Here’s a sobering stat from the National Endowment for Financial Education: 70% of people who suddenly receive a large amount of money go through it all in just a few years. This is the reality, whether funds come from the sale of a business or real estate, stock picks, the lottery, an inheritance, or other windfalls.
Classic errors are over-estimating the amount of income that can be safely produced /withdrawn without depleting principal, too-high spending, wasteful purchases, giving too much to others, bad investment recommendations and aggressive risk-taking.
As I have explained many times, the best way to preserve savings is to see the capital as an annuity and design it for principal security and reinvested income. Anyone planning to withdraw more than 3% a year–30k from a million, 3k a year on $100,000–is being aggressive and most likely will deplete their principal too quickly in the process.
For more tips on using lump sums to gain lasting improvement to one’s financial health see Smart Ways to Handle an Inheritance.
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