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Why millionaires need a plan

By Stuart Ritchie – August 25, 2020

The first time we helped lottery winners was back in 2014.

They’d originally won £13 million.

They felt like they could do pretty much anything.

No worries for the rest of their days.

But like many of the senior professionals we help all over the world.

They were lacking one important thing.

Before I helped these clients, I remember reading about Colin and Chris Weir from Scotland.

They were Europe’s biggest lottery winners in July 2011.

The husband and wife were catapulted into the Sunday Times Rich List above Beatle Ringo Starr and Sir Tom Jones with their £161 million win.

Their dreams had come true.

I also read however, that for lottery winners, statistics show 70% end up broke.

A third go on to declare bankruptcy.

And for many, money doesn’t always equal a care-free life.

(Many famous faces have also taught us this).

Our lottery winners were aged 52 and 57 at the time of their win.

A labourer and bank cashier, living in a modest three-bedroom terraced house.

Their joint income was £45,000.

Having cashed in their ticket.

Their net-worth now resembled many of the successful international professionals we help every day.

But by the time they sought financial advice, they had £8 million left.

£5 million spent.

On a dream home abroad, two new top of the range BMW’s.

Plus six more properties for family and friends.

Even though they were living their dream life overseas.

They were becoming worried, frustrated and anxious.

Like so many who feel uncertain about achieving their ideal future.

They didn’t have a plan.

And without a plan, millions can become thousands in no time.

Nothing lasts forever

Since The National Lottery started in 1994, over 5,000 millionaires have been created in the UK.

But how long do they remain so?

Several winners who have scooped millions of pounds have ended up spending it all with little or nothing to show for it.

When Pete Kyle won a £5.1 million jackpot in 2005, he said it was “like a dream”.

Stunned, the retired Royal Artillery gunner vowed the money was “going to change” his family’s life.

And for a while, it did.

He took his relatives on lavish holidays, bought cars and boats and swapped his home for a luxury five-bedroom mansion boasting a steam room, bar and pool.

But just three years later, Pete was reportedly broke and on benefits.

He had squandered an eye-watering £4,600 a day.

And was now in his retirement years.

While Pete was spending, the costs of goods and services was rising.

He didn’t have a plan to last his lifetime.

No savings or investments.

What if I told you, that for people with 40 years until retirement, £10 million is the amount they should be aiming to save?

That’s a lot of money, by anyone’s standards.

But inflation means £10 million may just about cover a comfortable retirement.

£1 million will have the same spending power as £306,000 today.

£10 million will equal £3,060,000.

Our lottery winners now had £8 million left.

They were heading for financial disaster in their early 70s because they had started to spend their winnings at an unsustainable rate.

Their general spending had spiralled out of control at £280,000 (after tax) per year, as well as one off expensive gifts.

The result if they carried on like this?

They would have to start selling the houses they had bought for family and friends.

And if they kept up their spending and tried to match inflation for 30 years, then their main home would need to be sold too.

Even lottery winners need a financial plan

By carrying out lifetime cash flow modelling , we were able to illustrate the point at which they would actually run out of money .

A example cash flow plan looks like this:

This sobering realisation led to them to follow this three-point plan:

1. Get professional advice

Our clients’ lives had changed forever.

The drudgery of things like bank accounts and wills needed to be sorted.

Not to mention estate planning and tax planning.

It was time to do the maths.

Put their life into numbers.

To partner with a fiduciary who was ethically bound to have their best interests at heart.

Not sell them products they didn’t need or understand.

One who would take the strain and leave them with a feeling of clarity, confidence and control over their ideal future.

2. Plan now, spend later

Most wealthy people talk about their investments, not their spending.

Our lottery winners agreed to stop spending large lump sums and focus on the long term.

It was time to start thinking about the future.

(Theirs and their loved ones, who they wanted to continue helping).

To get back control.

They needed to put their retirement plans into action, while there was still time.

3. Invest systematically

The couple needed a globally diversified portfolio of low-cost investments, within their low risk tolerance.

A clear and simple way to preserve and grow their wealth over the years to come.

Choosing a globally diversified portfolio meant they would benefit from the growth of the entire market.

Avoiding trades that attempted to predict what’s ‘hot’.

(Needles in haystacks).

Once set up, it would be left alone.

Letting the markets work for them.

A lesson you can take from this case study

Investing for the future always makes more sense than spending in the now.

Build your wealth so you can get and keep the life you want.

Spend less than you earn and invest wisely.

Take financial advice while you’re in the strongest position to do so.

Don’t put it off and risk frittering away your opportunity.

If you feeling in any way confused, frustrated, annoyed or lacking a plan, it’s time you got a second opinion.

Because there’s never a better time to sort your financial position out than right now.

This is the true story of one lottery-winning couple who were losing sight of their ideal future, because they were lacking one thing…

If you need this man, you’re seriously rich

If you spot this man walking down your street looking for an address, start getting very, very jealous. He’s probably headed for the house with the champagne bottles strewn outside.

Jim Burke is the man from Coutts – the bank to the rich and famous, including the Queen – who advises the big lottery jackpot winners what to do with their cash. On Saturday and Wednesday evenings he switches his mobile on and waits for the call. Every now and then he has to turn up with hard cash, pronto.

