Building a Defense
As a professional athlete you are fortunate to reach your peak earnings years much quicker than your typical individual. With all of this great success comes an enormous amount of pressure to make your money last. This involves effective planning. After “protecting the basics” the next phase of strategy we utilize with our athletes include:
Establish a Budget
While it seems basic, budget and spending are the cornerstone of all things financial. Making money is cool, but how much are you spending from those earnings? The old quote, “It’s not what you make but what you keep” is the point. Budgeting doesn’t have to be a dreary, horrible exercise but in basic its vitally important. Knowing where your money is going can be an eye opening exercise and allow for proactive decision making.
Why is budgeting so important?
Everything can be boiled down into a simple math problem. If you budget and control spending while you build your savings and investment pile, assets will accumulate. In the future, when your income stream ends at retirement, you will have money to draw from. You want to withdrawal at rates that don’t deplete your cash pile. A typical retiree of ours runs at annual withdrawal rate of around 3%.
Here is a simple analogy:
3% yearly withdrawal on a $1,000,000 cash pile = $30,000 per year
3% yearly withdrawal on a $5,000,000 = $150,000 per year
These numbers are fairly obvious, but the message is clear. it If you can save and generate a large enough pile, you and your loved ones will be able to live after the playing years end without depleting your assets.
CBA Benefits
Through the latest collective bargaining agreement players are afforded a number of benefits for being a part of the NHL players association. Understanding your benefits during and after your career are critical pieces of the financial planning process. Benefits include Pension, 401k, Health Care, Disability, and life insurance just to name a few. Integrating these within a financial plan allows maximum leverage towards achieving the financial goals.
Tax Management Strategies
Being tax aware is vital to any investment and saving strategy. Minimizing to the extent possible the amount of tax drag is a big element of a long-term investment strategy. Having an advisor that works with your accountant to implement tax management strategies and minimize your effective tax rate is an extremely critical part of planning. Looking for areas to reduce income taxes through use of tax deferral vehicles can be a real winner in many cases. If you have endorsement or other income, the opportunity is even greater.
Education
Building an understanding and taking ownership of your plan almost always leads to better results. This is the center piece of everything we do at RCA. We strive to continually educate our clients so that they have input and feel comfortable with their financial plan. This includes the player, his spouse, and other decision makers. A financial plan should be a living plan and ongoing review and adjustment keeps it relevant.