Roger Lawrence Wohlner's Answers and Guides

Jean this is an excellent question. The answer is that it depends. Many larger company 401(k) plans offer a menu of solid, low cost options with relatively low administrative costs due to their size and buying power. This is not universal to all large plans and many smaller and mid sized plans also offer solid options with relatively low expenses. You will really need to do a review of your former employer's plan. The 401(k) fee disclosures due to commence later this year might be of help to you in this effort.

On the flip side an IRA account can offer you more options and may be lower cost, esecially if you avoid banks or brokers that charge excessive fees and offer only higher cost funds, often with sales commissions involved. Best to look at fund supermarkets like Schwab, Fidelity, TD, and possibly Vanguard if doing this yourself.

I frankly don't pay any attention to the Morningstar stars, though as Julian mentioned they have changed their fund ranking system so it will be interesting to see how this system works as a predictor of future perfomance.

Low fees are a great starting point. As one who starts with an asset allocation plan (as do many of my advisor peers) I look for opportunities to implement that allocation with low cost index funds/ETFs where it makes sense. With an index fund cost and adherence to the underlying index are all that counts.

Beyond that when and where I use actively managed funds, expenses are still important. Not so much that the fund needs to be the cheapest in its peer group, but I find that most of the active funds that I use have competitive expenses. I've not found a fund manager who is good enough to consistently justify costs that are well above average.

I have to agree with the comments by Hilary, Rodney, and Jonathan. While I'm a huge Vanguard fan and use many of their funds and ETFs, Jonathan's comment about using one of their financial advisors is right on. While this might seem self-serving the fact is that there is turnover at the advisory units of any of the major fund houses and custodians. Unlike a financial advisor who works with a firm or who is in business for themselves, I would think it is harder to form that same bond with these folks no matter how client-oriented they are. At the end of the day they are salaried employees. As far as using a target date fund at your age I generally don't like TDFs for anyone over say 45. By that point in life and certainly at age 72 you should have a portfolio that is tailored to your goals, risk tolerance, etc. As for whether the 89 basis point fee is reasonable that's tough to say not knowing all of the details of your situation.

My personal/professional opinion is that it is best to avoid borrowing from your retirement plan unless you have exhausted all other options. On the other hand a fellow professional whose views I have great respect for absolutly disagrees with me on this.

The major pitfall involved with borrowing from your account is in the event you leave your employer prior to fully paying off the loan. In this case the loan could turn into a taxable distribution if it isn't paid off. This would subject you to taxes on this amount plus a 10% penalty if you are under 59 1/2 (there are a few exceptions to this penalty under very specific situations).

If the markets are going up, the money out on loan is not invested and your return would likely lag. When the markets are going down paying yourself interest might be a better deal.

I think the answers from Carolyn, Carol, and Neal are all excellent and provide some great tips. Let me take a different spin as the parent of one college grad (2010) and two current college students. Our experience has shown us a couple of things.

First private universities can actually be a better deal than a state school, especially if your child is good student with solid test scores. This has been our experience with both kids who have gone this route. This was verified by our experience with our other child who attends a state school.

Second financial aid packages from seemingly similar schools can vary widely. We were amazed at this with our oldest.

Tyler I agree that Bob's answer was excellent and depending upon the circumstances I would agree with him in many cases. Let me offer an alternative view, however. If your company's plan is decent or better I might suggest that you focus on contributing as much as you can afford to it. This assumes no debt issues as Bob mentions above. My rational is that contributing to a retirement plan automatically via payroll deferral is one of the easiest and most painless ways to accumulated retirement savings. If you work for a larger company the plan may well be low cost with a selection of index funds. Also perhaps your plan offers a Roth 401(k) option which would allow you to contribute more you could to a Roth IRA. Where I'm coming from is that many studies have shown that the biggest determinant in a successful retirement is the amount saved. Match or no match a 401(k) generally allows you to save the most money. Obviously this can't be looked at in a vacuum, but I generally advise most clients to max out their contributions to the extent feasible.

Eliana,

Here is an excerpt from an article entitled 5 Considerations for Investing in Target-Date Funds that I wrote for the US News Smarter Investor blog in March of 2011. It may provide some insights for you to consider.

The fund's glide path may or may not be important. Much has been made of whether the glide path (a leveling of the fund's allocation into retirement) should take investors to or through retirement. Through retirement assumes you will keep your money in the target-date fund into your retirement years. You may or you may not. For example, you might leave your current organization prior to retirement, in which case you might roll your retirement dollars into your new employer's plan. Or at retirement you might roll your 401(k) assets into an investment retirement account (IRA). In either case, you would be moving out of your current plan's target-date fund choice.