“A lot of the winners just want to see what it looks like. They want us to lay it out on the table so they can feel it.” Then he winks at you: “We always use small denomination notes. It looks like a lot more.”

One winner asked Coutts if it could measure up his house; he wanted to know if his jackpot winnings would fill every space in it. “It would have just about worked. Fortunately it was only a two-bed bungalow,” he says.

Not that Mr Burke wanders around the country with a suitcase full of dosh; the hard cash only hits the table at Camelot offices, with plenty of security guards at hand.

In the days immediately after a big jackpot, he visits the winner at their home. But the last thing he wants to look like is a pin-striped City banker. Usually he sets out in tee-shirt and jeans. “In some of the places we go to, the only people who wear suits are debt collectors. One of the flats I visited had a metal door with bars at the window and a burnt-out car outside. I was glad I had parked my car some way away.

“Some don’t even want their husband or wife to know they’ve won. We had one winner who disappeared for three months in disguise,” he says.

Coutts doesn’t automatically have the right to handle jackpot winners’ finances. The winners first talk to a Camelot adviser, who sets out their options. Banking arrangements have to be sorted out immediately as Camelot won’t pay out all the money in cash. Professional advisers – solicitors to deal with wills and accountants to minimise tax – come later.

Coutts often has the edge because of its most famous customer, the Queen, with all the security and confidentiality that implies. Mr Burke is adviser to around a third of the 1,000 individual jackpot millionaires created since the lottery started in 1994.

The winners don’t want to be talked down to, don’t want endless financial jargon, and certainly don’t want to see a spivvy life insurance salesman, says Mr Burke. Once they have selected their adviser, the relationship can become intensely close; the adviser is often the only one who knows the truth about exactly how much is being spent, how it is being shared out and who gets what.

“We know what they know, and there has to be absolute trust.”

Accepting gifts, cash or otherwise, from winners is banned under Coutts rules. So how does he guide the winners in spending their cash?

1. Instant cash

The first thing is to supply an immediate cash float to winners. This typically ranges from £2,000 to £5,000, so, for example, winners have no problems buying rounds down the local pub. One winner spent around £30,000 straight away on a holiday, but as Mr Burke says: “It amounted to no more than three or four weeks’ interest on their winnings.”

Others spend nothing for some time. “Some appear to be paralysed by the win and can’t take any decisions,” he says.

Cash from a jackpot win is normally cleared through a winner’s bank account within a few days. A Saturday win can be cleared by the Monday.

2. Clearing debts

The next step is to eliminate all existing debt. Mortgages, credit cards and personal loans are paid off as soon as possible.

3. Gifts to family and friends

Contrary to reports that lottery winners are mean with their cash, the reverse is true. In Mr Burke’s experience, around 35-50% of a jackpot is given away. One of his recent clients gave £1m to each of their children – which means that the children often also sign up as clients of Coutts. He also knows of one winner, who never sought any publicity, who gave their entire £1m win to charity.

4. New car/new house

The notoriety of “spend, spend, spend” pools winner Viv Nicholson has cautioned jackpot winners against splurging on Ferraris or Rolls-Royces, neither of which appear in the top 10 cars bought by the new millionaires. According to Mr Burke, jackpot winners tend to spend about £500,000 on a new home.

5. Investments

The style of investing depends on the winner’s age. A young winner needs the capital to grow for the future, a pensioner does not. Coutts is a big user of hedge funds to maximise growth and reduce risk, and for its lottery winners has earned around 15-25% a year on their investments. It suggests that young winners should take as income around 5-10% of their winnings per year.

Contrary to popular mythology, hardly anybody carries on working or remains in their family home, says Mr Burke. “Some delay the decision for a while, but most give up work.”

Does Mr Burke ever feel jealous ? He admits to a tinge of envy, and says he buys five lottery tickets each week. Would he quit his job if he won? “I admit I probably would.”

Lottery factfile

The prizes

• Total number of lottery millionaires created: 1,016.
• The average size of a jackpot ticket is £1,996,710.
•Highest ever jackpot was £42,008,610 on January 6, 1996, shared between three winners.

The buyers

• Around 65% of the population buy a lottery ticket regularly. The average spend is £3.34.
• 20% of ticket buyers are in social class AB, 28% are in social class DE.

The sellers

• The average corner shop selling lottery tickets picks up annual commission of £8,187.
•The shops earn 5% of the ticket sales plus 1% commission on prizes of £10-£200.
•Typical sales per shop are £3,149 per week.

The winners

• Paul Maddison and Mark Gardiner from Hastings scooped the largest jackpot; £22,590,829 on June 10, 1995.
• The oldest jackpot winner is William Sullivan, 81, who picked up £555,556 on Dec 12, 1997.
•The youngest winner is Tracey Makin, 17, who collected £1,055,171 on January 24, 1998.
• The luckiest star signs for jackpot winners are Cancer, followed by Gemini and Taurus.
• The luckiest county for jackpot winners is Essex, followed by Lancashire and Cheshire.

The outcome

• In a poll of 249 winners, 98% said they are either as happy or more happy after winning.
•Only 3% of winners move their children to private schools.
• One third have gained weight.

Source: Camelot. Poll by Mori in November 1999.

<p>In the week that a print worker from Essex scooped the £13.8m National Lottery rollover, Patrick Collinson talks to the Coutts official who hands out financial advice to the winners</p> ]]>