One of the things that I've been dealing with lately is people who are making the transition from living off a paycheck to living off a lump sum of money. Now, in these cases, it's because people have retired and are starting to live off their savings. But obviously people who switch from a regular job to indie writing can run into the same issue.

It can definitely be a tricky transition, because if you are a good little saver, you typically don't touch your savings--you salt them away for a rainy day. Then a rainy day (or a rainy rest of your life) comes along, and you don't know how to adjust. 

As a result not understanding how to manage a lump sum of money so that you can actually live off it, I've personally known two people who 1. had plenty of money, and 2. were broke--at the same time. (It should be noted that BOTH people were trusting absolutely everything to professional money managers.)

How could it be that people can have plenty of money, and yet be broke?

Case #1: This was a few years ago, when my father was still alive. One of his relatives was ailing badly. She desperately needed to move into an assisted-living facility, but she just couldn't afford it.

Except that it turned out that she could. Remember how I mentioned that a million dollars, invested relatively conservatively, could give you an income of $20,000 to $30,000 a year? Well, you can also invest it so that it gives you an income of ZERO dollars a year. Which was how this woman's money was invested.

Worse yet, she didn't even know she had it. Perhaps her husband (who had died) or perhaps a professional money manager (who had since moved on) had made that investment--she didn't know. She was a woman of a certain age, and in her mind, it was somebody else's job to worry about that kind of thing.

You can say that she deserved it for being so oblivious, but she suffered quite horribly as a result of "not being able to afford" appropriate care. Things got pretty bad before my dad decided to intervene and figure out what the hell was going on--because it really didn't make sense to him that she should be so broke.

Because she wasn't.

Case #2: This has been more recent, and it's been a real eye-opener for me because we got focused on this early, so I've been watching the process unfold.

So, again, let's say there's a million dollars that is invested to give an income of $20,000 to $30,000 a year. And it has been providing a lovely supplement to this person's Social Security and pension income, except that she decided that managing the lump sum was too much trouble, so she called in the professionals.

What was the first thing the professionals did? They took that $20,000-$30,000 a year away.

Oh, they didn't steal it, of course not--that would be illegal! They just put it someplace where the person can't get to it. Unless she makes a special request for an "allowance," which will be--well, you know, they have to pay her taxes and of course their fees (which are not low) get deducted out of everything first, so maybe $250 a month? Or less?

The knock on her income is kind of an issue, because this person's cost of living is increasing as they get more frail, and Social Security is looking at her assets and saying, "Why are you getting so much money from us?" She really does need the additional income. And of course the professionals are more than happy to provide her what she needs--by selling off her investments.

Oh, boy.

Not shockingly, we are intervening. There are people in my family who have made it well past 90, and we're not thrilled at the idea of this one running out of money and getting evicted (most likely from a nursing home) 15 years from now. That's where the professionals will lead her--and once they ruin her, they will just walk away. Because their work will be done.