What do I do with lump sum severance payment?

[Alaniz]

I may be severed and receive a lump sum payment of approximately $100,000 before taxes. I am married, 41 and have two children 4 and 5. I have 401K savings amounting to approximately $200,000. My only depbt is a $90,000 mortgage. What should I do witht the payment? Pay down my mortgage, start a college fund for my children, invest it, or do something different?

[khana]

I guess it depends on what your long term plans are regarding any future income. If you intend to return to work then your options are totally different to if you are effectively going to retire.

It always seemed a sensible idea to repay any debts if at all possible as i'm sure any investment income from your savings will be a lot less then the interest charged on your mortgage.

Your best bet would be to seek independent financial advice once you know what your objectives financially are. Keep in mind that most people when saving have short, medium and long term goals which will include provisions for your children and large future expenditure.

[WendyS]

I'm not a financial adviser so am not professionally qualified to offer advice. However, it's considered good practice to pay off your debts first if you have any spare cash so getting rid of your mortgage would seem a good idea, especially as interest rates on savings are currently very low (and certainly lower than mortgage interest rates) You will also have the satisfaction of knowing you are debt free if future plans don't quite turn out as you had anticipated which will help you sleep more easily at night..

If you don't know how long it will be before you find another job I wouldn't rush into making any other firm arrangements for your severance pay until you're gainfully employed again. It might take longer than you expect. Search around for a high interest savings account, even if you already have a comfortable sum saved.

Do you want to go back into paid employment or would you want to become self employed? If the latter, you will certainly need as much "safe money" as possible in the bank to back you up through the difficult early days.

Once your future is secured again then I'd look for other investment opportunities including putting some money away for your children' college, taking a long hard look at your future pension provision andstock market investment. Use the time between now and when a severance decision might be made to wise yourself up on the financial market, buying money investment magazines and reading the financial press so that when the time comes to make a decision about your money, you understand better what all the options (and the disadvantages of each option) might be. Good luck for the future.

[jean88]

I think you should pay off your mortgage first because the interest charged on the mortgage are high, you can never earn that amount of interest from savings accounts. Then you should looking at investing the rest of the money, maybe in property and rent it out but until then you need to put the money in a high interest savings account.