How Star Athletes Deal With Retirement: Financial Lessons

To quote pro golfer Annika Sorenstam, “I didn’t grow up really rich or especially poor but I was taught to respect money.”  She remembers her economic status as a child, noting, “Yes, I had to share my first set up golf clubs with my sister; I got the odd number clubs and my sister (who now works for Annika’s golf academy) took the even ones.”

The athletes I interviewed earned millions of dollars playing their sport but none of them came from a wealthy family.  All either mentioned – or implied – that they came from a modest upbringing and that both the life lessons they learned growing up and their time as a pro play significant roles in their financial dealings today.

NFL star Desmond Howard grew up in a middle class Cleveland, Ohio, community.  “My parents taught me the value of money and importance of working hard,” he said.  “I was never flashy … even though I was the number four pick in ‘92 draft. I drove my old beat-up college hatchback to practice at Redskin’s Park every day.

Olympic gymnast Shannon Miller turned pro at age 13 to help cover costs associated with pursuing her sport.  “I had a very small endorsement deal with McDonalds, which basically paid for the grips I used on the uneven bars,” she said.  “Growing up I had to watch my budget.  I carried a notepad around with me when I traveled and would write down every personal expenditure …food, souvenirs, whatever.”

When I asked Deion Sanders if he felt comfortable managing his money when he turned pro.  He was quick to reply with a resounding “NO! And anyone who tells you any different is lying.  Nobody in my family ever went to college let alone knew what do to with a million dollars.”

MMA pioneer Tito Ortiz who faced major battles at home before ever entering the octagon.  “My parents were drug addicts,” he admitted, “and I had to fend for myself a lot.  I was the youngest of four kids and a troubled youth until I realized I could get a lot of attention from slamming people to the mat as a high school wrestler.”

Oftentimes, star athletes are perceived as having it made, with no financial worries.  But actually, they’re no different than average Joes who have to figure out a plan for saving money, grow their wealth, and protect their legacy.

Savings Formula

Like many of us who are told to save at least 5% or 10% of our earnings, athletes face a larger savings rate considering that they will generally retire 20-30 years younger than most people.   Of the athletes I interviewed Annika was by far the most hands-on when it came to saving and investing.

On this subject, Annika said, “I was always very conscious of my money and I saved from the very start. I’m very conservative with my investments and realize it takes some ice in your belly … you know, staying cool and notmaking emotional decisions.  I’m a blue chipper,” she confessed, “and in it for the long haul.  I manage my investments the way I play golf.  I don’t take risks, and lately I’ve been studying how different investment sectors rotate in and out of favor.”

Since when do professional athletes talk about sector rotation?  Desmond Howard and Kris Draper also follow pretty straightforward formulas for saving and investing.

Draper, formerly with the NHL, is very savings conscious, telling me,  “After taxes, I always tried to save at least 50% of my game checks;” adding that he recently spoke with his advisor and structured his allocation toward 40% stocks, 35% bonds and fixed income, and 25% cash.  When I asked him about the heavy cash position, he said, “I want to be protected from the market’s volatility and not lose a bunch of money.” That on-guard philosophy matches his hockey playing style, as evidenced by being awarded the Frank J. Selke Trophy recognizing the NHL’s most defensive-minded forward.

Retired football pro Desmond Howard is also in the moderates’ camp but followed a different savings formula.  “I was advised to save my signing bonus for a rainy day,” he said, “and to live on the money I was generating off the field through trading cards deals and other endorsements.”  “Many players live beyond their means,” he carefully suggested.  “It’s not that they are overspending but they’re acting like the money they are making now is going to be there forever.”

Unlike Sorenstam, Draper, and Howard, Deion “Primetime” Sanders and The Huntington Beach Bad Boy, Tito Ortiz, have investment styles that run counter to their sports personalities.

Ortiz , an aggressive fighter in the ring, said, “I’m pretty conservative because of issues from my childhood and a tendency to not trust people because of my parent’s drug addiction.”

I asked Sanders if his investment style mimicked his flashy style and trademark antics on the field.  Speaking in the third person he explained, “You’re talking about a personality I created when I was playing … Primetime.  That’s not Deion.  Deion is a very different person.”

