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What would you do if you won the lottery? How would you spend a $1 million inheritance? What if you went to Las Vegas and hit it big?
      Most of us indulge in the occasional fiscal fantasy, pondering such improbabilities and hoping for a chance to recreate the scene from "Indecent Proposal" where Demi Moore literally rolls in the dough.
      In reality, a growing number of people can expect to receive a windfall. Few will claim those heart-stopping lottery payouts hyped on billboards or the casino jackpots that had Demi seeing green before she saw Robert Redford. Instead, most of today's windfalls will arrive in such low-key forms as 401(k) payouts, lump-sum divorce settlements, and inheritances.
      Don't let their lack of headline potential fool you: Those types of windfalls can mean big money and big responsibility. According to researchers at Cornell University in Ithaca, N.Y., American baby boomers can expect to inherit just shy of $10.4 trillion, the largest amount ever to pass from one generation to another.
      To handle your windfall wisely and make it last, think before you spend. Here�s how to make the most of your newfound funds.
      Baby boomers
      stand to inherit
      just shy of
      $10.4 trillion.

Put your money
in low-risk investments
until you find
qualified financial advice.

Ready, set, stop
Regardless of where your windfall blows in from, your first step in managing it is to do nothing. Don't rush out and book a trip to Europe, quit your job, buy a new car, or succumb to your shopping impulses. Why? At this point, you know little about how your windfall will affect your family finances. Until you gain objective, qualified, financial advice, put your money in a liquid, low-risk investment, such as a savings account or share certificate. If it's a 401(k) payout from changing jobs, use a direct rollover into an individual retirement account (IRA) or another tax-exempt investment. As long as qualifying funds go directly from your old plan to a new one or to an IRA, you avoid taxation, early withdrawal penalties, and the 20% withholding penalty the Internal Revenue Service (IRS) otherwise imposes.
      "Until they've had a chance to settle down and become psychologically comfortable with the windfall and what it will change, we suggest they keep it at the lowest risk level possible," says Tim Kochis, a certified financial planner and president of Kochis Fitz Tracy & Gorman Inc. in San Francisco. "It gives them a wake-up call in three months to say, 'This is where we've parked it. Let's decide what we really want to do with it.' "

Finding good help
Where the money came from often influences how recipients spend their windfall. Retirees have spent years nursing their nest egg and waiting for it to mature. In spending, they usually lean toward the conservative side to ensure their windfall will last long into retirement. "People tend to be too conservative," says Kochis. "They go into a hoarding mentality and think they can't spend it or afford to invest in any level of risk."
      Lottery winners, on the other hand, may be cavalier about spending the money because they put forth little effort to earn it. "The winnings are just newfound money," says Marc Collier, a certified financial planner with Wellesley (Mass.) Financial Architects. "They're not quite as concerned with it."
      They should be. Many windfall recipients overestimate the spending power they've gained. They often don't realize how hard the tax bite can be (up to 39.6%) or how annual payments break down a grand total into merely respectable sums. To get an accurate fix on your finances, consult a qualified adviser. Professionals at your credit union may be able to help, or you can seek out an accountant or certified financial planner. "You need to get someone as an advocate on your side to help you work through all the implications," says Collier.
      The Institute of Certified Financial Planners offers a toll-free consumer assistance line that can refer you to certified planners in your area. The association will send out a list of names, as well as a profile of each planner it recommends. The telephone number is (800) 282-7526.
      Many windfall recipients
      the spending power
      they've gained.

Strategies for now...
While it's easy to get caught up in the immediate euphoria of a windfall, your counselor will encourage you to take a long view of your finances. "Your third step should be to set aside a good part of your windfall for long-term needs, not immediate needs," Collier says. In other words, allocate what portion you should use for investing vs. paying the bills.
      As for current debts, paying off your credit cards may be one of the best investments you can make. By clearing your balance, you may save as much as the 18% or more you were laying out in interest. You can reap similar savings by plowing the maximum allowed into your IRA, 401(k), or other retirement plans (check with your financial adviser about eligibility). That money escapes the taxers� immediate grasp.
      Think twice, however, before paying off your mortgage. "Mortgage interest is one of the few tax write-offs the IRS still lets us have," says Collier. "If you're paying 7% or 8% mortgage interest rates, that is inexpensive money after taxes, especially for someone in a high tax bracket."

...and later
Your long-term investment strategy and your standard of living are joined at the hip. Together they determine not only how much money you need but how aggressively you'll have to invest to earn it. You can approach the formula from either direction, Kochis says. "You need to identify how much you can afford to spend over the long term based on the wealth you have," he says. "Or, conversely, based on what you want to spend, determine what kind of income or return on your investments you must have."
      It's at this point that dreams intersect reality. Want to quit your job? Your windfall may not be enough to support you, but it might let you knock a few years off your retirement countdown. Hope to open a restaurant or start a business? First make sure you have the know-how to make the transition a successful one, says Ginita Wall, a certified financial planner and author of "Your Next 50 Years" (ISBN 0-8050-4568-6). For example, "Divorced women, particularly women with outdated or no skills and an affluent lifestyle, think they'll start a business and somehow, miraculously, make enough money to support themselves," Wall says. "They want to show their ex-husbands they can do it. They go into business without having a business plan or without doing their homework, and they end up losing their money."
      Your long-term
      investment strategy and
      your standard of living
      are joined at the hip.

Windfall wisdom
A windfall can fade from a gust to a breeze--or develop into a gale force. It all depends on how you manage it. You know your comfort level, your risk tolerance, and your needs. Use those to guide your investment strategies, and your windfall will grow forth and multiply.

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