401ks Show Signs of ‘Sudden Wealth Syndrome’

'Bad things happen' when you hand someone a sizable check

401k wealth, retirement, participant outcomesBeware 401k wealth traps.

NFL superstars go broke, lottery winners go crazy—sudden wealth isn’t necessarily good, at least when there are too few tools to handle it.

It’s something GRPAA founder Bill Chetney routinely notes about (believe it or not) 401ks, of which we were reminded while reading a piece in The Wall Street Journal Monday.

In our cover profile last year, Chetney mentioned that because the industry has done such a good job at the accumulation phase, participants who “do it right” will have $3 million or $4 million for retirement. The problem comes when these same participants still nonetheless make $70,000 annually.

“Bad things can happen when you hand someone a check of that size,” he lamented. “It’s like when NFL players go broke so soon after retirement. They have no idea how to handle it, which leads to poor decisions, and is the reason 401k financial wellness is so critical. We’ve done well with achieving investment alpha for our clients, but now it’s time to achieve retirement alpha, which is simply better outcomes for later in life.”

It’s a sentiment shared by legendary Vanguard founder John Bogle, who advised, “Don’t open your 401k statement at all until you’re ready to retire, but when you do have a cardiologist handy because you’re gonna be shocked by how much is in there.”

The Journal’s piece addresses the topic in a similar manner, only it happens to focus on the children of high-net-worth individuals who suddenly experience inherited wealth.

“When adult children of an affluent family don’t learn the extent of their wealth until it passes into their hands, the influx of millions in assets can make them anxious or overwhelmed,” says Steven Wagner, co-founder and chief executive of family office Omnia Family Wealth. “This ‘sudden wealth syndrome’ is akin to the stress on people who win the lottery, some of whom run through their funds and wind up bankrupt in just a few years.”

To help prevent high-net-worth clients’ children from going down a similar path, he adds, advisors should “promote family meetings in which the children learn details of their future wealth and discuss those details in relation to their own long-term goals.”

Sounds a lot like the aforementioned financial wellness, and it certainly isn’t necessarily bad that we’re discussing 401ks in such terms. The kicker, as always, is in ensuring positive outcomes, no matter the amount or type of client involved.

2 Comments on "401ks Show Signs of ‘Sudden Wealth Syndrome’"

  1. Very informative article! I enjoyed reading this

  2. Stock and bonds both in bubbles negative returns over next decade a sure thing

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