For the average American structuring a retirement plan is as easy as walking into a human resource office and filling out a few forms. For an office-based physician, however, the human resource office and their own office are often one and the same. When a physician-owner sets out to create their own pension plan the most common dilemma they face is how to set up a plan without draining all of the financial resource inherent in supporting a plan for the entire office staff. For many physicians it's no secret that the "perfect plan" would include only the physician-owner without having to make contributions on behalf of the employees. Is it necessary to have to resort to such extremes in creating a solid retirement plan? Of course not. There are no secrets to designing the "perfect" pensionâ€”no such plan exists. However, there are some tips that can help to make your pension plan more attractive.
First Things First
The best place to start when creating your plan is to find the proper support. Hire an experienced pension administrator/actuary to assist in the design of your plan. It's especially crucial as you approach retirement age that you maximize the amount of money placed into such a plan as permitted by law.
Although frugalness is an admirable quality, don't choose an administrator merely because they are the least expensive. Oftentimes when an expert reviews plan contributions, it is observed that only a little money was allowed to go under the physician's name relative to all other eligible employees. This oversight is often the result of no actuarial studies being conducted.
Comparison shopping is also an important part of the process. Before committing to a system of plan management, compare the benefits of utilizing institutional money managers against retail mutual funds. The difference in management charges can be significantâ€”a 2% difference per year in some cases. Just imagine your retirement money compounding over a long time period with that additional savings realized.
Although the right management can lead to significant gains, it can also cost you. Don't take the word of a broker or financial advisor selling you the plan when they tell you that the fees being charged are always reasonable. Review the plan document and prospectus to determine if additional charges are being added. Pay particular attention to some of the insurance companies who extract fees by acting as nothing more than third-party record keepers for the plan. It is not unusual to find expenses of 2% in addition to management fees being charged. Over the long-term this can become very expensive.
Once the appropriateness of fees is sorted through, a qualified financial advisor should assist you in designing an investment portfolio tailored to meet your risk profile and anticipated retirement time horizon. Although it may be tempting, don't try to time the market or follow hot tips. Studies have shown that the success of a pension plan is due primarily to asset class diversification and selecting good money managers.
The best financial advisor in the world can't lead you to your retirement goals unless you discipline yourself and maximize your annual plan contributions. Not only are you taking advantage of the available tax benefits, but you also benefit from the creditor protection provided by qualified retirement plans.
That's the story, no cute gimmicks and nothing illegal. The success of a pension plan ultimately depends on surrounding yourself with competent professionals who are experienced in designing a plan that will maximize your contributions and returns. No, it's not a "perfect plan" but its design should make you feel comfortable that you are taking advantage of all the investment and legal strategies permitted under current law.
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. He welcomes questions or
comments at 800-953-5508, or visit www.assetplanning.net.
Thomas R. Kosky