Six Tips to Help You Prepare
It’s never too early to start thinking about retirement, especially for professional athletes who typically have shorter career spans than traditional working professionals. The following tips are worth considering to help you prepare today for a financially fit retirement.
Tip #1 – Develop a financial plan.
Have we said this before? (Cue the broken record.) Establishing a comprehensive road map to guide all aspects of your financial game plan is the number one way to help prepare for a financially fit future. You can read more about the importance of a financial plan here and here. In the wise words of Nike, “Just do it!”
Tip #2 – Save early and often.
When it comes to planning for retirement, professional athletes have an advantage over those in most other professions. In this field, peak earnings are reached earlier in life, before many standard financial obligations (family, mortgage, student loan debt, children’s college expenses, etc.) are incurred. This allows for an opportunity to save more at the beginning of your career to take advantage of compounding returns. Practically, this would look like putting aside a big chunk of your signing bonus or money from an endorsement deal, investing it wisely for the long term and letting it grow. Continue to add to your savings and investments by budgeting for it; when it’s time to retire and you see the payoff of those compounded returns, you’ll be glad you did.
Tip #3 – Try consumption smoothing.
“Consumption smoothing” is a term used by economists to describe the process of following a stable path of consumption across all phases of life. This means that in higher-earning years, you save and invest for the future, while in lower-earning years, you use your savings and investments to maintain your desired lifestyle.
It takes discipline to achieve consumption smoothing — especially for professional athletes who frequently achieve high salaries early in their careers. However, it’s wise to remember that your salary will likely dip in future years once you retire from your sport, and the money you make in your prime earning years will need to carry you through years in which you make less.
Tip #4 – Plan for the unexpected.
Given your increased risk of becoming injured on the job, it’s especially important to plan for the unexpected. You may want to protect yourself and your family with the following insurance coverage:
- Life insurance – Provides financial security to your loved ones should you die unexpectedly
- Permanent total disability (PTD) – Provides coverage should you become permanently injured and unable to continue with your sport
- Temporary total disability (TTD) – Provides coverage should you become unable to compete for a short period of time
- Loss of value – Provides compensation in case an injury or illness causes you to miss out on an opportunity
Tip #5 – Retire to something.
Rather than retiring from your sport, plan to retire to a new career. Given the typical short careers of professional athletes, it’s smart to plan for life after sports. What other interests can you pursue once you’re done playing professionally? Take some time during your sports career to plan for future opportunities. Identify a second career that’s both emotionally fulfilling and financially beneficial. Are there any steps you can take today to better prepare yourself for that future career? There’s no better time than now!
Tip #6 – Work with a fiduciary financial advisor.
A fiduciary advisor is held to fiduciary duty standards, which means he or she is legally obligated to act in their clients’ best interests, at all times and in all situations. Fiduciary advisors are typically fee-based, which means they are usually paid a percentage fee based on the assets they manage. This helps align the advisor’s interest with those of the client because the advisor’s total compensation scales with the client’s assets.
In contrast, some advisors charge a commission and generally conduct transaction-specific recommendations rather than offering advice that covers the entire client relationship (like a fiduciary advisor would). Because they’re often paid commissions for the investment products they sell, they may be incentivized to push products and make frequent portfolio transactions that could create a conflict of interest with what is best for their clients.
At Creative Planning Sports and Entertainment, we are fiduciary advisors who specialize in helping athletes navigate the unique financial challenges of their profession. As a specialty practice of Creative Planning, our experienced team members include CERTIFIED FINANCIAL PLANNERTM practitioners, certified public accountants, attorneys, insurance specialists and more. We help you navigate today’s challenges in order to prepare for a financially smart future. To learn more, please schedule a call.