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Professional Athletes: When should you start planning financially for your retirement?

By Vasilia Polycarpou, The Sports Financial Literacy Academy, Nicosia, Cyprus    

A critical realization that professional athletes must make is that retirement - voluntary or involuntary - from sports is inevitable, with the average age of retirement being slightly below 30, depending on the sport.

With a short earnings window, and numerous cases of athletes declaring bankruptcy right after retirement, it would be advisable for athletes to have fully prepared and planned all along, when the day of retirement comes.

According to the statistics, more than three-quarters of former NFL players were bankrupt within two years of retirement and 60% of former NBA players went broke within five years of retirement. Thus, planning for retirement from day one of gaining professional status is crucial. Professional athletes find themselves at the peak of their earnings early on in their sports careers, creating the need for proper management and preparation to ensure that they last a long time.

To get financially ready for retirement, athletes can start off by saving, as much as they possibly can, from their very first paycheck. The sooner they start saving, the more time their money has to grow.

A prerequisite for saving is living below your means and prioritizing the future in a strategic way. It can be easy to get distracted by your athletic career accomplishments and engage in a lavish lifestyle. However, living for the moment can put your earnings at risk. Creating a budget to keep track of your spending and saving would be key in helping differentiate between needs and wants.

Your budget should be in line with your financial goals and priorities, accommodating for the lifestyle you wish to have. A known example of an athlete, who has always chosen to be financially frugal, is that of former Detroit Lions wide receiver Ryan Broyles. When at the peak of his career, he and his wife had made the decision to live on $60,000 a year, even though he had signed a three-year $3.6 million contract with the Lions. Broyles has made conscious choices about his spending, choosing to focus on investing and growing his wealth.

A vital step in the process of financially planning for retirement is building a cohesive team of advisors, which can sufficiently assist you with the management of your financials.

These advisors should possess expert knowledge to help you with setting up your budget, managing your taxes, providing guidance on saving and investment options, and supporting you from the beginning to the end of your retirement preparation.

Your team of advisors should be in place even before you sign your first professional contract, and you should strive to build a long-term relationship of trust with them, since they will ideally be with you for a long time. Football long snapper Morgan Cox, said that, before deciding to hire a financial advisor, he asked his teammates in the locker room for financial advisor references, because even though he was a finance major in college, he did not feel like he could manage his portfolio on his own.

When it comes to being financially literate, continuous self-education is vital.

Athletes need to be able to understand basic financial concepts in order to take the reins of their financial life and be in control of their financial situation. Whilst having a team of financial advisors is necessary, athletes need to be able to ask the right questions, read and research, assess and evaluate the financial opportunities presented to them and be aware of the risks involved. Guidance and support from experts are important; however, the final decisions should always be the athlete’s own.

With professional athletes having access to funds, capital, and an extensive network, they can explore the possibility of an alternative career path for life after retirement from sports. They can utilize the skills they have acquired as professional athletes or even a passion of theirs that they would like to pursue in the context of a career. Taking some time to think about what they would like to do, in case being an athlete is no longer a possibility, can prove to be very useful when it comes to proactive and strategic post-retirement planning. Otherwise, when the whistle stops blowing, the opportunity could be gone.

The idea of letting go of sports life, as they know it, and adjusting to a completely different lifestyle, can be stressful for athletes, since they will be navigating the unknown. Being financially prepared from very early on is essential for ensuring a smooth and successful transition to life after sports!

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The editors of  the Journal Sports Law & Taxation are Professor Ian Blackshaw and Dr Rijkele Betten, with specialist contributions from the world's leading practitioners and academics in the sports law and taxation fields.

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Maisto e Associati, Milano

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