Investors know they should reach out to a financial professional for advice after receiving a financial windfall. Failure to make well-planned decisions can lead to losses. Learn from the mistakes of lottery winners as reported by guest contributor, Paula Miller.
The winners of the massive $587.5 million Powerball Lottery jackpot from November have been all over the news. In the days leading up to the Powerball numbers being selected, people all across the country dreamed of a financial windfall that would surely put them on financial easy street filled with mansions, maids and Mercedes for the rest of their lives.
Not so fast, warned an article on Fox News, while winning vast sums of money seems like a positive concept, the stories of lottery winners gone broke are heartbreakingly common. For example, the article noted, a two-time lottery winner in New Jersey spent all of her $5.4 million winnings, and a man from West Virginia blamed winning the lottery for his divorce, his granddaughter’s fatal drug overdose, a plethora of lawsuits and the loss of friends.
In addition to using reputable companies and identity theft protectors like Lifelock to help monitor private personal information, lottery winners should take several steps to be sure their massive winnings do not dwindle down to nothing in a few years.
As the Fox News article noted, the National Endowment for Financial Education strongly encourages those who receive a significant financial windfall—whether from winning the lottery, an inheritance, a divorce settlement or cashed-out stock options—to think ahead about their psychological needs just as carefully as their financial planning. The non-profit organization estimated that the vast majority of people who come into a large amount of money suddenly will lose it all within just a few years.
As Endowment spokesperson Paul Golden explained, people have to get their emotions in check before they start writing real checks for cars, boats and tropical vacations. For folks who have never had the feeling of financial security before, it can be a confusing and challenging time. A common myth, he said, is that people will never have to worry about money again.
Michael Terpstra, a Nebraska man who split a $365 million Powerball jackpot with seven coworkers in 2006, knows from experience that this is not true. He suffered from many panic-filled moments in the years following his big win.
Terpstra was so terrified of losing all of his money and having to work again that he hired accountants and lawyers to help him learn to manage his winnings. He now lives off the interest he earns from his investments. He bought a new house and truck, but is content to pass on giant yachts or other ultra-extravagant purchases.
While the two recent winners may be envisioning a trouble-free life from here on out, they may wish to heed the advice of Golden, Terpstra, and a group of financial experts who were recently interviewed for an article on Boston.com. As the financial planners noted, once the recent winners claim their money it should be deposited into a safe place—namely, a brokerage account invested in U.S. Treasurys, until definite financial decisions are in place. Since the goal should be to make the lottery windfall last for the rest of their lives, they should work with a team of financial and legal experts and set aside money for education, debt repayment, retirement, and other anticipated costs.