If you've ever wondered why so many lottery winners (an estimated 70 percent) seem to blow through all their winnings so quickly, the answer often lies in two key traits: overconfidence and trusting the wrong people.1 The same holds true for many athletes, musicians, and movie stars—even a multi-million-dollar jackpot or contract isn’t likely to go far when you're purchasing multiple homes, luxury vehicles, and keeping a large staff of assistants on your payroll.
But even if your finances are far more modest than a lottery winners, there are some lessons to be learned from their mistakes. Below, we discuss three common situations in life when it's a good idea to consult a financial professional.
You've Just Received an Inheritance
Receiving an inheritance is similar to a lottery win in that the possibilities before you may seem endless—especially if your inheritance is a significant sum. But remember that there's no pressure to immediately allocate these funds. Jumping into action could limit your options in the future. There are some exceptions, such as if you're in dire financial straits and need to use part of the inheritance to preserve your home from foreclosure or avert bankruptcy. However, there may be no reason not to sit on the inheritance for a bit while you decide your next steps.
Consulting a financial professional may help you determine whether there are any tax consequences associated with your inheritance. It may provide you with some options—whether saving, investing, purchasing a new house, going on a once-in-a-lifetime trip, paying for your kids' college educations, or retiring early. Whatever you ultimately choose, there's no pressure to take action now. Spending inheritance funds while you're still grieving the death of a loved one may lead you to make choices you might otherwise avoid.
You're Preparing to Retire
Planning for retirement may be a complicated process, even if you feel you've saved enough to support your lifestyle for decades to come. A financial professional may help you dive into the nitty-gritty questions like:
- Which accounts should I draw from first?
- How do I limit my tax liability? (All retirement accounts aren't created equal when it comes to taxation.)
- When should I worry about required minimum distributions (RMDs)?
- When should I begin drawing Social Security benefits?
Because everyone's financial circumstances are different, there are few one-size-fits-all answers to the above questions. That’s why a financial professional may provide guidance targeted to your situation.
You're Getting Married (or Divorced)
Both marriage and divorce may have a major impact on your finances. Whether you're debating a prenuptial agreement or contemplating how to divide assets with a soon-to-be-ex-spouse, a financial professional may help you outline what each potential path may lead to.
For couples preparing to marry, a financial professional may help set up a household budget, make recommendations on saving for retirement or a new home purchase, or help outline an estate plan. For divorcing couples, a financial professional may also check to see if the assets are being adequately valued for a more equitable division in court.