Portfolio CHECK-UP

Name: Willard Turner, MD

Residence: California

Age: 54

Family: Married; no children

Years in practice: 22

Specialty: Internal medicine

Annual income: $220,000

Savings: No savings specified

Financial concern: Dr. Turner is currently maximizing his contributions tohis pension, as is his physician-spouse, Cathleen. They constantly worry aboutlawsuits because both of them are in private practice. They are aware thattheir primary residence, pensions, and the cash values of life insurance andannuities are protected from creditors. Since they have no children, they donot wish to utilize life insurance as a long-term savings vehicle, even though itmay offer some favorable tax advantages on income withdrawal in the future.Annuities, on the other hand, impose IRS penalties for withdrawals made priorto age 59 1/2, impose annuity surrender charges for early withdrawal, and haveinternal subaccount and insurance expenses. However, they seem to beinclined to purchase annuities, but want to minimize the costs of doing so.They would like to know what options are available to them.

The Finance Professor

's Solution

If the Turners are going to utilize annuities as the investment vehicle ofchoice, then they need to consider the strength of the insurance companythat issues them along with the mortality and insurance costs, subaccountchoices offered within the annuities, and annual operating expenses ofthose subaccounts. Generally, the most advantageous route is to purchase ano-load annuity, which imposes no annuity surrender charges, is 100% liquidif the monies are needed, offers indexed subaccounts as investmentoptions, and has lower insurance expenses. It is not uncommon for theannual insurance expenses to average 1.25% to 1.50%; however, there aremany annuity contracts with insurance expenses less than 1%. Also, indexedsubaccounts have annual internal expenses of less than 1% vs many subaccountsthat have annual operating expenses in the 1% to 2% range. Bydoing research, the Turners can reduce their total annual expenses of owningan annuity from the 2.25% to 3.5% to the 1% to 2% range.

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

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.

Thomas R. Kosky