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How Do I Allocate My Workplace Retirement Plan?

By Karen DeRose, CFP®, CRPC® & Anthony DeRose, JD*, MBA, CPA*, CBEC®

The retirement account is an age old American symbol of hard work and effort. For many Americans, their chief retirement savings vehicle is their qualified account and their qualified account alone. Unfortunately, there is not an abundance of guidance from their employer as to the best way to allocate their occupational qualified account.

This article hopes to provide some direction as to how to allocate your work qualified account, and also offer some high level advice on the types of investments you should seek out and avoid.

Rule of Thumb?

The old age rule of thumb demonstrated a way to determine the proper allocation. You would typically subtract your age from 100 to come up with the percentage of your portfolio that you should keep in stocks. For example, if you're 35, you should keep 65% of your portfolio in stocks. If you're 68, you should keep 32% of your portfolio in stocks, and so on.

However, with Americans longevity increasing by the minute, this has caused us to revisit this rule of thumb. It now makes sense to increase the starting point to 120 if you are more aggressively inclined, and 110 if conservative. This is due to the fact that you need to make your money last longer, and thus need the extra growth that stocks can provide.

There are also a host of calculators available to those who want a less crude allocation. My favorite calculator available on the net is Bankrate’s calculator – it balances some semblance of sophistication while enabling you to quickly create an allocation. To visit this calculator, go to

How Do I Invest?

Fantastic! You have your qualified account, you know your allocation. How do you invest?

You have a couple of options for making this determination – you can consider target date funds, or you can consider investing on your own by picking your own mutual funds.

If you go the target date fund route, there are a few factors you should consider. First, you need to understand what a target date fund is. Target-date funds are composed of several funds representing different investment styles or asset classes. As their name suggests, they have a target date, such as 2020 or 2040, for retirement. The investment firms running these funds make the asset allocation decisions on behalf of investors based on the target date. Over time, these funds will become more conservative over time as one approaches retirement. Thus, the primary benefit these funds offer is simplicity – the investment firm makes the allocation determination for you, and even invests for you (thus you even get to skip the first page of this article!). However, the main drawback is also apparent; this is a “one size fits all” solution, and does not take into account your current situation, risk tolerance, other assets and retirement needs.

You also have the ability to choose from a list of funds on the qualified account menu. There are typically a diverse range of mutual funds across many differing types of investments. Naturally, the main drawback of this type of investment is the need for you to determine which mutual fund is right for you, and also forces you to rebalance your account over time. However, the flip side is that you have the freedom to arrange your investment any way you would like, that would take into account your personal situation. 

If you decide to go this route, here are a few variables you may want to consider in selecting mutual funds:

  • Better-than-average returns: A fund, if it's worth your while, should have performed in the top half, and ideally the top 25%, of its peer group over a three-, five-, and 10-year time span.
  • Low price: A fund's expense ratio -- what you are charged annually and what will lower your overall return -- should not exceed the average among the fund's peers.
  • Solid management: If you're opting for an actively managed fund (as opposed to an index fund), the manager should have a solid track record of experience.
  • Reasonable size: Sometimes when a fund becomes too popular, its asset base -- the dollars invested in the fund -- gets bloated. That means the manager can't move in and out of a stock too quickly without moving the market.

If you are confused the best way to go, we are here to help. Feel free to reach out to us with any questions you may have.

Karen DeRose and Anthony DeRose are registered representatives of Lincoln Financial Advisors.

Securities and advisory services offered through Lincoln Financial Advisors Corp., a broker/dealer (Member SIPC) and registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. DeRose Financial Planning Group is not an affiliate of Lincoln Financial Advisors.