Getting an inheritance or winning the lottery can create serious emotional and financial challenges
Ted’s thoughts:
When the Powerball Lottery gets to an absurd amount my wife and I always buy tickets. I say to her that I really do not want to win because it’s well known that many winners’ lives have been ruined by the impact of their sudden massive wealth. I’m kind of kidding when I say this, but kind of not, as well. Not all sudden wealth is the same. Some wealth has a nice impact on your financial picture, but a large amount can really throw you off if you are not well prepared.
As a financial advisor, I have many conversations with clients on what they want to do with a large inflow of cash – many times from inheritance, sometimes from divorce, or the sale of a business. I work with many CPAs and attorneys so when these circumstances come up, we can discuss an integrated plan with my team and these specialized professionals. We set a strategy for taxes, investments, and legal considerations that all work together. Many times these are once-in-a-lifetime occurrences, and you don’t want to breeze over your choices. We lay out a plan and your various options so you can fully understand the decisions you have to make.
Money, for all the opportunities it affords, can be a major source of stress and anxiety if you’re not used to having it.
Coming into sudden wealth, whether via inheritance, a career windfall or luck in the lottery, can create serious emotional and financial challenges for people who have not had a lot of money in their lives.
“Will you continue to work? Buy a new home; private school for the kids?” said Barry Glassman, a certified financial planner and founder and president of Glassman Wealth Services, in Vienna, Virginia. “Sudden wealth offers greater choices, but it can cause a lot of problems and anxiety because of the sheer number of decisions to make.”
Consider professional athletes. Research by the National Bureau of Economic Research in 2015 found that 15.7% of NFL players had filed for bankruptcy within 12 years of retirement, despite many of them making millions of dollars in their careers. A staggering 78% of retired football players were in serious financial distress just two years after leaving the game, according to Sports Illustrated. The statistics were only slightly better for pro basketball players.
Young athletes who become millionaires overnight aren’t the only ones to struggle with good fortune. People who receive large sums of money very often experience hardships in managing it well. So, what should you do if you’re the beneficiary of a windfall?
“Don’t do anything for a good year,” said Sheryl Garrett, a CFP and founder of the Garrett Planning Network in Eureka Springs, Arkansas. “Don’t call a financial advisor and don’t tell people details about it, with the exception of talking to a good tax attorney.”
Glassman has the same advice. “Don’t buy anything, don’t make any investments and don’t pay down debts,” he said. “You can make those decisions in a few month.