Now that we know a phenomenally lucky Southern California resident won the billion-dollar Powerball jackpot, what should this person do with his or her sudden mega-wealth?
The best advice: Do nothing. At least for a while.
There have been seemingly countless stories about lottery winners having their lives upended — and not for the better — by an influx of big bucks.
Some blow through their fortunes with unwise spending. Others find themselves fending off requests from friends and family for a piece of the action.
Many talk about how their lives took a turn for the worse by suddenly finding themselves among the one-percent crowd.
It’s so common, there’s a name for it: Sudden Wealth Syndrome.
The syndrome is characterized by simply being unprepared for riches, and behaving both irresponsibly and recklessly when dealing for the first time with piles of cash.
Some years back I interviewed the California psychologists who came up with the notion of Sudden Wealth Syndrome. They advised lottery winners to pause for breath after processing their good fortune.
Which is to say, make no drastic changes to your life until you’ve wrapped your head around your new circumstances. Also, speak with a professional wealth manager about next steps before you do anything.
Managing a fortune isn’t as easy as it might seem. There are tax implications and legal ramifications. Your personal life will change radically as everyone you ever met suddenly reaches out to rekindle old friendships.
If it were me, I’d consult with a money manager and park my millions somewhere relatively safe — stocks and bonds, say — for about a year as I acclimated to my new status.
After that, the game plan is fairly clear:
• Be hands-on with your finances. Make sure your money is being put to the best use in financial markets, and revisit your portfolio annually.
• Do your homework. If you don’t know the answer to a question, ask someone who does.
• Don’t take on more risk than you can handle.
• Plan for the future. That means saving a portion of your income.
As for the Powerball winner, he or she can take a lump-sum cash award or receive annuity payments for 30 years.
The California Lottery will withhold at least 24% to cover federal taxes.
There are no state or local tax withholdings on lottery money in California, but winners may still have to pay state and local personal income taxes. Generally speaking, you’ll fork over about 37% of your prize money to the tax man.
If this week’s Powerball winner takes the lump-sum option — and that’s the smart play — he or she will pocket nearly $352 million.
That’s a lot of money, especially for someone who’s never experienced that kind of fiscal adrenalin rush.
That’s why going slow is a prudent strategy.
Think of it like climbing Mt. Everest. The idea isn’t to blaze your way up the mountain. It’s to survive the journey.
