Tips for an effective retirement strategy

Robert Rodriguez, CPA

By Robert Rodriguez


With a longer life expectancy for most of us, there’s a need for all of us to invest in retirement plans that will provide for an effective retirement lifestyle.

Sales and marketing professionals for many 401K funds vary in their approach and technique in explaining the performance and fees associated with their investment services. As someone who managed a $1.4 billion portfolio for a major company, I learned through the years what made for an effective way to generate more of a return for my more than 20,000 plan beneficiaries.

If you are someone who wants to get more “bang for their buck” on your retirement funds for your company or for yourself, here’s are some basic questions to ask your mutual fund marketing representative before making any significant investment.



What has been the performance record of the investment plan? An investment counselor should give a detailed report of the plan’s performance. This plan should detail the sources of its income such as bonds, stocks, real estate investment and other forms of income production. Here, a potential customer should ask about the diversification aspect of their plan as a focus on one industry or sector can sometimes lead to disastrous results.

How will my investment management team react to changes within the market? As the Wall Street Meltdown of 2008 and 2009 showed us, the investment market can see some tremendous shifts within a portfolio. When considering the investment of money with an investment firm, I would ask them about their research capability to spot and react to these drastic changes within the market place. I would ask them as well about their fund’s managements reaction to the 2009 swoon in stocks and market valuation.

Will I be given a specialized plan or the same plan as most other customers? Many investment firms provide one or two options to their customers. Some 401K customers want to allow their investment managers to fully manage the fund. Others may prefer a more proactive management role in their funds. Yet, a customized plan can generate higher returns as well as losses for those who want to assume some risks.

What are my tax liabilities? The IRS is very clear on the amount of money that a person can write off until they withdraw funds for retirement. Depending on a person’s age, they can withhold payment on taxes at the rate of $5000 until the age of 50 in a traditional Investment Retirement Account or IRA. After that age, they can add an additional $1000 per year for a total tax deferral of $6,000 per year. Better alternatives, especially for those who are self-employed are a Simplified Employee Pension Individual Retirement Plan (SEP-IRA) or possibly a small business 401K that can grow with the size of the company. Marketing representatives should truly understand the difference in the contribution levels available to those who are self-employed. Working with a CPA and an attorney, there are ways to take a larger tax deferred contribution through this program.

What are my plan’s investment fees? According to the Department of Labor, investments fees make up the largest component of managing a 401K. Depending on its contract specifications, a fund can withdraw fees based upon a percentage of assets investmented. Many people don’t realize that they pay for these services in an indirect charge because they are deducted directly from their investment returns. To me, full and concise disclosure on this cost from a representative on these matters is critical.

If a sales or customer service rep gives that classic “I’ll get back to you on this” that should indicate they don’t understand or don’t want to fully disclose these costs. As well, the Department of Labor, the agency which provides federal oversight of the 401K program, has given all fund administrators until 2012 to provide what they term “fuller” disclosure of these fees.

401K providers can charge for basic administrative services. Plan recordkeeping, accounting, legal and trustee services can be included within these costs. An investment service company can also include other additional services such as its telephone voice response systems, access to a customer service representative, educational seminars, retirement planning software, and even for investment advice. This may also include the costs for online access to plan information, daily valuation and other transaction services. A sales or customer service rep should fully explain these costs not only during the initial marketing presentation but should thoroughly answer them throughout the span of the contract.




An effective retirement strategy combines the recognition that the investor will have to pay for administrative services and for portfolio performance factors. Yet, in return, they should expect from their investment managers that they don’t over charge their cost for administrative management and meet reasonable performance goals.