An extra $100,000 to play with should be fun, right? (That's why lottery tickets were invented.) It could seed a new business, make a substantial down payment on a beach house, go toward an extra year of easy retirement, pay for a month in Tuscany. But how you get the money turns out to be just as important as how much it is and what you do with it.
Our generation is part of what's expected to be the largest intergenerational wealth transfer in history. Of course, that money comes with emotional strings: The pleasure of an inheritance can be tempered by grief or guilt. Even if no one died, the thrill of a settlement or severance can be darkened by divorce or job loss. Although plenty of midlife women would know exactly what to do with a windfall, others are stymied. “What often happens is that the person who comes into the wealth is deathly afraid of changing what she's got, or she won't invest it in anything but money markets and CDs,” says Micah Porter, a financial planner in Atlanta. “And that won't give her the return she needs.”
More found three women soon after they got sudden windfalls and asked them to tell their stories. Whether by accident or design, all were doing the right thing: nothing. “You need to let the money sit while you consider your priorities and goals,” says Susan Bradley, certified financial planner and founder of the Sudden Money Institute. “Only make essential decisions, like how to pay the taxes.” We put them in touch with financial advisers to help them figure out what to do next—and they ended up with sound advice on dealing with large sums of money.
A job loss with a silver lining
Her windfall: $700,000
Where she got it: Severance package, stock options
Her goals: Start a business, continue to support her parents and help out with her grandchildren's college savings
Susan was a vice president of a major insurance company until about a year ago, when her division was sold. She left with roughly $200,000 in severance and $500,000 in stock options. “I've tried to look at this as a great opportunity to figure out what I want to do next,” she says. Susan decided she'd like to start her own financial planning business. “It's very scary,” she says. “I've been employed full-time since I was a teenager. I'm basically starting from scratch.”
She's not in any debt beyond her mortgage, and she has more than $1 million in retirement savings, but she has been spending freely. She fulfilled a lifetime ambition and rented an apartment in Manhattan for a year (in addition to maintaining her house in Atlanta), and she took trips to Jackson Hole and California. Now she has gone through all but $40,000 of her severance package, and her stock options begin expiring in March. In addition to her other expenses, Susan pays $400 a month for her elderly parents' health insurance and sends them roughly $5,000 beyond that each year, an expense she considers nonnegotiable.
* This name has been changed.
THE EXPERTS SAY…
Certified financial planner, president, Asset Planning Inc., Los Alamitos, California
Fund an IRA
Since Susan wasn't involved in a 401(k) plan this year, she could make a full $5,000 IRA contribution, and the tax deduction will help her come April.
Safeguard those stock options
Susan should set limit orders—orders to sell a certain number of shares when a stock's price reaches a specified number.
Don't forget an emergency fund—for her parents
They don't have a long-term care policy, and Susan is helping to support them now. Medicare offers very little toward in-home health care, and nursing homes can be expensive. As Susan runs through her stock options to support her new business, she should put money aside to cover a worst-case scenario.
Chartered financial analyst, president, Minerva Group, Atlanta, Georgia