Which Fund Share Class Is Best for Retirement?

If you're retired, your new job is to manage your money. 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 options: the different types of share classes, which essentially reflect 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.

For the most part, when you're working with a commission-compensated advisor, like a financial planner or a stockbroker, you're going to buy one of two share classes: A or C. There are others, but for the sake of this article, we're going to focus on these most popular share classes.

Key Takeaways

  • An investor will often get discounts if all of their money is with one mutual fund company.
  • A or C mutual fund share classes are the two most popular among investors.
  • A class shares are better for retirees who do not need immediate access to their money upon retirement. 

Class A Shares

The class A share includes an up-front commission, otherwise known as a front-end load. Typically, if you're a retiree who needs income immediately, this isn't the best share class to buy. Class A shares have a high initial investment that's required (as fees), so a large portion of the principal you invest will take a hit when you purchase the shares.

However, if you have alternative income sources other than your retirement accounts, class A shares might be a wise choice.

Class A shares are best for those who can buy and hold the funds over a long period of time.

Class C Shares

The class C share is, in many ways, the opposite of the class A share. 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 an extended period. Additionally, you can also move to a different mutual fund company after that one year's time has expired.

There is a downside to class C shares, though. While you won't have the up-front commission, you will pay much higher internal fees, known as the expense ratio. This expense is typically at least 1% higher than you would pay with 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, consider class A shares. If you can't, consider class C shares.

Alternatively, you may want to find an excellent fee-based money manager 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

Take a few moments to consider the differences between the most popular A and C share classes and then decide which one is right for you. Choose wisely, and you're likely to save and make more money.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Financial Industry Regulatory Authority (FINRA). "Updated: Understanding Mutual Fund Classes." Accessed July 3, 2021.

  2. Morningstar. "Descriptions of Share Class Types." Accessed July 3, 2021.

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