Which Fund Share Class is Best for Retirement?

If you're in retirement, your new job is to manage your wealth. One way to do your job well is to make sure you're getting the best bang for your buck. Mutual funds are a popular investment choice. But like many choices, behind them lie yet even more choices. Many mutual funds have choices called share classes, which are essentially the fee structures associated with the funds. These fee structures are usually pretty straightforward, although it can be difficult knowing which share class is right for your situation.

Take a few moments to consider the differences between the following share classes and then decide which one is right for you. Choose wisely, and you're likely to save and make more money. For the most part, when you're working with a commissioned advisor, you're going to buy one of two share classes: A or C share. Take a look at these two share classes. There are other share classes, but for the sake of this article, we're going to focus on these most popular share classes. (For more, see: The ABCs of Mutual Fund Classes.)

Class A Shares

The class A share includes an up-front commission, otherwise known as a front-end load. Typically, if you're in retirement and you need income immediately, this isn't the best share class to buy because a portion of your principal would take a hit. However, if you're in retirement and have alternative income sources other than your retirement accounts, class A shares might be a wise choice. Class A shares have a high initial investment that's required (as fees) and therefore are best for those who can buy and hold the funds over a long period of time.

As a side note, although you do get discounts if you have all your money with one mutual fund company, it may be best to stay away from having all of your mutual funds with one company due to other factors (such as investment performance). (For more, see: Stop Paying High Mutual Fund Fees.)

Class C Shares

The class C share is in many ways the opposite of the class A share. For example, the class C share typically lacks an up-front commission, but you have to hold it for at least one year, otherwise you're going to have to pay a 1% surrender charge. Typically, as a retiree, this is the most attractive way to go so that you're not locked into the investment for a long period of time. Additionally, you can also move to a different mutual fund company after that one year time has expired.

There is a downside to class C shares. While you won't have the up-front commission that is common with class A shares, you will pay a much higher internal expense. This expense is typically at least 1% higher than you would pay versus class A shares.

Which Share Class is Right for You?

While there are many factors to consider when choosing a mutual fund share class, how long you can keep your money in investments will probably be the primary determining factor. If you can buy and hold your mutual funds for long periods of time, consider class A shares. If you can't, consider class C shares. (For more, see: Mutual Funds: Management Fees vs. MER.)

Alternatively, you may want to find a good fee-based advisor who can help you buy institutional share classes. Institutional share classes will have much lower expenses than both the class A or C shares. But remember that you're also then going to have to pay the advisor their management fee, which could be around 1% of your assets under management per year.

The Bottom Line

A or C are the most popular mutual fund share classes. Carefully think through your options and seek the advice of a financial professional so that you make the right choice. (For more, see: This Is How Much Mutual Fund Managers Make.)