in the first place.

“Brokers” who used to pick stocks and sell mutual funds at firms like Morgan Stanley and Bank of America Merrill Lynch are now more likely now to call themselves “financial advisers” and manage portfolios for fees instead of (or in addition to) commissions.

Independents who used to offer comprehensive advice are now more likely to focus on investment management and call themselves “wealth managers.”

Charles Schwab, the online brokerage that made its name catering to do-it-yourself investors, now is pushing its own stable of are “financial consultants” and preaching the value of face-to-face (or at least Skype-to-Skype) connections.

New to the scene are “robo-advisers” — algorithmically driven online money management firms that will automate your investment decisions.

Further complicating consumer choice is the fact that most firms have a variety of ways in which they offer financial advice to clients.

At Vanguard, for example, a firm which promotes simplicity in investing, there are nine different advice platforms. They vary, based on whether a client is investing through a retirement account or directly, how much advice a client needs or wants, and how much money the client has to invest.

How can someone seeking financial advice navigate their way through this complex field and make sure they get the right advice? Here are a few things you should know now:

Needs Assessment

Assess your own needs. The first step is to figure out what you want a financial professional to do for you. Do you want comprehensive investment management? A whole-life plan that includes everything from how to pay for college to tax reduction to retirement planning? Just a reality check on your retirement readiness?

Pay for What You Eat

Once you know what you want, it’s easier to find the right adviser. For a spot check or limited amount of planning, consider hiring a by-the-hour adviser — you can find one through the Garrett Planning Network (www.garrettplanningnetwork.com).

Want a comprehensive soup-to-nuts life financial plan? Look for a fee-only certified financial planner through the CFP Board of Standards (www.cfp.net) or the National Association of Personal Financial Advisors (www.napfa.org).

Learn the Lingo

“Fee only” means that the adviser is not paid to sell products and, if that person is a certified financial planner, it also means she doesn’t even own a small share in a financial company that does sell products.

“Fee-based” is a meaningless term of art, typically used by advisers who charge fees and reap commissions.

Watch Your Wallet

There’s a huge discrepancy in the amount of fees advisers charge.

At Vanguard, investors willing to stick with Vanguard funds can get basic fund choice advice for free and a comprehensive financial plan for 0.3% of the assets they invest with Vanguard.

Traditional brokerage firms will offer broader portfolios and go fee-only but at costs that can top 2% a year.

In the middle are most independent financial advisers, who tend to charge fees near 1% of assets, more for small accounts and less for bigger ones.

An extra percent or two, pulled from an account every year, can cost a long-term investor hundreds of thousands of dollars at the end of the day, so fees do matter.

Consider Generic Advice

A lot of lip service is given to selling the idea that everyone needs personalized and customized financial advice.

That’s true for people who have ultra-high net worth, with businesses, estates, tax issues and the like to manage. It’s also true of people who have very special situations, such as handicapped children who will need lifelong care.

But it may not be true of the average Joe and Jane, who simply need tips on how to invest their 401(k) or IRA fund.

Companies like T. Rowe Price, Vanguard and Fidelity will give you basic fund guidance for free, or close to it.

Remember the Robots

Companies like Wealthfront, Betterment and Hedgeable will invest your money for you in diversified portfolios regularly rebalanced and managed, if you need that, to minimize taxes.

They will charge pennies on the dollar of what a face-to-face individualized money manager will charge, and in some cases offer that for free.

They offer a reasonable solution for investors who know how much they have to invest, don’t need hand-holding, and are comfortable turning their finances over to an algorithm and sticking with passive index-linnked investing.

Here’s encouragement: Over long swaths of time, those passively-managed portfolios tend to beat the active investment managers.

MONEY IRAs

This Simple Move Can Boost Your Savings by Thousands of Dollars

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iStock

Last-minute IRA savers and those who keep their money in cash are paying a procrastination penalty.

Individual Retirement Account contributions are getting larger—an encouraging sign of a recovering economy and improved habits among retirement savers.

But there is an “I” in IRA for a reason: investors are in charge of managing their accounts. And recent research by Vanguard finds that many of us are leaving returns on the table due to an all-too-human fault: procrastination in the timing of our contributions.

