Mend the Wound in Your Retirement

Physician's Money Digest, June30 2003, Volume 10, Issue 12

The decimation of many physicians'retirementfunds over the past several years hasunderscored the need for steady growthand protection from market fluctuations.

However, steady growth isn't enough. The marketgives you hope of bigger growth, and if it wereto move upward, you would certainlywant to take advantage of it. But, youcan't afford to continue a free-fall in themarket or suffer through stagnation predictedfor the market by many "experts."

Actually, the bleeding can be stoppedand you can be given a guarantee of atleast a 6% annual return on your funds.Yes, you can still have your funds "in themarket,"and if the market goes up morethan 6%, you can cash in on the upsidemarket, but there is no longer a need torisk the floor dropping out from underyour retirement funds.


An innovative group of attorneys andaccountants, Golder Melick (888-468-4015), has brought together principalsof the annuities industry and the 401(k) industry tocreate a new choice. You may have been told to rollyour 401(k) into an IRA, so that you could use anannuity product with a guarantee, but you havenever been offered the option of using the guaranteewithin your 401(k) itself.

As an asset protection note, you don't want toroll your 401(k) into an IRA, because the 401(k)enjoys asset protection under federal law, and theIRA has only moderate protection under state laws.Additionally, your employer's 401(k) administratorhas told you that you cannot move your 401(k)funds unless you leave the employer. Therefore, thechallenge conquered by Golder Melick was toallow you to keep participating in your 401(k) plan,get the lawsuit and creditor protection of the401(k), and get the guaranteed returns and theother "goodies"offered by the annuities industry.

You may have a negative feeling toward annuities,and I share the same feeling,because I have been sold annuities thatwere dogs. But, there are a few (literallyonly 1 or 2) new annuities that are "nobrainers."I have just cashed in my dogannuities (what is left of them) andmoved them to the new annuities.

I took a hit, but the rule of thumb is:Knowing what you know today, wouldyou make the investment today? If theanswer is no, you need to look seriouslyat cutting your losses. There are obviouslyexceptions, but in my case theannuities I had weren't even doing wellwhen the stock market was soaring.

Combining your 401(k) with theproper annuity establishes a "floor"foryour 401(k) funds at the value of thefunds when they are combined with theannuity. A large highly rated insurance companywill guarantee that the value of those retirementfunds will not drop below the floor value. Ofcourse, the guarantee is only as good as the insurancecompany's claims-paying ability, but some ofthe companies are pretty secure.

Additionally, the floor will be evaluated eachyear on the annuity's anniversary date, and if themarket value of your funds has risen, a new higherfloor will be set at the market value of your fundson the anniversary date. Thereafter, the value ofyour funds cannot drop below the new higher floor.You can enjoy growth in the market and not beexposed to the risk of down markets.

While the annuity is in effect, your retirementfunds in it are guaranteed to grow at 6% per yearuntil you withdraw the funds from the plan. Thefunds can be invested in a wide choice of mutualfund families and individual funds, and if the marketgrowth is greater than the steady 6% growth,you can choose to recognize the market gainsinstead of receiving the 6% growth.


Basically, you are given 3 options, and you canmake your choice before your 81st birthday. Thatmeans you don't have to make the decision untilafter you have seen what the market does. If it doeswell, you can choose the higher of the current floorvalue of your funds, based on the latest annualevaluation, or the actual value of your funds in themarket on the day your decision is made. If themarket doesn't do well, you can choose the steadygrowth of 6% over the years. Therefore, youroptions are as follows:

  • You can accept the 6% growth;
  • You can accept the value of the latest floor set as the market value of your funds; or
  • You can accept the actual market value of your funds on the day your decision is made.

When funds are transferred into the annuitythere isn't any cost. In fact, a couple of the annuitycompanies will give you a bonus of about 4% of thetransferred funds. The bonus will apply anytimeyou add money to the account. Ongoing feesrequired to maintain the account are just a littlemore than the average fund is currently charging.

At no additional cost, you can retain the managementservices of Morningstar. They will placeyour funds in the highest rated funds, which fityour investment strategies.

Lee R. Phillips, an attorney

of the US

Supreme Court, has

taught more than 5000

classes to insurance,

accounting, legal, medical,

dental, and other

professionals, and has

written hundreds of

articles. He welcomes

questions or comments

at 800-806-1997 or