The Do’s and Don’ts of Pre-Retirement Planning for Professional Athletes

The Dos and Donts of Pre Retirement Planning for Professional Athletes

As much as professional athletes are known for their stellar athletic abilities, they are equally notorious for living extravagant lifestyles and blowing their earnings in a flash. According to a Sports Illustrated article published in 2009, 78% of NFL players are either bankrupt or under financial stress within 2 years of retirement, and 60% of NBA players go bankrupt within five years of leaving the league.

A host of famous professional athletes are earning more than “the average Joe” will in his lifetime, but struggle with transitioning their short-term paychecks into lifelong financial security.

On a fundamental level, earners of all income levels face similar financial hurdles, such as staying out of debt, fighting the temptation to overspend, and saving for the future. But due to the nature of their careers, professional athletes are faced with some pretty unique challenges of their own.

The Game Plan

1) DO Become Financially Literate

Athletes often earn a great deal of money at a young age when they have had little to no experience handling their own finances. Not only does this increase the likelihood of mismanagement, but also leaves them vulnerable to financial salespeople who prey on those who come into sudden money.

The best way to become financially literate is by enlisting the help of a trusted financial advisor who can work to preserve your wealth in retirement and teach you how to manage your finances. But, make sure to execute due diligence before signing with just anyone. There are hundreds of thousands of individuals calling themselves “financial advisors,” while in reality they are salespeople peddling commission-based products that benefit their own self-interest rather than yours. Look for a Registered Investment Advisor (RIA) who is legally and ethically bound to provide sound fiduciary guidance that is only in your best interest.

In addition to hiring a professional, consider enrolling in an online course such as Dave Ramsey’s world famous Financial Peace University or sitting down with a book like Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not or The Millionaire Next Door, which both explain in detail some of the most fundamental financial principles for preserving wealth. Perhaps find a financial blog or newsfeed that interests you and subscribe to receive their updates. You’ll be amazed how quickly a little exposure can enrich your understanding and improve your financial literacy.

Investing in your financial education is just as important as investing in your body and playing skills. Financial literacy can empower you to make the most of your income so you can enjoy the hard-earned fruits of your labor.

2) DON’T Spend as if Your Salary is Infinite and Your Body is Unbreakable

Athletes have a unique earning structure, referred to as a Reverse Earnings Curve. Rather than seeing a gradual increase in pay over time, athletes earn the majority of their income at the onset of their career. In addition, the career of an athlete is markedly shorter than that of the average American; eight to ten years is considered a full career as opposed to the thirty or forty years the average American may work. Financially, this translates into fewer years of earning potential to plan for a much longer retirement. And since an injury could stop an athlete’s career dead in its tracks, there is no way to predict how many working years any one athlete will accrue.

The most important thing to remember as an athlete planning for the future is that there will be life after your sports career and you’ll need to be able to provide for yourself when the paychecks stop rolling in.

3) DO Consider Working and/or Retiring in a No or Low Tax State

In working years and in the retirement, this fact remains unchanged: the higher your income, the heftier your tax liabilities. One way to minimize this burden is by working in and/or retiring in a state that has tax advantages for high-income earners—Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming are popular choices as they have no state income tax. In fact, a Department of Labor study published in 2014 indicated that Florida is home to five times more professional athletes than any other state. While 3-5% may not sound like much, you’ll certainly feel the strain when writing a weighty check to the IRS every April.

4) DO Consider Setting Up a Revocable Trust

A revocable trust is a trust with provisions that allow the donor to change or alter the legal terms of the plan if necessary. This legal agreement can be set up with an appointed trustee to attend to an athlete’s ongoing financial matters while the athlete is traveling for games or pre-occupied with other endeavors. The revocable trust not only provides for effective long-term asset management, but protects an athlete’s wealth and net worth from the public eye.

5) DON’T Fool Yourself

Don’t fool yourself into thinking that your league-sponsored 401 (k) will be able to maintain your current lifestyle in retirement. Sure, your IRA certainly beats out traditional employer-sponsored plans, but may not be enough to cover all your current living expenses.

As a high-income earner, you’ll need the capability to stash away far more than your annual 401 (k) contribution limits allow. And since you’ll likely need to draw on those benefits before the minimum, penalty-free withdrawal age of 59 ½, you will want to explore how to position your wealth to generate income outside of your traditional league-sponsored IRA.

Odds are your investment income will account for the majority of your retirement income. The key to making this work is in diversifying your portfolio to properly manage risk. By having a healthy spread of stocks, bonds, real estate, etc., you protect yourself from significant loss should the economy take a turn for the worst. And since you have a short and unpredictable amount of working years, you have less room in your portfolio for risk.

If you are a professional athlete who would like to learn how to achieve long-term financial security, the financial planning professionals at Harbor West would be happy to assess your current strategy. Contact us today to learn more about the custom financial planning approaches we offer to professional athletes at all stages of their career.

This information is provided for general purposes and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on any of the information, please consult your Financial Advisor for individual financial advice based on your personal circumstances. Neither Harbor West nor Geneos Wealth Management, Inc. provide tax or legal advice.
Harbor West is a division of NorthEast Community Bank. Securities and Advisory Services offered through Geneos Wealth Management, Inc. FINRA/SIPC Investment Advisory and Financial Planning Services offered through Geneos Wealth Management, Inc. Investments are not FDIC Insured. Investments are not deposits of the financial institution and are not guaranteed by the financial institution. Investments are subject to risks including loss of principal.


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Regulatory Disclosure: The information on this website has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. This website is neither an offer to sell nor a solicitation to buy any securities. Gerard Gruber offers Securities and Investment Advisory and Financial Planning service through Geneos Wealth Management, Inc, Member FINRA/SIPC.  Investments are not FDIC insured. Investments are not deposits of the financial institution and are not guaranteed by a financial institution. Investments are subject to investment risks including loss of principal amount invested.