IRA savers can make contributions anytime from Jan. 1 of a tax year up until the tax-filing deadline the following April. But Vanguard’s analysis found that more than double the amount of contributions is made at the deadline than at the first opportunity—and that last-minute contributions dwarf the amounts contributed throughout the year. Fidelity Investments reports similar data—for the 2013 tax year, 70% of total IRA contributions came in during tax season.

Some IRA investors no doubt wait until the tax deadline in order to determine the most tax-efficient level of contribution; others may have cash-flow reasons, says Colleen Jaconetti, a senior investment analyst in the Vanguard Investment Strategy Group. “Some people don’t have the cash available during the year to make contributions, or they wait until they get their year-end bonus to fund their accounts.”

Nonetheless, procrastination has its costs. Vanguard calculates that investors who wait until the last minute lose out on a full year’s worth of tax-advantaged compounded growth—and that gets expensive over a lifetime of saving. Assuming an investor contributes the maximum $5,500 annually for 30 years ($6,500 for those over age 50), and earns 4% after inflation, procrastinators will wind up with account balances $15,500 lower than someone who contributes as early as possible in a tax year.

But for many last-minute savers, even more money is left on the table. Among savers who made last-minute contributions for the 2013 tax year just ahead of the tax-filing deadline, 21% of the contributions went into money market funds, likely because they were not prepared to make investing decisions. When Vanguard looked at those hasty money market contributions for the 2012 tax year, two-thirds of those funds were still sitting in money market funds four months later.

“They’re doing a great thing by contributing, and some people do go back to get those dollars invested,” Jaconetti says. “But with money market funds yielding little to nothing, these temporary decisions are turning into ill-advised longer-term investment choices.”

The Vanguard research comes against a backdrop of general improvement in IRA contributions. Fidelity reported on Wednesday that average contributions for tax year 2013 reached $4,150, a 5.7% increase from tax year 2012 and an all-time high. The average balance at Fidelity was up nearly 10% year-over-year to $89,100, a gain that was fueled mainly by strong market returns.

Fidelity says older IRA savers racked up the largest percentage increases in savings last year: investors aged 50 to 59 increased their contributions by 9.8%, for example—numbers that likely reflect savers trying to catch up on nest egg contributions as retirement approaches. But young savers showed strong increases in savings rates, too: 7.7% for savers aged 30-39, and 7.3% for those aged 40-49.

Users of Roth IRAs made larger contributions than owners of traditional IRAs, Fidelity found. Average Roth contributions were higher than for traditional IRAs across most age groups, with the exception of those made by investors older than 60.

But IRA investors of all stripes apparently could stand a bit of tuning up on their contribution habits. Jaconetti suggests that some of the automation that increasingly drives 401(k) plans also can help IRA investors. She suggests that IRA savers set up regular automatic monthly contributions, and establish a default investment that gets at least some level of equity exposure from the start, such as a balanced fund or target date fund.

“It’s understandable that people are deadline-oriented,” Jaconetti says. “But with these behaviors, they could be leaving returns on the table.”

Related:

 

MONEY College

Here’s How to Get Your Parents to Pay for Your Kids’ Education

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A 529 plan can help grandkids with their education -- and provide a tax break for Grandma and Grandpa.

Many grandparents want to help their grandchildren pay for college, but don’t know the best ways to do that. Good news: They can make those contributions while reaping financial advantages for themselves.

Nearly half of grandparents expect to contribute to their grandkids’ college savings, with more than a third expecting to give $50,000 or more, according to a 2014 Fidelity Investments study. That generosity can also be channeled toward significant tax and estate planning benefits for the grandparents.

Enter the 529 plan, a college savings investment account that provides tax-free growth as long as the money is put toward tuition and most types of college expenses such as fees and books. What’s more, grandparents can score their own financial perks, said Matt Golden, vice president of college savings for Fidelity Financial Advisor Solutions.

Grandparents can use 529 accounts to reap tax deductions or reduce the value of their taxable estates.

