Portfolio CHECK-UP

Name: Kyle Richards, MD

Residence: Florida

Age: 41

Family: Married, no children

Years in practice: 12

Type of practice: Family practice

Annual income: $175,000

Savings: $222,000 in 401(k)

Financial concern: Dr. Richards had approximately $165,000 in his 401(k) in March 2000, and has made 3 annual contributions of $40,000 into the plan since that time. Currently, his account balance is only $222,000, which equates to a compounded 3-year annualized rate of return of approximately -15%.

When he did his projections 3 years ago for anticipated retirement at age 60, assuming an annualized net rate of return of 8%, he calculated that he would have approximately $3 million at retirement, which was his retirement goal. However, Dr. Richards is concerned that the recent 3-year decline in the stock market will have an impact on his retirement nest egg.

The Finance Professor's Solution

Assuming that Dr. Richards continues to average an 8% annualized net rate of return going forward, and assuming that he makes contributions of $40,000 annually on a tax-deferred basis, he will have approximately $2.6 million at age 60 instead of the anticipated $3 million. In other words, the past 3-year performance of the stock market has essentially set him back approximately $400,000 at retirement.

Therefore, assuming that he doesn't alter his long-term investment strategy and he obtains a tax-deferred 8% net rate of return on his investments, he is left with a couple of alternatives. He could do the following:

• Work another 2 years and retire at age 62 on $3.1 million, as originally anticipated. This 2-year retirement postponement will generate a projected annual income of approximately $211,000.

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

Thomas R. Kosky and 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.