Everybody knows the story of Jed Clampett. Poor mountaineer, barely kept his family fed. But then he struck oil in his backyard in the Ozarks, became an overnight millionaire and moved to Beverly Hills.
Obviously, in Uncle Jed’s case, he didn’t quite know how to handle those riches. He ended up with a nice mansion and a cement pond in the backyard, but he struggled to navigate the puzzling social morays of Beverly Hills. Neighbors always seemed annoyed when he pulled out his shotgun to eliminate any vermin who might be patrolling the neighborhood.
While I haven’t encountered any sitcom-worthy situations like this, I’ve often seen lump sums of money lead to uncomfortable situations when people aren’t getting the proper guidance.
It could be an inheritance that you didn’t necessarily anticipate. Maybe you’re expecting to get something from your parents (like maybe the house and whatever happens to be in the checking account). But then you’re completely taken by surprise when you find out there’s also a $450,000 IRA and a $100,000 life insurance payout that’s now headed your way.
For other people, it’s a pension buyout. Maybe you’ve never done a great job of saving over the years, knowing that you’d have a sizeable pension to help carry you through retirement. But then one day you find out that instead of $2500/month for the rest of your life, you’ll instead be getting a $385,000 lump sum buyout, which you now have to figure out how to invest in such a way that it makes up for the fact that you no longer have that pension check hitting the bank account every month.
Or maybe you actually did strike oil in the backyard. I guess that could happen.
Whatever the case may be, anytime you end up with a lump sum (expected or unexpected), you need to be sure you’re getting proper guidance. Here’s one example of a time when I saw someone get bad advice:
A BCBSNC employee was given the option of keeping her pension or receiving a pension buyout. She could retire at 62 and have a monthly pension income of just over $3,000/month, or she could take a lump sum of $550,000.
She ended up talking to an “advisor” whose only real interest was selling her an annuity, so he convinced her to take the lump sum (a decision she had to make on a short deadline) while he went to look for an annuity that would give her a lifetime income that would “blow away” her pension. So she makes the irreversible decision of electing the lump sum. Now the annuity salesman tells her that there’s actually not an annuity that will take her lump sum and give her an income that’s bigger than what her pension would have been. But if she’ll just plop the $550,000 into the annuity and wait for six years, well then it will give her an income that will blow away her pension.
Of course, she wasn’t happy with this option and ended up in my office looking for a better solution. We found a better solution than what he was offering (which did involve an annuity, but only used about $175,000 of that $550,000…with the rest of the money invested in the market). But the fact of the matter is that she would have ultimately been better off to have just taken the pension. Unfortunately, it was too late to make that decision by the time she made it to my office, so we just had to make the best of the situation at that point.
So a lump sum is nothing to be scared of, but if you make a few wrong turns, you could easily end up as a hillbilly in a fancy neighborhood trying to figure out why you don’t fit in. (Metaphorically, of course).
While we’re on the subject, here’s some Uncle Jed trivia. Most people know that Buddy Ebsen was originally supposed to play the Tin Man in the Wizard of Oz, but he had an allergic reaction to the aluminum dust from the costume and ended up in the hospital. Jack Haley came in and took over the role, and he’s the one we know as the Tin Man today.
However, most people aren’t aware that Buddy Ebsen still contributed to the film. They’d already filmed some scenes with him as the Tin Man, and while they had to reshoot all of those scenes with Jack Haley, they didn’t want to scrap the soundtrack. So when you hear Dorothy, the Scarecrow and the Tin Man harmonizing in “We’re Off to See the Wizard,” that’s actually Uncle Jed’s voice as the Tin Man.
This has very little to do with your retirement planning, but interesting nonetheless.
There are plenty of other TV characters from years past that can teach us some retirement planning lessons—Gilligan, Fred Mertz, Mr. Spock…even real people like Walter Cronkite.
But that’s another project for another day. So y’all come back now, ya hear?