Furthermore, 529 plans have limits that might be comforting for grandparents who worry that their grandchildren might spend the money frivolously, or that they might end up needing it themselves. Grandchildren must use the funds only for certain college expenses, such as tuition and books. What’s more, grandparents can keep the money if they need it, subject to penalties and taxes, say advisers.

Working the Angles

For financial advisers, conversations with clients about these issues can build trust, said Charles Wareham, a Hartford-based adviser specializing in college funding strategies. Wareham’s firm holds Sunday brunches for parents and grandparents to teach them about college funding. The events have become relationship-builders, he said.

One way to showcase 529 accounts is by highlighting their advantages over other savings strategies.

“Many grandparents give EE bonds for holidays and birthdays, which can hurt more than help as far as tax purposes,” says Wareham.

For example, grandchildren who receive Series EE bonds as birthday gifts can later be socked with federal income taxes on the interest if they don’t use the funds for college, according to the U.S. Department of the Treasury.

A 529 plan, in contrast, provides for tax-free distributions for college. It also allows grandparents to give the funds to another grandchild if the intended recipient does not go to college or need the money.

Grandparents may also be eligible for state income tax deductions when they make 529 contributions – they are available in 34 states and the District of Columbia, according to FinAid, a website about financial aid. They can also take required minimum distributions from their IRA accounts and transfer those funds to the 529 plan, where they can continue to grow tax-deferred, Fidelity’s Golden says.

Savvy advisers can compare plans from various states and help their clients find the best ones, though usually tax breaks are only available to people who invest in their own state’s plan.

A 529 plan is also a unique way for grandparents to reduce the value of their estates: they can contribute up to five years’ worth of allowable gifts in one year without triggering federal gift taxes. That means clients filing jointly can invest $140,000 in one lump sum per grandchild.

One caveat: 529 accounts could make a grandchild ineligible for financial aid, says Golden. That is because the money, once withdrawn for the beneficiary, counts as income that schools use to determine financial aid awards. But grandparents can avoid the problem by waiting until the recipient’s junior or senior year to hand over the money, when students may not need as much aid, Golden says.

MONEY 401(k)s

Stock Gains (and Saving) Push 401(k)s to Record Highs

Staying the course has rarely paid off so well as average retirement account balances soar.

The financial crisis is so yesterday. Retirement savings accounts have never been plumper, according to a new survey of 401(k) plans and IRAs at Fidelity Investments.

At mid-year, the average 401(k) balance stood at a record $91,000, up nearly 13% from a year ago. The average IRA balance stood at $92,600, also a record, and up nearly 15% from the previous year.

These figures include all employees in a plan, even those in their first year of saving. Looking just at long-time savers the picture brightens further. Workers who had been active in a workplace retirement plan for at least 10 years had a record average balance of $246,200—a figure that has grown at an average annual rate of 15% for a decade.

Over the past year, the resurgent stock market accounted for 77% of the higher average balance in 401(k) plans, Fidelity said. Ongoing employer and employee contributions accounted for 23% of the gain. The typical worker socks away $9,590 a year—$6,050 from her own contributions and $3,540 from an employer match.

Of course, the financial crisis still weighs on many Americans. Employment has been an ongoing weak spot and wage growth has been all but non-existent. Meanwhile, those in or nearing retirement may have fallen short of their goals after losing a decade of market growth at just the wrong point in their savings cycle. Many had to sell while prices were down.

But the Fidelity data reinforces the value of steady savings over a long period. By contributing through thick and thin, savers were able to offset much of the portfolio damage from the crisis. They not only held firm and enjoyed the market’s robust recovery but also were buying shares when prices were low. They earned a spectacular return on new money put into stocks the last five years. In calendar year 2013 alone, the S&P 500 plus dividends rose 32%.

Despite continuing contributions, savings balances did not rise as fast as the S&P 500 due to plan fees, cash-outs and broad plan exposure to lower-return investments like bonds and cash. Roughly a third of job switchers do not roll over their plan savings; they take the money, often incurring taxes and penalties. The average 401(k) investor has 33% in fixed-income securities.

Related:

 

MONEY Estate Planning

Mom and Dad’s Money Secret (and How to Get In On It)

Stephen Swintek—Getty Images

Your Mom and Dad may be better off than you knew. But how well are they managing their finances?

