Liz Weston: Should I choose a lump sum or monthly retirement income with health insurance?

Dear Liz: I need advice on choosing between a lump sum retirement benefit and a monthly payment until death (with a cost of living adjustment). The monthly payment option also includes health insurance benefits, but not the lump sum payment option.

Reply: It’s hard to imagine a better option than a guaranteed, inflation-adjusted lifetime income stream, especially if that option includes health insurance benefits for retirees, who are increasingly rare.

If you take the lump sum, you will be responsible for investing the money with no guarantee that you will get as much as if you had chosen the payment option. A bad deal or bad investments could drastically reduce your nest egg, as could fraud or reckless spending.

Even if you are a good investor now, there is no guarantee that you will stay that way. Our financial decision-making abilities tend to decline with age, although our confidence in those abilities often remains high – a truly frightening combination.

However, the devil is always in the details, so take the paperwork outlining these options to a fee-only fiduciary financial planner so you can get personalized advice based on your situation.

You can get referrals to Financial Trust Planners from the National Assn. of Personal Financial Advisors, the Alliance of Comprehensive Planners, the Garrett Planning Network and the XY Planning Network. The Garrett network represents advisors willing to bill by the hour; Advisors in the XY Planning Network offer the option of paying fees.

Make absolutely sure that you are dealing with a fiduciary financial planner – one who commits, in writing, to putting your best interests first.

Most advisors are held to a lower “suitability” standard that allows them to recommend investments and strategies that pay them more, rather than ones that might work best for you. An advisor held to this lower standard may encourage you to take the lump sum not because it is in your best interest, but because they can earn commissions by selling you various investments.

Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions can be directed to him at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.

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