What to Do with Sudden Wealth
Have you ever given any consideration to what you might do if you suddenly received a large sum of money? It’s fun to think about, for sure. Lots of people imagine themselves quitting their jobs and traveling the world, lounging on a beach somewhere sipping a margarita or two. And that’s fine, as far as retirement fantasies go.
But when it happens in real life, it’s a whole different matter. Often times people who quickly acquire a significant amount of money wind up either more stressed out and anxious than they were before, or their money wasn’t as limitless as they thought and their newfound wealth quickly disappears, leading to even more stress and anxiety.
Psychologists actually have a clinical term for this phenomenon: it’s called “Sudden Wealth Syndrome.”
You don’t have to be a lottery winner to experience this. In fact, more often, it comes from people who inherit large sums of money and wind up either spending it all or losing it through poor investment choices.
Even someone who’s done a decent job of saving through their working life can wind up being blinded by an inheritance. A 55-year-old who has half a million dollars saved up and then suddenly finds themselves with, say, another half million dollars inherited from Mom and Dad can be tempted to throw out their previous financial plans, retire early, buy a boat, and sail off into the sunset.
They lose sight of the fact that they now need to fund an extra ten years’ worth of retirement, which makes their financial choices even more important with very little margin for error.
So what should you do if you’re in the potentially-enviable position of dealing with a large inheritance?
What You Can Do
First, do not make any hasty decisions about how you’ll spend or invest the extra money. Don’t make any promises to anyone, whether it’s financial or otherwise, until you know exactly what you have and how much you can afford to spend going forward.
Second, and I can’t emphasize this enough, talk to a financial advisor. While these words might sound obvious coming from a financial advisor like myself, I’ve seen enough examples over the years where an individual waited too long to seek professional guidance, and very little or nothing could be done to help them at that point.
A qualified advisor can help you identify what your specific goals are and give you an idea of how much money may be required to potentially reach those goals them. Even if your nest egg has recently doubled, or tripled, or grown far more than you may have expected from an inherited sum, you’ll still have the same challenge of making that money last throughout your entire lifetime. And again, this is especially true if you’re looking to retire much sooner than you’d originally planned to do.
And if you’re the parent of adult children who will one day be in this situation, I would urge you to join them in a meeting with an advisor so that each generation is clear about what they may expect to receive, and how they may best be able to handle it.
Working toward making your savings last as long as you do, and even beyond, is one of the key components of our Bucket Strategy here at Lucia Capital Group. Your portfolio withdrawal strategy is perhaps even more vital than a lifetime strategy of wealth-building, and our goal is to remove the financial stress and anxiety from your life and allow you to simply enjoy your retirement.
Advice and a strategy to help pass your wealth on to the next generation is something we do every single day at Lucia Capital Group. How can we help you the most? Let’s talk.
The information provided should not be considered specific tax, legal, or investment advice and is not specific to any individual’s personal circumstances.
Different types of investments and/or investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or investment strategy will be profitable for a client's or prospective client's portfolio, thus, investments may result in a loss of principal.
Accordingly, no client or prospective client should assume that the information presented serves as the receipt of, or a substitute for, personalized advice from Lucia Capital Group or from any other investment professional.
You should always seek counsel of the appropriate advisor prior to making any investment decision. All investments are subject to risk including the loss of principal. This material was gathered from sources believed to be reliable, however, its accuracy cannot be guaranteed.
Joseph P. Lucia is a registered representative with, and securities and advisory services offered through LPL Financial, a registered investment advisor and member FINRA/SIPC. The investment professionals are affiliated with LPL Financial and are conducting business using the name Lucia Capital Group, a separate entity from LPL Financial.