Lessons on Managing Life-Changing Money from Lotto Winners and Successful Retirees
In 1988, William Post won $16.2 million in the Pennsylvania lottery.
A year later, he was $1 million in debt.
First, he splurged: houses, cars, a plane.
Then a former girlfriend sued him for a third of his winnings.
His brother was arrested and convicted for hiring a hitman to kill Post and his then-wife in hopes that he'd inherit a share.
And after sinking money into a failing family business, Post spent time in jail for firing a gun over the head of a bill collector.
In the end, Post said he was happier living quietly on $450 a month and food stamps than he was when he was rich.
Post's story is an extreme example of the bad decisions and bad luck that leave so many lotto winners wishing they'd never won at all. But while you're more likely to be struck by lightning than hit the winning numbers, an inheritance, a promotion, a legal settlement, selling a business, and reaching retirement can all create significant windfall scenarios as well.
On today's show, we offer some tips on how to manage life-changing money, including tax planning, dealing with friends and family, and the kind of team that can help you protect your assets.
1. Press "pause."
There are often long stretches of our lives that feel routine, stable, and predictable.
Then we hit a major life transition, and it feels like everything has changed all at once.
From a financial planning perspective, whether you're navigating the birth of a child or preparing for retirement, it's important to resist the urge to "catch up" to those changes all at once.
We often advise folks on the other side of a major life change to take a pause -- a month, a year, or maybe more if there's no immediate emergency. In the event of a windfall, that would mean tabling that new car or home purchase for a bit. If the money is truly life-changing, maybe you don't quit your job on Monday morning.
Instead, you might devote more of your daily routine to reflection, meditation, or journaling. You and your spouse might make time for some important conversations about what's really important to you, and how this windfall could help you achieve those goals.
Much of that conversation will be happy, hopeful, and aspirational. But you might also think about money mistakes that you've made in the past and how to avoid them now that the numbers are much bigger.
Again, while winning the lottery is an extreme example, in the rush of retirement, far too many seniors treat multi-million-dollar nest eggs like jackpots as well. Taking that pause could be the difference between never having to work again and facing really tough money choices in your 70s, 80s, and beyond.
2. Protect your money and yourself.
Another benefit of waiting a beat before cashing in a windfall is that you might be able to minimize the spotlight that the money could put on you.
Kansas and Missouri are among the 19 states that allow lottery winners to claim their prizes anonymously. Other windfall scenarios, like an inheritance, might not draw any attention ... unless there's a brand-new fishing boat or exotic car in your driveway the next day.
The fewer people who know about your windfall, the fewer people will be coming out of the woodwork asking for help, pitching business ideas, or trying to scam or sue you.
Avoiding obvious, extravagant purchases can also keep your circle of trust small. The idea of "living within your means" might sound quaint when your financial situation dramatically changes. But remember all those failed lotto winners who thought they were doing just that when they bought yachts and mansions. There have also been many stories of professional athletes -- folks who often earn what we would consider "life-changing" money every single year -- who spend too much too fast and end up in debt.
Perhaps the most difficult place to put up some financial guardrails is around kids, grandkids, and extended family. If you are inclined to help your loved ones financially, you still have to be realistic. No matter how big your nest egg or new salary is, you probably can't say “Yes” to everyone without jeopardizing your own long-term financial security. And when it comes to kids who are struggling to "adult" or family members with chronic money management problems, sometimes writing another check only makes the underlying problems worse.
Remember: you and your spouse are under no obligation to share any details of your financial plan with your friends and family. If you can keep your name out of the headlines, your money is your business. When the time is right, you can share as much as you think is necessary with the people you're trusting to settle your estate and preserve your legacy.
3. Assemble your team.
Hopefully, calling up your fiduciary financial advisor is at the top of your to-do list any time your life and your money intersect.
A windfall is going to attract folks who are more concerned with themselves than they are with you. But fiduciary advisors, like my team at Keen Wealth, are required by law to put your best interests first. It’s our job to help you live your best life now while also safeguarding your financial future. That covers everything from relocating to your dream retirement destination to playing “the bad guy” when we’re facilitating tough conversations with family members or others who keep asking for more.
We can also help you find and coordinate the professionals you’ll need to navigate a major change to your fortunes, including:
A CPA or another tax professional who can work with your advisor on analyzing tax ramifications.
An attorney who can help you create or update your estate plan and other entities, like a family trust.
A "board of directors" who can act as initial gatekeepers and advisors if you're thinking about helping friends or family, making an investment, or creating a sustainable charitable mission.
Realistically, you’re probably not going to win the lottery.
But you are, hopefully, going to be able to retire which is your way of creating your own financial independence! And that transition is going to change more than just your finances.
Come visit Keen Wealth and let’s plan for what we know is coming so that you’re prepared for whatever surprises may be headed your way in retirement.
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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