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Think hard before you start spending a lottery win or inheritance: BMO

If you ask Canadians about their financial goals, you’ll get a sensible answer – most want to “achieve lifestyle goals in retirement.”

But a recent survey by BMO Wealth Management, released via Yahoo! Finance, suggests common-sense goals may got out the window if people get a “sudden windfall.”

Pre-windfall, which BMO defines as “winning the lottery,” or getting an inheritance, legal settlement or insurance payout, Canadians seem to have reasonable goals. The “lifestyle in retirement” goal was shared by 55 per cent of those surveyed. A further 49 per cent had the goal of increasing their wealth, followed by “protecting current wealth (40 per cent), managing taxes in retirement (27 per cent),” and “helping grandchildren (20 per cent),” the study notes.

Post-windfall, it’s a totally different story. Sixty-four per cent of those surveyed would “share, with family, friends and charity.” An equal percentage would “pay off all debts.” Forty-seven per cent say they would “invest in the stock market, a business, or a property.” Other choices were “buy the big ticket items I always wanted (17 per cent),” and “splurge and spend freely (10 per cent).”

Only 38 per cent of those surveyed said they would carry on with the same pre-windfall goals.

You’re probably thinking hey, who wouldn’t go a little bit nuts if they won millions, and it is hard to disagree with that thought. However, BMO says that this sudden change of thinking – tossing sensible plans out the window – is worrisome given the fact that “approximately $1 trillion in personal wealth will be transferred from one generation to the next by 2026.”

“While the significant investment opportunities can be exciting, be cautious of psychological issues associated with sudden wealth syndrome,” states Chris Buttigieg , Director, Wealth Institute, BMO Wealth Management in the release. “It is important to seek expert advice to discuss how a windfall will alter your financial goals and which causes matter most to you and your loved ones.”

The advice from BMO is to take your time if you’re in the lucky position of receiving an unexpected financial windfall. “Remain calm… think about how a windfall will affect your financial goals,” BMO advises. They also recommend developing a wealth plan so that the goals you establish can be met. As well, they say it’s wise to get rid of high-interest debt as quickly as possible.

A good retirement plan can be improved dramatically through the addition of newfound wealth. If you have unused RRSP room like millions of other Canadians, a good strategy would be to fill that room. The Saskatchewan Pension Plan provides a great place to save some of that unexpected cash for the many happy days of retirement that lie ahead.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22