How does the allocation of the target-date fund fit with your other investments? Many 401(k) participants invest their retirement dollars in a vacuum—meaning they don't take investments outside of the plan into consideration when making their investment choices. This is a critical mistake. Given that target-date funds are funds of funds you might become over or under allocated in one or more areas and not know it as your account grows. Factoring the allocation into your overall portfolio is just as critical.

The fund closest to your projected retirement date may not be right for you. For example, a 2020 target-date fund is conceivably meant for someone who is 56 and retiring in nine years. If you were to take three 56-year-olds and look at their respective financial situations and tolerance for risk, it is likely that they are all fairly different. Plan providers need to do a better job of communicating to plan participants that the fund with the date closest to their projected retirement date may not be the right fund for their needs. Look at your own unique situation and pick the target-date fund that best fits your needs.

Understand the underlying expenses. In some cases, the overall expense ratio may be a weighted average of the underlying funds. Others may also tack on a management fee to cover the costs of managing the fund. As with any investment, understand what you are being charged and what you are getting for your money.

Target-date funds don't equate to low risk. Many participants are under the mistaken impression that investing in a target-date fund is a low risk proposition. As we saw in 2008, nothing could be further from the truth. Many investors in 2010 funds saw losses in excess of 20 percent. A recent review of more than 40 target-date funds showed the share of stocks in the funds ranged from about 25 percent to about 75 percent. As with any mutual fund, look under the hood and understand the level of risk that you will be assuming.

Here are some excerpts for another article that I wrote for US News in November of last year entitled True of False: Target-Date Funds Guarantee Retirement Succes?

The fund companies offering them would be the first to tell you (I hope) that there is nothing guaranteed about TDFs. There is a growing movement within the retirement plan space to add guaranteed-income products to TDFs, but that hardly means that TDFs guarantee success.

Why would so many plan participants harbor this mistaken belief? My guess is that this in part stems from a lack of education as to what these funds are and what they are not. If you are considering a TDF for all or part of your 401(k) account or as an investment in general, here are a few things to consider:

TDFs with the same target date may vary widely as to their asset allocation. There is no requirement that a TDF with a given target date have any particular allocation to equities, fixed income, etc. In fact, these allocations can vary widely among TDFs with the same target date.

The fund with the target date closest to your intended retirement might not be the best fund for your needs. As with any investment, you need to look at the fund’s investment allocation in light of your financial goals, risk tolerance, etc. You should also look at the fund as a part of your overall portfolio if you have investments outside of your retirement plan, such as IRAs, taxable accounts, a spouse’s retirement plan, and the like.

Many TDFs are funds of the mutual fund company’s funds. This is the case for Vanguard, Fidelity, and T. Rowe Price, which collectively have about 80 percent of the TDF assets. This is not good or bad, but you should take a look at the funds that make up the TDF that you are considering. In some cases, I’ve seen fund companies use funds other than what I consider to be their top funds; perhaps they are looking to add assets to these funds.

Most of all, remember that the biggest single determinant in retirement success is the amount saved. If you start early, save as much as you can, have a financial plan in place, make good investment choices, and seek professional help if you need it, the benefits will likely far outweigh the costs.

Lorraine, I'm not familiar with the benefits of either organization. However as a first step I suggest that you contact the Human Resources department of Quest to see what retirement benefits (from your question I'm assuming that you are asking about a potential pension benefit) you might be eligible for.

I think the comments by the others here are excellent and provide you with some good questions to ask of your provider. In the 401(k) world I would consider the 1% to be quite excessive for anything but the smallest of plans. I'm wondering if the 1% isn't going to fund some sort of annuity-based feature. I say this because this is not uncommon in the 403(b) world. I would also wonder about the details of the relationship between your advisor and the TPA. I don't say this to insinuate something negative, but if you don't fully understand all of the details here you should.

Ryan you have several excellent answers above to help. You need to consider the TDF's allocation and how this might fit with any outside investments you might have. I've written several articles on TDFs that might be of interest: http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2012/03/07/evaluating-your-target-date-fund-options and http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2011/11/09/true-or-false-target-date-funds-guarantee-retirement-success and http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2011/03/30/5-considerations-for-investing-in-target-date-funds