I don’t know about you, but right now, every evening, I find myself riveted to the screen, breathlessly taking in action in synchronized diving, archery, water polo, and even rhythmic gymnastics! This can only mean one thing (because I would never otherwise watch any of these sports) – it must be time for the Summer Olympics!
Every four years, the world gathers for this ultimate showcase of athletic talent, and almost without fail, each Olympics produces a singular performance from an individual who wins at least one gold medal and becomes a superstar practically overnight. For these lucky few (I’m thinking of people like Mary Lou Retton and Michael Phelps), an Olympic gold medal truly does change their life.
They come home to millions in endorsement deals and other sources of income. Their gold medal basically becomes a winning lottery ticket, and they’re not the only ones. Most countries actually hand out bonuses for Olympic triumphs. American competitors who bring home the gold will also bring home $25,000 in cash for each first place finish. While that’s certainly nothing to sneeze at, Vladimir Putin is a little more generous, dishing out roughly $61,000 for each Russian gold medal.
However, according to Forbes, the real big money comes from a few countries that are a bit more starved for Olympic glory. Azerbaijan is handing out $255,000 for each Olympic gold. Indonesia will shell out $383,000. And the gold medal for gold medal payments goes to Singapore, which will make its athletes $753,000 richer for striding to the top of the medal stand to the strains of Majulah Singapura – the Singaporean National Anthem.
Both the American Olympic-made superstars, and any Singaporean or Indonesian who wins gold, will return home to a world filled with very different financial realities than the one they left on their way to Rio. The same can be said for everyday folks who come into a financial windfall. Whether the money comes from winning the lottery, winning or settling a lawsuit, an inheritance, or an investment paying off in a huge way, there are several important steps you should take to make sure you are able to keep (and perhaps even grow) what has come your way.Put Together
- Your Own Financial “Dream Team”. This is especially important if you’re unaccustomed to dealing with large sums of money. You will be well-served to bring on board an experienced and honest financial planner/advisor, as well as a CPA, an attorney, and an insurance professional to help you deal with the tax and legal issues that will (not may) come up.
- Take Your Time. Be wary of those who will almost certainly come out of the woodwork with investment opportunities that are a “can’t miss” but that require you to “strike while the iron is hot.” Your windfall should afford you the time to sit down with your advisors and family members about what your priorities are for the money. Is paying off your mortgage the most important thing? Maybe it’s paying for your children’s college education. These are decisions that need to be made before making any particular investments.
- Review and (If Necessary) Revise Your Estate Plan. That will you had drawn up when you first got married and had no kids may be woefully inadequate (not to mention inaccurate) now that you have children and have experienced a financial windfall. The extra assets may significantly increase the complexity of your estate. If it’s large enough, the windfall may also put you in a situation where you need to start thinking about, and planning to negate, the effects of estate taxes. If you are in this situation, please go talk to your estate planning attorney (or hire one) as soon as possible.
- Think Twice Before You Quit Your Day Job. You may be tempted to quit your job, but quitting may actually be a really bad idea. What if your tax burden is higher than you anticipated? In addition to the obvious loss of wages, you might also miss many of the workplace benefits, such as tax-advantaged retirement accounts, health insurance, or even the sense of purpose and well-being that comes from going to work. If you do quit your day job, think about replacing it with something entrepreneurial in nature. Being self-employed can give you that sense of purpose, and can provide you ways (such as a Solo 401k) to continue to receive benefits similar to those of being someone else’s employee.
- Don’t Forget About Taxes. It is vitally important to ascertain as quickly as possible what the net after-tax value of your windfall will be, keeping in mind that you will need to keep enough cash on hand to actually pay those taxes. In making this determination, you’ll likely need to take into account income, gift, and estate taxes, on both the federal and state levels. There are also legitimate strategies that may help you put a dent in your tax bill. However, be very cautious of anyone who says they have a strategy to eliminate taxes completely – especially if that strategy involves going off-shore. A good CPA will help you make sure you are paying Uncle Sam everything he is owed, and not a penny more, without the risk of going to jail.
If fortune smiles upon you and a financial windfall comes your way (whether by inheritance or by winning a gold medal for Singapore), please take the necessary steps to avoid losing it, and to avoid losing things that are even more important – like your family and friends. It seems crazy, but statistics show that 44% of lottery winners are broke within five years of winning their jackpot. Studies also show that lottery winners frequently become estranged from family and friends, and incur a greater incidence of depression, drug and alcohol abuse, divorce, and suicide than the average American. While not a guarantee of anything, taking the steps laid out above can help you avoid becoming a part of those sad statistics.