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The NBA Draft is right around the corner. On June 20th, a few dozen college basketball players will become instant millionaires as soon as their name is called. It’s a life-altering event, and for many, the culmination of a lifelong dream.
Unfortunately, the dream can turn into a nightmare for some professional athletes. A 2009 study from Sports Illustrated found that 60 percent of NBA players go broke within five years of retirement. More than three-quarters of NFL players face financial difficulty within two years of retirement.1
A multi-million-dollar sports contract should be a blessing. However, many athletes aren’t prepared to handle that kind of money, especially when they cash in at such a young age. Many spend their earnings on cars, jewelry, and more under the false assumption that their career will last forever.
Retirees often face similar challenges. On your retirement day, you aren’t called up to a podium on national television and awarded a contract worth millions of dollars. However, on the day you retire, you may have more money available than you’ve ever had in your life. You’ve probably spent years, or even decades, contributing to your 401(k), IRA, or other accounts. When you retire, you finally have the option to access those funds.
It can be tempting to spend that money on vacations, shopping, dining out, and other fun activities. After all, retirement is your time to enjoy life. However, if you spend too much in the early years of retirement, you may find yourself short on funds in the later years.
The good news is you can take action today to prepare yourself for a long retirement and avoid some of most extreme financial challenges. Below are the two financial tips Shaquille O’Neal gives to all NBA rookies. However, you don’t have to be a gifted basketball player to benefit from these pieces of financial wisdom. Incorporate these ideas into your strategy as you approach retirement.
Tip #1: Only spend what you have to.
As soon as he entered the NBA, Shaq spent $1 million to help his parents retire. After that large purchase, though, he adhered to a strict 75/25 rule when it came to spending. His first 75 percent of earnings went to savings. That left him with 25 percent of his earnings to spend on cars, jewelry, or whatever else he wanted. He suggests that all young athletes follow the same advice.1
Granted, it’s much easier to save 75 percent of your earnings when you make nearly $300 million over the course of your career. However, there’s still a lesson in here that you can apply to your retirement planning.1
Shaq allocates money to savings before he spent anything on discretionary items. In other words, he treats savings like a mandatory expense, not an option. You can boost your retirement savings by adopting the same philosophy.
Treat your savings as something that has to happen before you can spend money on anything else. You may not be able to save 75 percent of your income, but perhaps you could save 10 or even 20 percent. Your employer 401(k) could be a great tax-deferred savings options. You also may want to consider automatic contributions to an IRA or other account on your payday, so the money goes into the account before you spend it. Put your savings on autopilot and you’ll likely see your balance grow quickly.
Tip #2: Create guaranteed* retirement income.
“Learn what annuities are,” Shaq once said when asked what advice he gives to young players. Shaq famously put a large portion of his savings into annuities that offered guaranteed* income streams later in life. Those annuities gave him confidence that he’d have lifelong income, no matter what happened in his career or in the financial markets.
An annuity could make sense as part of your financial strategy. There are a wide range of different types of annuities, but most offer some mechanism to provide guaranteed* income. Some allow you take an annual withdrawal. As long as you don’t exceed the withdrawal limits, the income is guaranteed* for life. Others pay you a guaranteed* income stream based on your age. A financial professional can help you determine what type of annuity is right for your needs.
Ready to implement Shaq’s financial advice into your retirement plan. Let’s talk about it. Contact us today at My Life Broker. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
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