TOP 6 Downsides to Making a Lot of Money 2019

6 Downsides to Making a Lot of Money

ALAN NELSON KNOWS firsthand the problems that come with having a lot of money. The 43-year-old, whose name has been changed for this story to protect his family’s privacy, grew up as a self-described “middle-upper class trust-fund kid.” He attended school in Silicon Valley with the children of multi-millionaires and went on to build a couple of businesses that eventually sold for millions of dollars.
“Believe it or not, but it had a big negative mental impact,” Nelson says of his business success. “The first year was great, but I lost a lot of motivation and got severely depressed after that.”

It may be hard for those with lower incomes to feel sympathetic to the problems of the rich, but there is no denying that money brings with it a whole new set of problems. Here’s a look at six downsides of being wealthy:

1. Wealth can have a negative effect on children. Money buys children many opportunities, but it also comes with risks. A series of studies conducted by psychologist Suniya Luthar at Columbia University found teens in wealthy families were more likely to struggle with mental health issues. Her work, published in 2008, discovered that teens in suburban homes earning more than $120,000 annually had higher levels of depression, anxiety and substance abuse than those in other socioeconomic groups.

Nelson says that growing up, parents were often traveling. Teens were left with minimal supervision and access to plenty of cash. “It’s a recipe for disaster,” he says, adding that alcohol use was not uncommon among his underage classmates. “Granted not everyone did, but many did. I did.”

Steven Elwell, partner with Level Financial Advisors in Buffalo, New York, says wealth can also lead some children to develop a poor work ethic. “They think: Why should I work hard?” he says. Of course, money doesn’t necessarily mean children will follow this route, but parents need to be vigilant to ensure their wealth doesn’t inadvertently lead to damaging behaviors.

2. It can stifle creativity and personal growth. It isn’t only children who can fall into negative patterns because of money. Nelson says that after spending years building his businesses and then selling them, he took a year off to travel, snowboard and golf. While it seems like everyone’s dream, he says it led him to feel aimless and, ultimately, depressed. “When I look back at the days when I was working 100-hour weeks, I don’t think I’ve ever been happier,” Nelson says. In his case, money didn’t bring happiness, but rather stifled his creativity and led to unproductive idleness.

3.Tax time becomes significantly more expensive. It shouldn’t surprise anyone that those who are wealthy pay more in taxes. While President Donald Trump has issued a plan that may significantly change tax rates, the top bracket is currently 39.6 percent. The bigger issue for many families may be the loss of valuable tax deductions and credits, says Robert Charron, the partner in charge of the tax department at accounting firm Friedman LLP in New York City. College tuition credits, mortgage insurance deductions and other itemized deductions all can be limited or eliminated for those with higher incomes. Many people also get assessed the alternative minimum tax. “That’s probably the biggest penalty to hit wealthy people,” Charron says. “It has the effect of disallowing certain deductions.”

4.Retirement and estate planning gets more complicated. Once a single taxpayer’s annual income hits $118,000, the ability to fund a Roth IRA begins to phase out. Some workers categorized as “highly compensated employees” under IRS rules may find their ability to contribute to a 401(k) is also limited. “Being able to contribute enough to retirement plans so you can maintain your lifestyle in retirement can be tough,” says Shanna Tingom, co-founder of Heritage Financial Strategies in Gilbert, Arizona. It’s not a problem that might trouble the ultra-wealthy, but for those looking for tax relief, the loss of tax-favored accounts can hurt.
Beyond complicating retirement planning, money can make estate planning a delicate matter. “You worry about your kids suing each other [after you’re gone],” Elwell says. “You might have to have trusts or other things in place that other people don’t have to deal with.”

5. Money makes people a target for lawsuits. Some people are rich, and no one is the wiser. Other times, it’s hard to blend into the crowd. For these people, the risk of litigation is heightened. “Think about the prominent doctor known in the community who is quite well off,” Elwell says. If he is in a fender bender, someone who recognizes him and his wealth may be more inclined to take legal action than if the other driver was a less affluent person. “What a target on your back,” according to Elwell.

6. It can be a lonely lifestyle. Isolation is one problem associated with wealth that is rarely discussed, according to Tingom. “It gets kinda lonely,” she says. “There’s no one to talk to. No one understands.”
Nelson gets that people who make less money are unlikely to be sympathetic, but he does say it can be tough sometimes. “No one wants to hear you brag,” he says. “No one want to hear you whine, and you don’t want to come across as that guy.” So when he’s out with friends, he usually doesn’t say anything at all about his financial situation or the personal issues related to it.

“Clearly, the narrative has been the 1 percent is evil and the 99 percent is good,” Elwell says. That means no one wants to be labeled wealthy, much less complain about the problems associated with it. However, as Nelson and other high earners can attest, having money doesn’t wipe away your problems. It only gives you different ones.

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