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

Because the law changed this year, making it simpler and more financially advantageous, 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.

See more here:
Retirement on the edge