Opinion: How to help professional athletes make their retirement money last
The annual National Football League (NFL) draft took place in late April and early May, which immediately transformed the careers of 254 college football players – as well as their financial futures. While the event was cause for celebration, the truth is that many professional football players, and athletes in general, don’t have the long-term financial stability of their dreams.
While stars like Tom Brady, Aaron Rodgers and Patrick Mahomes can make hundreds of millions of dollars over a 10-year career, most NFL players will win. approximately $ 2.7 million in career income with a average playing career of only 2.5 years. Imagine retiring at 24 and wondering how to preserve and grow a seven-figure lump sum amount for you and your family over the next 50 years.
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With most athletes reaching their peak income in their twenties (or thirties if they’re lucky), they face significant financial challenges. A 2015 study of National Bureau of Economic Research found that 15.7% of NFL players had gone bankrupt after 12 years of retirement, while the results of a 2019 study in the Journal of Sporting Behavior demonstrated that financial literacy and a lack of money management experience were some of the issues affecting players trying to save, especially those early in their careers. Getting rich suddenly happens for many athletes, but for those who are unprepared, it can go away just as quickly.
Finding the right kind of financial advice can be the difference between athletes achieving their post-career goals and those suffering devastating setbacks due to overspending or other bad habits.
For every player selected in the NFL Draft – and thousands of athletes like them – here are some best practices on how they can work with a financial professional to help achieve financial stability and achieve their long-term goals. term off the field.
Read: Meet the terrific NFL mom determined to prevent her son’s finances from being sacked
Financial literacy is essential
After a counselor meets with an athlete to set their goals, the next step is usually to develop financial literacy. Too many promising young athletes neglect financial education or simply did not receive good financial advice in their youth. Knowing this, wise counselors come up with streamlined basic literacy programs to emphasize the importance of money management, budgeting, and other skills. They can also use financial projections to help clarify future scenarios and make them easily understandable.
Formulating a comprehensive financial plan for athletes and their families typically includes the following considerations:
Creation of a diversified portfolio designed to potentially withstand market fluctuations and adapt to the changing needs of the athlete over time
· Assignment of assets and investments according to the characteristics of the different asset pools. For example, an athlete’s retirement assets will typically be invested for long-term growth and sustainability, as opposed to assets used for current expenses, which could be invested to maintain liquidity.
· Use of detailed financial modeling to illustrate different expected scenarios with inflation assumptions. It can also help assess risk and test potential financial results, especially during tough market cycles. In addition, the advisor can project the potential sustainability of a given level of spending over time at various asset allocations and model the impact of large one-off purchases and other upcoming expenses.
Cash flow analysis that can illustrate how to balance current and future needs
Creation of a budget to manage the expenses and spending habits of the athlete
Keep in mind that it is also important to develop a plan using a collaborative approach of an interdisciplinary team of professional athlete experts. These specialists may include an agent, wealth manager / trustee, real estate attorney, marriage attorney, accountant, and insurance consultant.
Play defense using trusts
Many experienced advisers know that the best-laid plans can be beset by bad actors and unexpected traps. This is why it is essential to mitigate the risk of wealth being wasted by unexpected events.
One such surprise event that can be financially devastating for an athlete is divorce. By advising athletes, I offer a personalized trust to protect them in the event of divorce.
In some jurisdictions like Delaware, it is possible to create a trust, remain the beneficiary of the trust, and protect the trust assets from creditors, as long as the athlete remains solvent after the trust is funded. Athletes can help preserve their financial security by transferring some of their personal assets to a Delaware Asset Protection Trust (DAPT), protecting those assets against claims from most creditors, including a spouse as the athlete. wife after creating the trust, while allowing the athlete to benefit from the assets of the trust. As long as the trust has a Delaware trustee, neither the athletes nor any of their heirs need to reside in Delaware to create a trust to protect their assets and inheritance.
To secure an athlete’s assets, the following steps are typical:
Transfer assets into the trust before signing a marriage contract
Disclose the existence of trust in the prenuptial contract and specify that it is closed in the event of divorce
While an ex-spouse may be the ultimate future creditor, a trust can also protect the athlete’s assets from other potential creditors. A trust can be a useful layer of protection against bad actors, including friends and family members.
Athletes generally need protection from a barrage of family and friends seeking support or investment ideas. While not all family members or friends have malicious intent, the business opportunities they present often do not take into account the complex tax, legal and investment decisions that an athlete faces, resulting in can easily misplace them.
Having a wealth advisor to manage and oversee an athlete’s assets, or better yet, create trusts with an institutional trustee (flexibly drafted trusts that are designed to adapt to changing family circumstances and tax laws , and where they can replace the trustee at any time), can create a buffer to protect the athlete from being the prey and avoid the pressure of direct family demands.
With a trust in place, the trustee can take on the role of “bad guy” by making it known that the athlete’s assets are engaged and trusted, not accessible. If an athlete decides to financially support their family members, they have the option of allocating a set amount of funds and avoiding an avalanche of ad hoc requests.
Athletes are making more money than ever. However, they can be financially vulnerable, potentially depriving them of a secure and long-term financial future. By creating a solid foundation of understanding and developing formidable financial barriers to protect athletes from bad or uninformed actors, we can hopefully position more professional athletes to remain financially secure and leave a legacy for their heirs. lasting long after their playing days are over.
Sharon L. Klein is President of Family Wealth, Eastern Region, for Wilmington Trust, NA with over 25 years of wealth counseling experience. As President of Family Wealth in the Eastern US region, Sharon leads a team of professionals who provide expertise in planning, fiduciary, investment management, private banking and family office. As the architect of Wilmington Trust’s Versatile Athlete’s Ultimate Legacy Trust (VAULT) solution, Sharon, who will be inducted into the Estate Planning Hall of Fame in 2021, has experience providing personalized advice to athletes. to help them use their income to support them. the rest of their lives, mitigate risk and create intergenerational wealth. She also leads Wilmington Trust’s National Marriage / Divorce Counseling Practice, which provides advice and resources to trusted clients, lawyers and other counselors to help create a fully coordinated service for those affected by divorce.
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