An unpredictable income, short career span, and danger of premature retirement due to injury all play into the importance of implementing smart money saving strategies for professional athletes. The typical athlete’s prime earning potential lasts just a few years—a 2007 study concluded the average career of a Major League Baseball player lasts 5.6 years, and a National Football League player’s career average is even shorter at 3.5 years. Below are some strategies we employ for our professional athlete clients to ensure they build a nest egg that will last them through their retirement.
For more information on the services we provide to professional athletes, contact us today.
This is done to build up the nest egg that will soon become his primary source of income. The professional athlete can invest a fixed amount of dollars every month (coinciding with their paychecks) to his investments regardless of market conditions to avoid trying to time the market and helping to smooth out the effects of market fluctuation. It is a good way to ensure continuous investments are made as it is set up as a recurring transaction. Lump sum investing is also advantageous and can be used instead of dollar cost averaging. It also allows the athlete to invest at less frequent intervals. This method achieves the same purpose but also has the ability to sometimes limit transaction costs.
Setting it up with the ball club payroll department so paychecks are direct deposited is a smart idea. This helps alleviate some of the temptation to spend it since the cash never touches the athlete’s hands. We establish “budget accounts” for each of our clients, whereby the paychecks are deposited. From here a portion of those funds is employed to their investments using one of the two methods referenced above, another predetermined portion is allocated toward their bill pay account (the account from which monthly bills are paid), and some dollars are set aside for their clubhouse account (the account from which clubhouse dues are paid). This strategy allows accurate reporting and a regimented approach to saving.
Major League Baseball has a savings and investment plan available to the professional athletes. They can contribute up to the max, which currently is $16,500. This is yet another opportunity for the athletes to sock money away pre-tax, which can be used for retirement. As with any 401K, the plan should be reviewed at least semi-annually to determine if investment allocation should be altered in any way.
Because most professional athletes move on to second careers after their active playing days are over, they should invest in their education sooner rather than later. We drive home to the athletes that if they have not yet finished their education, they should use any resources available to them by their employers to do so. Many professional athletes will get a scholarship program included in their first professional contract. This is definitely something to look for and capitalize on. Some athletes pick their education back up after their playing days are over. When you do it isn’t necessarily as important as making sure you do it!
Even professional athletes need a budget. Just because it seems like they are rolling in the dough doesn’t mean they actually are. There are tons of stories out in the media about athletes going from “riches to rags.” Buying high dollar assets such as lavish homes and cars comes at a huge price (no pun intended). Oftentimes these glamorous purchases have huge carrying costs associated with them that the professional athlete doesn’t realize. Spending almost becomes a competition within the professional athlete world with players placing importance on who has the best cards, houses, clothes, etc. Younger players succumb to this mindset more often than not, as the big contracts are new to them and the desire to fit in is very strong.
Creating a budget based on mandatory and discretionary expenses, keeping it realistic and reasonable, maintaining it, and then holding them accountable for sticking to it is vital. There are tools available to help such as www.mint.com—a site which brings your financial accounts together online, automatically categorizes your transactions, lets you set budgets, and helps you achieve savings goals. Alerts can be set up to notify the user when the account goes below a certain amount or if it is time to transfer money, etc. It utilizes a 128-bit SSL encryption, the same the banks use, and all the data is protected and validated by VeriSign and TRUSTe. It is a read-only system so no money can be transferred in or out. They also provide mobile apps so it can be accessed from anywhere.
It is important the professional athlete understand how imperative it is to set a budget and stick to it. Sometimes seeing the big picture and taking a long term view is difficult. Working with a financial advisor to guide you along the path appropriate for you and your family will help you do this.
Geier Asset Management has a sister company, Winpoint, that provides financial management services tailored to fit the unique needs of the professional athlete.
For more information on the services we provide to professional athletes—including wealth management, investment advisory, tax planning and preparation, family office, accounting, and business advisory—visit Winpoint or contact us today.