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Retirement on the edge

By Jennie L. Phipps · Bankrate.com
Monday, January 30, 2012
Posted: 5 pm ET

I heard a retirement planning horror story this morning, and I'll share it with you.

Because the law changed this year, making things simpler and more financially advantageous for employers, more companies with frozen defined benefit retirement plans are offering employees and former employees a lump-sum payout. If you decide to accept their offer -- you don't have to; they can't force you -- think hard about what you're going to do with this pot of money. Here's why.

I was talking with the maintenance man at the building where I'm living this winter. He does a great job, and I've been very appreciative. But I thought he was working much too hard, and I told him so.

He told me that he's 66 and working seven days a week because he needs the money to live on and to replenish his savings. The reason, he says, was the illness of his late wife. He was an engineer who took early retirement from a company where he had worked for 30 years. He received his pension in a lump sum. Neither he nor his wife were old enough to qualify for Medicare. After their eligibility for his company insurance ran out, they didn't buy private insurance. Instead, they went without, hoping to get by until Medicare kicked in. It was a bad bet. His wife became seriously ill. Before she died, they spent their entire nest egg on medical care.

Stories like that are scary -- and not all that uncommon. If you opt for a lump sum, get help investing it safely -- maybe put some of it in a private annuity -- and buy long-term care insurance to protect yourself from medical disasters that can wipe you out.

Don't let that pot of money slip away. Unless you win the lottery, it's probably all you're going to get.

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3 Comments
Ray
January 31, 2012 at 10:32 am

What a shame. Unless you are a multimillionaire whe can "self insure", never, never, never be without health insurance. Never!!! Deliver pizzas to pay for it, skip payments to creditors if you have to, but never be without it!

Glenn allen
January 31, 2012 at 7:30 am

The question I have is about my mother. She worked for and retired from civil service. After her husband died instead of her getting his ssi they stopped hers and only granted her 2/3 of his even though he had paid for over 40 years. The reason they gave is it is illegal to "double dip". There has to be a way to fix this. Please get in touch with me I have exhausted all avenues I know of.