How to Successfully Invest Your Workers’ Comp Payout

by Holly Whitman
Suppose your workers’ comp payout has come through. After all the forms, filings and legal wrangling, you finally got a big check. You won the battle. Is it time to pop the champagne cork?
Before you get too crazy with the celebrations, you might want to carefully plot out your next move. Here are some suggestions for where that money could go.
Get Some Professional Help
The bigger your payout, the more you could benefit from professional help. You want to look for estate or financial planners who will be able to offer advice as to where you can place your money so it will do the most good for your financial future. Having a sudden windfall can help you sleep better at night, but there are consequences to all that cash you need to be aware of, starting with the taxes. A planner will be able to tell you how much to set aside for federal and state taxes.
The good news is that once you pay those taxes on the payout, you won’t be paying again unless you earn more money. Then you’ll just be taxed on what you earned. These are referred to as capital gains. Don’t make yourself crazy with the numbers. That’s why you want to hire professionals.
Slash Your Debt
Do you think of yourself as drowning in debt? Maybe that debt is just up to your knees. Still, it would be nice not to have that money owed hanging over your head. Remember, it’s not often the principle on a loan that’s the problem: It’s the interest rate. If you can shave down those amounts and clear the debt, than you can really focus on saving. It might mean deferring some of your payout away from investments, but you could still come out ahead with money in your wallet.
Set up a College Fund
If you have kids with college in their future, then your workers’ comp payout could be the best way to start a college fund. There are specific accounts you can tap into for this purpose. You can even tie some of that money to a money market account. This is a perfect example of long-term investing. If your child is 10 years away from college, putting that lump sum to work today can yield a nice return by the time they are ready for dorm life.
Put Your Money to Work
You could park your payout check in your savings account and just check in every day. However, that’s not going to earn you any substantial reward. Instead, you should consider putting your money to work in a diverse portfolio of stocks, mutual funds and other smart investments like commodities.
As with your overall financial planning, it will be a good move to find an experienced broker to handle your investments. You won’t have to follow the Dow Jones ticker every day, but you’ll certainly be able to track your account to see how it is growing. These types of money market accounts have several tiers with regard to risk. You can opt for conservative, moderate or high risk. Depending on the amount you have to invest, you might think about spreading the money across all three levels.
Look for Smart Business Opportunities
Your workers comp payout might not be enough to open your own McDonald’s franchise. However, it could allow you to invest in a business startup that can yield a positive revenue stream. Maybe that is a condo or home you can buy to rent out. Maybe there is a business in your neighborhood that is looking for a partner. These types of investments might be the most risky. That’s why you need to do a thorough research into the business and its prospects. You could even consider starting your own business with the money. Just do your homework.
Keep Working if You Can
A workers’ comp payout is often tied to an injury at work, but that doesn’t automatically take you out of the working arena. If you have the opportunity to bring in a paycheck, then you should take that. Just because you have the money to pay bills today doesn’t mean it is going to last forever. Think of your payout as the proverbial rainy day fund. You’ve got the extra cash to take off the stress, but the smart move is to keep earning and saving. Remember, you’re still building toward your retirement, and that is going to mean a serious amount of money set aside.
Finally, having that big payout could also mean having a little fun. Don’t splurge on a Jaguar, but if the family needs a new car, then use some of the money for a down payment. Plan a trip or reunion with some fellow veterans. At the very least, tuck into a fancy dinner at a restaurant you’ve been dying to try. After all, you earned this payout!

About Author:  Holly Whitman is a writer and journalist based in Washington DC. You can find more of her writing at Only Slightly Biased and on Twitter @hollykwhitman.