Parents and their adult children often aren’t on the same page—and that’s especially true when it comes to money issues. But a new study uncovers a surprisingly big disconnect when it comes to understanding how prepared your Mom and Dad are for retirement. In many cases, the parents may be in better financial shape than their kids realize.

Three-quarters of parents and their adult children agree that it’s important to have frank conversations about wills, estate planning, eldercare and covering retirement expenses, according to Fidelity’s 2014 Intra-Family Finance Generational study out today. Yet 40% of parents surveyed say they haven’t had detailed conversations with their children about any of these topics, while 60% say they feel more comfortable talking to a financial professional than to their kids about their personal financial situation.

“Finances are always a difficult topic to broach with children. Parents want to retain their independence and they don’t want to be a burden to their children,” says John Sweeney, executive vice president of Retirement and Investing Strategies at Fidelity. “People in the sandwich generation know how tough it is from taking care of their own parents.”

The communication gap skews the expectations adult children have about taking care of their parents—and it adds to their stress about saving enough for their retirement. One out of three adults say they expect to support their Mom and Dad financially but 96% of parents say it won’t be needed.

The parents’ confidence may come in part from misunderstanding their retirement income needs. The survey found that 70% of parents don’t know exactly how much money they will have to live on in retirement, up from 65% when Fidelity did the survey two years ago.

The recent bull market may have also lulled parents into complacency. “It’s easy for people to become overconfident about their ability to manage their money,” says Ken Moraif, a senior advisor at Money Matters, a financial advisory firm in Dallas. “They don’t take into account that bull markets don’t go forever.”

Another startling gap from the survey: adult children underestimated the value of their parents’ estate by a whopping $300,000 on average. (The survey participants were an affluent group—parents were 55 or older, had children older than 30 and at least $100,000 in investable assets.)

Parents say a big reason they don’t talk to their kids about their personal finances is that they don’t want their kids to count too much on their future inheritance. Of course, that doesn’t mean parents will be passing on that wealth to their kids. Only half of American retirees are planning to give an inheritance to their children, according to a recent HSBC survey.

There’s also a big misunderstanding about who will care for Mom and Dad if they become ill. Nearly half of adult children expect to take care of a parent but only 6% of parents expect their kids to do that, the survey found.

“Adult children may plan to take care of their parents at the expense of other financial goals. If they know how those things will be funded, they can make better decisions about their own retirement,” says Sweeney.

Have these conversations before a health issue or financial problems crop up. “It’s much easier before there is a crisis,” says Moraif.

Of course, the hardest part is getting the conversation started. You could share a story about a friend who ran into problems because her father passed away before letting his children know how to find important documents. Another approach is to talk about your own plans for retirement and then inquire about how they are preparing.

“Tread lightly but sincerely with your parents. If they feel you’re coming from a place of love and caring, they’ll be more open. If they think you just want to know how much money they have for your inheritance, it’s not going to be a good conversation,” says Moraif.

Related: The Tough Talk Worth Having With Your Parents This Weekend

MONEY financial advisers

Investment Start-Ups Shake Up Financial Industry

Companies targeting mass-market millennials say they're forcing lower prices and greater transparency.

Led by a group of start-ups that have emerged in the last two years to offer previously expensive and exclusive financial services on a low-cost basis to a mass audience, the financial services industry is starting to adapt its ways.

The changing way of doing business is resulting in lower fees and more transparency about services, leaders of the start-ups say. And instead of failing or being gobbled up by larger entities, these online money management and investment product companies have been growing exponentially.

A snapshot of the growth revealed recently at the Reuters Global Wealth Management Summit in New York:

  • Wealthfront.com, a provider of low-fee investment management aimed at tech-savvy millennials, born after 1981, recently crossed $1 billion in assets under management, achieving that feat in two years. (Its closest cohort in the space, Betterment, now has $630 million under management.)
  • SigFig.com, which aggregates accounts and offers investing advice, but does not directly take in assets under management as its main service, tracks $200 billion. The company is on its way to tracking $1 trillion in the next year, said chief executive Mike Sha.
  • Hedgeable.com, which provides low-fee alternative investment products directly and has broad distribution on many traditional platforms such as Fidelity and TDAmeritrade, has $400 million in assets under management. With just six employees, the company is cash-flow positive and developing new products all the time.

