Help on loans, budgets, investments, more

By Jean Chatzky
TODAYShow.com contributor

Q: Should I pull out my money from my employer's 401(k) retirement account now? I want to retire in four years. I am over 59, and will put the money in a money market paying 5.53 percent at my credit union. — Phyllis, Calif.

A: If you don't need the money for daily living, then no, don't pull it out of your 401(k), where it is protected and can grow tax deferred. What I think you are saying is that you want to move the money to a safe place — there is a lot of confusion over this. People think that a 401(k) or an IRA is synonymous with stocks, but it's just the basket for your contributions — you can invest the money any way you like. At your age, you should only have about 40 percent of the money in stocks. The rest can be in safer places, and you can move it to the money market option within your 401(k).
Q: My son just graduated with his master's and now owes tens of thousands of dollars in government student loans. Should he consolidate these loans? If so, should he consolidate by loan type? Or should he just lump them all together? — Donna, Del.

A: Donna, whether your son should consolidate has to do with the type of loan that he actually has. Federal Stafford and PLUS loans borrowed before July 1, 2006, are variable rate, meaning that the interest rates reset each year. Loans borrowed after July 1, 2006, are fixed-rate. The interest rates on those don't change.

The benefit of consolidating federal loans is that you can lock in the interest rates on those variable rate loans, and right now, interest rates are very, very low. So if your son's loans are variable, he'll probably save some money by consolidating and locking in today's rates. Lumping them together also makes things a bit easier on the administrative front, because he can pay one bill each month and be done with it. Many lenders have ducked out of the federal loan consolidation market, so the best place to consolidate is the Federal Direct Loan Consolidation program at loanconsolidation.ed.gov. One thing to note: Private student loans can't be consolidated with federal loans.

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