Portfolio CHECK-UP

Name: Daniel Williams, MD

Residence: Florida

Age: 52

Family: Married; two children

Years in practice: 8

Type of practice: Hospital-based emergency room physician

Annual income: $225,000

Savings: No savings specified

Financial concern: Dr. Williams and his spouse, Susan, age 52, are bothcontributing the maximum allowed under current law into their 403(b) taxsheltered annuity programs offered by the hospitals where they work. Bothof them are aggressive savers, and both wish to save an additional $3000monthly over and above what they are already saving in these plans.However, they would like the vehicle into which they place the monies tooffer them creditor protection and tax-favored accumulation. They haverecently inquired about the merits of both variable annuities and variableuniversal life insurance contracts. Their question is which vehicle is moreadvantageous, as they both desire to retire around age 60.

The Finance Professor's Solution

Given their ages and the age that they wish to retire, variable life probablywould not be a viable alternative as they have only about 8 years untilretirement. Granted, there are certain unique benefits offered by variablelife contracts that are not afforded qualified retirement plans and annuities,but they require a 15- to 20-year time horizon to realize those benefits.Variable annuities would be more appropriate because of the time horizonrelative to retirement. Similar to 403(b) plans, monies grow tax-deferredand may not be withdrawn prior to age 59 1/2 without IRS penalties. But thisshould not pose a problem for the Williams. However, all monies depositedinto such vehicles are after-tax monies, and this basis in the annuity will notbe subject to taxes upon withdrawal. Gains will be taxed as ordinary income.Also, anyone purchasing an annuity should be aware of insurance expenses,which typically average around 1.25%; subaccount/fund expenses, whichaverage around 1%; and charges for early withdrawal or surrender of thecontract. Therefore, try to restrict your choices to what are known in theindustry as no-load annuities, which impose no annuity surrender penaltiesfor early withdrawal.

For more information, call Mr. Kosky at 800-953-5508or visit www.assetplanning.net.

Thomas R. Kosky and his partner, Harris L. Kerker, are principals of the AssetPlanning Group in Miami, Fla, specializing in investment, retirement, and estateplanning. Mr. Kosky teaches corporate finance in the Saturday Executive andHealth Care Executive MBA Programs at the University of Miami.