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It’s the get-rich-quick dream shared by millions of people nationwide: to strike it big by winning the lottery. For Chicago resident Sterling Plumpp, that dream came true five years ago.
Plumpp won a cool $1 million from a $10 instant lottery pick in August 2001. After Uncle Sam grabbed his share — some $400,000 in taxes — he netted a hefty lump sum of $600,000. “You can’t believe the phenomenal rush you get when you win the lottery,” says Plumpp, who had been teaching at a university for nearly 30 years and already qualified for a pension.
Despite his winnings, Plumpp still works. He didn’t go into a mad shopping frenzy. And he managed to keep his most prized family relationships intact. In the five years since hitting the jackpot, he has continued to live a modest life. That’s not to say Plumpp hasn’t enjoyed his money; he has — just with moderation.
“I bought a new wardrobe. I needed expensive dental work, so I took care of that. And I did buy a new car, a 2001 Mazda 626, because I previously owned a 1976 Cadillac Sedan Deville. It was coming apart,” he says with a chuckle.
Plumpp’s experience as a lottery winner is atypical — very, very few lottery players win big. But he’s far from being alone in having to manage sudden wealth. Americans are increasingly dealing with financial windfalls of all types. More commonly, they are widows or beneficiaries who inherit money or receive life insurance proceeds, recipients of divorce or lawsuit settlements, retirees who get a lump sum payout from their jobs, or entrepreneurs who sell their businesses.
Although most people think they would love to come into an enormous pile of cash, experts say that amassing sudden wealth is fraught with financial and emotional pitfalls.
“One of the most common misconceptions about sudden wealth is that it categorically eliminates stress,” says Harold Hadnott, an associate with Merrill Lynch’s Private Banking and Investment Group in San Francisco. In reality, “a financial windfall — whether a substantial unexpected inheritance, insurance settlement, or a stock option cash out — can cause great anxiety for those who lack effective planning techniques,” he says.
One reason for this anxiety is that recipients of instant fortunes must now deal with a host of new and complex issues, such as asset management, tax strategies, estate planning, and philanthropy.
Plumpp made his winnings easier to deal with by getting financial help. “I went to a lawyer first thing after I won, set up a trust and a living will and a way of investing the money,” says Plumpp, who now meets with his lawyer four times a year.
Although Plumpp says he didn’t know much about Wall Street, the lawyer he selected is a proficient stock picker and works as Plumpp’s financial adviser as well. “In the five years since I’ve invested in the market, my portfolio is up more than $100,000,” he says, adding, “I still have about 80% of the money I won, and I think I’ll have it when I die.”
Plumpp gradually invested