Portfolio CHECK-UP

Name: Harris Leeds, MD

Residence:Wisconsin

Age:36

Family: Married, 1 child age 7 and wife expecting second child

Years in practice: 5

Type of practice:Private practice in gastroenterology

Annual income: $250,000

Savings: $145,000 in a profit-sharing plan invested in mutual funds, and another $90,000 in miscellaneous equities and equity mutual funds.

Financial concern: Dr. Leeds wishes to retire beginning at age 56. Will he be able to? And if not, how much more will he have to save to achieve that goal? In addition, he would like to know what tax-sheltered investment might be appropriate since he is in a high tax bracket.

The Finance Professor

's Solution

For planning purposes, I have assumed that Dr. Leeds will be able to retire comfortably on half of his current income at retirement, or $125,000 annually adjusted for inflation at 3.5% during the planning time horizon. It is assumed that the planning horizon is 49 years. In other words, I have assumed that Dr. Leeds and/or his spouse will live until age 85. In addition, it is assumed that all monies earn a rate of return of 8% in a moderately aggressive investment strategy, net of all fees and expenses annually. It is further assumed that all monies will grow tax-deferred. With these assumptions, the following is an assessment of Dr. Leed's monetary situation:

Therefore, assuming Dr. Leeds is already contributing $40,000 annually on a pretax basis ($3333 monthly) to his pension and profit-sharing program, he will still have to save an additional $14,200 annually or approximately $1184 monthly to reach his retirement goal.

Once he has maximized the amount he may contribute annually to his pension and profit-sharing plan, he may want to consider a variable annuity that accumulates tax-deferred, and the company selected may offer quite a nice array of equity and fixed-income subaccounts. The key to selecting the proper annuity is the underlying subaccount choices, internal charges incurred annually, and ratings of the issuing company.

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

Thomas R. Koskyand his partner, Harris L. Kerker, are principals of the

Asset Planning Group in Miami, Fla, specializing in investment, retirement,

and estate planning. Mr. Kosky teaches corporate finance in the

Saturday Executive and Health Care Executive MBA Programs at the

University of Miami.