Portfolio CHECK-UP

Name: Thomas Fynch, MD

Residence: Texas

Age: 61

Family: Married; 4 children

Years in practice: 30

Type of practice: Obstetrics and gynecology

Annual income: $350,000

Savings: $950,000 in 401(k) pension and profit sharing plan;$600,000 in annuities and life insurance policies

Financial concern: Dr. Fynch plans to retire in the next 5 to 7 years. Hishouse is paid off and his 8-year-old son's college tuition has already beenfunded. He has no debts and a relatively modest lifestyle. Currently, themonies in his 401(k) pension and profit sharing plan are allocated 75% toequities and 25% to fixed income. However, because of being very welldiversified over the past several years and having a disproportionateamount of equity allocated to small, mid, and large cap value stocks (withvery little technology exposure), his portfolio was well insulated from therecent stock market downturn. In other words, during the past 3 years, hepretty much broke even. However, at this juncture, Dr. Fynch would like toknow what is available that would allow him to generate a greater annualtax deduction than he is currently taking. He prefers a conservative strategy,so that he can shore up assets for retirement.

The Finance Professor's Solution

I recommended a 412(i) defined benefit plan, which Dr. Fynch is in theprocess of implementing. The total contribution to such a plan will be approximately$100,000 annually, of which nearly $90,000 will go into his andhis wife's name. The monies will all go into a fixed annuity contract, whichis guaranteed to yield no less than 3% annually on a tax-deferred basis. Thiswill generate for him and his practice a larger annual tax deduction and willallow him and his wife to save at least an additional $630,000 over the next7 years. Assuming an interest rate of 5% compounded annually over thenext 7 years, Dr. Fynch and his wife should accumulate approximately$770,000 for their retirement. For protection: A defined benefit plan is protectedfrom creditors.

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.