As noted in Chapter Four (“Settlement Options”), you will be given the option to take your late spouse’s life insurance benefit in a lump sum or a variety of monthly distribution options. You may have a similar option with respect to your late spouse’s company retirement plan. Which option is right for you? The answer depends on your confidence in yourself and the confidence you have in the insurance company or your late spouse’s employer. You may also have the same decision in your company retirement plan.

The problem with the various non-lump-sum settlement options is that they are inflexible. Once you elect to take a monthly payment, you cannot adjust the amount or the timing of the distribution, and they are not adjusted for inflation. Non-lump-sum options also tend to end at your death, leaving no legacy for your children. Unless you have no children and/or no faith in your ability to manage money, you should elect to receive your spouse’s life insurance death benefit in a lump sum.

For these same reasons, and for the reasons discussed in the following chapter (Chapter Six: IRA and Retirement Distributions), you should also elect to take a lump sum distribution of your late spouse’s IRAs and retirement accounts and roll them into your own Individual Retirement Account (IRA).

Naturally, the election to take lump sums makes you responsible for your own future. You must exercise immediate control of the distributions and integrate them into your financial plan and investment portfolio. Without the security of a monthly check for the rest of your life, your long-term financial well-being rests squarely on your shoulders. However, you and your heirs will benefit from these decisions if you properly manage the distributions.

If your spouse was eligible to receive a traditional pension from his or her employer, call the benefits department of the company and determine the value of the benefit. Pension distributions, like IRA and other retirement distributions, are taxable to you when received. Although taxable, IRA and retirement account savings are there to be used in your retirement. Don’t be afraid to spend this money to make a better life for yourself while you can still enjoy it.

CHOOSING A FINANCIAL PLANNER

Choosing a financial advisor is one of the most important decisions after your spouse’s death. Choose someone with experience, someone with roots in your community, someone you trust and who will take the time to work with you. All financial advisors have to be compensated. Nonetheless, it is important that you understand how he or she is compensated so that you can judge whether their recommendations are motivated by their compensation.

Generally, financial advisors are compensated in one of three ways:

1. On a commission plan, the advisor earns money from the purchase or sale of investments. A commissioned advisor should be expected to monitor, adjust and review your portfolio on a regular basis. The temptation of unscrupulous commissioned planners is to “churn” accounts (i.e., unnecessarily buying and selling investments) in order to generate commissions. Be aware of activity in your account. You should only grant your commission-based advisor the power to transact in your account without your permission if you have a long- standing relationship, and the planner has proven his or her trustworthiness.
2. On a fee plan, you may be offered several options including a flat fee for the financial planning service, an hourly rate or a percentage of assets under management. The last option would motivate the planner to increase the value of your portfolio, which is also in your best interest.
3. Under a combination plan, the advisor charges a fee to develop a financial plan, and also receives a commission to help manage the recommended investments.

There is no right or wrong way to compensate a financial advisor. Whom you choose should not be dictated so much by how they are compensated but on the basis of their experience, track record and the services to be provided. Retain an advisor who will take the time to develop a financial plan that takes into consideration your spending habits, risk tolerance, and your life plan. Work with someone who will monitor your plan and make specific recommendations based on changes in the market and in your short-term and long-term financial needs.

Experience counts. Ask about specific professional experience, length of time in financial planning and with their current firm. Inquire whether the advisor has a college degree, and what licenses and designations they hold. For example, to obtain the “Certified Financial Planner” or “CFP” designation, the advisor must have passed a rigorous series of exams and must meet ongoing continuing education requirements. Although degrees and professional designations are no guarantee of planners’ future performance, at least you will know that they have dedicated time and effort to their craft.

Most firms require that client accounts remain with the firm when a advisor leaves or changes firms. You should know in advance how the transfer of your account would be handled in the event your advisor leaves his or her firm.

Inquire about the number of support staff available to administer your account while your advisor is away from the office.

Ask about the procedures for discontinuing the association. How will your sensitive documents be returned and how quickly will you receive them? Are you entitled to a refund of fees if you are dissatisfied?

CONCLUSION

You financial security is key to your future. It is area in which you literally cannot afford to procrastinate. Start by locating a competent financial advisor that you can trust. Work closely with him or her to develop a written financial plan.

Ask questions until you are satisfied that you fully understand your advisor’s recommendations. Continue to develop your money skills.

The fact that you have a financial advisor or advisors doesn’t absolve you from the ultimate responsibility of controlling your own financial destiny. Knowing where you stand and having a plan will lead to a fuller happier life. Good luck.