Does wisdom come with age? That depends. Baby boomers often don't know what to do with windfalls of $50,000 or more, according to a recent survey of 33-to-51-year-olds. The reason? Boomers tend to lack an understanding of finances.
One common mistake boomers make is to act on a windfall too quickly and ignore their tax responsibilities in these situations. "Windfalls usually come with lots of emotion--divorce, layoff, retirement or the loss of a loved one," says Jane Ann Whitchurch of OppenheimerFunds Inc., the mutual fund company that conducted the survey. "Many people [try] to make themselves feel better by spending money on luxury items."
It's best to wait until you have your emotions under control and then consult a financial advisor. "In fact, talk to a financial advisor even before getting a windfall," says Whitchurch. And while the survey threshold was $50,000, Whitchurch says you should create an investment plan or consult an advisor even if you receive a lump sum as low as $2,000. Bottom line: Look before you leap--or what seems like an enormous cash resource could quickly dwindle away to nothing.
OppenheimerFunds Inc. publishes four brochures on handling windfalls; these brochures cover divorce settlements, severance packages, retirement payouts and inheritances. To order free copies, call (900) 525-7048.