For anyone thinking that sounds like a good target for an acquisition, Hedgeable’s chief executive, Michael Kane, said, decidedly, “We are not for sale.”

Already, the companies see their influence in fee slashing industrywide as well as on greater transparency. Firms like LPL Financial, Wells Fargo, and Edward Jones are trying to lower fees by offering bundled services, Kane said.

In five years, 90% of these companies will be offering flat-fee pricing for all of the services they offer a retail client, Kane predicted.

Change is also at hand as traditional firms rethink their pricing model, going from a percentage of assets under management to flat fees. SigFig has helped move this along by showing customers exactly how much they are paying in fees yearly. For clients who have money in traditional mutual funds at a brokerage, fees average $7,000 per year. More than 90% of those costs are avoidable, Sha said.

“Over 30 years, that’s staggering,” Sha said.

Another shift: how firms service customers who don’t have huge account balances. While traditional advisers often have high minimums of $500,000, Wealthfront accounts start at $5,000. In the last few weeks, the company has added about $100,000 in assets under management, all without needing to grow their 40-person staff.

Wealthfront chief executive Adam Nash understands why the big firms still mostly go after baby boomer clients, who control $15 trillion in wealth versus $2 trillion for millennials, a third of whom are still in college.

But Nash sees growth for Wealthfront as millennials age, and wants to engage them as early as possible. The company recently fielded a slew of complaints from college students who couldn’t sign up accounts, so the company lowered its minimum age to 18 from 21.

MONEY Health Care

The Retirement Decision That Could Cost You $51,000

An early retirement may be good for reducing stress but it will also shrink your nest egg.

If you’re worried that health care costs will take a big bite out of your retirement income, don’t retire early.

Couples retiring at age 65 will spend an average $220,000 on health care expenditures, according to the 2014 Retiree Health Care Cost Estimate by Fidelity Investments.

But if you leave the job before 65, you’ll face even higher costs. A couple retiring at 62 would pay $17,000 a year in insurance premiums and out-of-pocket expenses—a total of $51,000—before reaching Medicare eligibility at 65, Fidelity calculated. That would push your total retirement health care costs to $271,000.

“If you have to buy health insurance when you’re older and you’re not on Medicare yet, it’s going to be a lot more expensive,” says Carolyn McClanahan, a doctor and a certified financial planner in Jacksonville, Florida. Even under the Affordable Care Act, older people spend $500 to $1,000 more a month than younger people do in premiums, she points out.

All the more reason to delay your retirement as long as you can. If you wait till age 67, you could save $10,000 a year on your medical expenses. That’s assuming you stay employed and your company pays the majority of your health care costs, which allows you to delay taking Medicare. “On average, Medicare picks up much less than the typical employer plan,” says Sunit Patel, senior vice president of Fidelity Benefits Consulting.

There is some good news in Fidelity’s latest analysis. Health care expenses have moderated in recent years, so this year’s $220,000 lifetime expense is unchanged from 2013. That slowdown is the result of reduced costs for long-term prescription drugs covered by Medicare Part D, as well as lower per-enrollee Medicare expenditures.

Still, whether you retire at 62 or 67, health care is a big-ticket item—and you need to plan for more than just the medical bills. Fidelity’s estimates don’t include the cost of paying for long-term care services, such as a home health aide or a nursing home, in the event you become disabled.

Of course, the timing of your retirement isn’t always something you can control. About half of retirees report that they left the workforce earlier than planned because of health issues, a layoff, or to care for an elderly relative, according the Employee Benefit Research Institute.

If you want to retire early, or think you’ll be forced to leave the workforce, be sure to estimate your health care costs and budget that into your retirement spending. If you’re in ill health or have a chronic condition such as diabetes, you may need to set aside more money for doctor visits and prescription drugs. And take whatever steps you can to improve and maintain your health. “If you’re in your 50s, this is the time to take good care of yourself,” says McClanahan.

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