How a star projects themselves on the field, in the ring, or on the ice may or may not mimic their individual investment approach, which holds true for many everyday Americans.  Whether you’re a conservative CPA or member of a SWAT team, you’re investment asset allocation should reflect what you’re comfortable with in up as well as down markets as should be comprised of investments you can easily explain or track.  That’s a very simple rule for both current and future stars as well as average Joe’s to take to heart:  It you can’t explain it, you shouldn’t own it!

That basic rule combined with the simple fact that “nobody cares more about your money than you” can dramatically change the relationship people have with money and their financial advisor for the better… And yes that could mean putting millions of dollars into a short-term CD or your mattress until you’re ready to treat your money with the same care and devotion you have given to your career.

Selecting A Financial Advisor

When it came to selecting a financial advisor I was not surprised to learn that all of stars I spoke with picked an advisor from their inner circle. Some like Deion Sanders have had the same advisor since he started in the big leagues.  Others like Annika Sorenstam and NHL great Al Iafrate, switched advisors because of investment performance issues and, of course, there are those star athletes who discovered too late that they were working with a crook.

As he theorized on why many young athletes end up broke, Desmond Howard put life as a young millionaire into perspective. “You quickly realize,” he said,” that you’re the boss of something you don’t really understand.  You’re supposed to be the one in charge but you really feel subservient because you don’t understand any of it.”

Former Detroit Piston John Salley added, “It’s so overwhelming that you usually just end up saying ‘have you’re people call my people’ because you have no idea what is going on and don’t want to blow your image.”

Surprisingly, what both of these stars describe isn’t that much different than what I see when meeting with a surviving spouse or family member who is simply clueless when it comes to investing their money and managing their relationship with an advisor.

Howard’s advice echoes my own suggestions for star athletes and widows alike:  Get a second and third opinion before doing anything.  Don’t sit and nod your head “Yes” (which suggests you know what an advisor is talking about) when you should be saying “help me understand.”  “Make sure you ask lots of questions,” recommends Howard, “and work with someone who can explain it to you instead of just accepting the person referred by your agent or friend at work.”

Salley discussed how his former advisor squandered millions of his professional earnings.  “At the end of my career,” he lamented, “I thought I would be moving to L.A. with all of my earnings, where I could live like a modern day Beverly Hillbilly.  Instead, I ended up second in line, behind the IRS, and basically had to start from scratch.”

Knowing who to trust with your money can be difficult for pro athletes as well as everyday people.  I often suggest people do three things before hiring an advisor. First, check them out on the web with FINRA’s Broker Check and/or the SEC Investment Advisor Search.  Pay attention to their employment record and whether they move around a lot. Also note if they have been subject to any arbitration or mediation fines or penalties.

Second, don’t be afraid to have more than one advisor.  More and more wealthy people are segregating their assets among two or three wealth advisors to make sure one bad apple doesn’t ruin the retirement party.  And thirdly, ask them to get back to you on something like research on a particular stock or product feature.  It’s a simple way to see if they follow through right off the bat with what they say they are going to do.

Living On Less Income

Typically, average Joes are advised to plan on living with less money than what they’re accustomed to earning in the workplace … usually only 60-70% of their pre-retirement income.  Pro athletes, however, may be looking at a much more significant decline.

As I shared in the first of this series, Annika Sorenstam stated, “My income dropped by more than 50% but I had planned and prepared for that.”

“No one took as big a pay cut as I did going from player to my current role,” said Kris Draper, “You just have to start cutting some things out and not necessarily doing all the things you were able to do before.”

John Salley says you generally have all the same expenses going out but no more income coming in, so everything changes.  After his basketball career, Salley wasn’t handed a role in The Best Damn Sports Show or given a role in Bad Boys movies on a silver platter.  He, like many starving actors, had to take classes and attend hundreds of auditions … and there aren’t a ton of roles for sever-footers.

There’s nothing automatic about retirement for athletes or every day people.  It doesn’t just happen.  It takes time, energy, and practice.  Whether your multi-million dollar contract isn’t renewed or your pension or social security won’t cover all of your expenses, the longer it takes you to adjust your spending to meet your current income level, the longer it will take you to secure your future.

All-in-all, Deion Sanders said it wisely and well, “Money only magnifies what you already are.  If your dumb and broke, money will only make you dumb and rich … if you’re smart and broke, money will make you smart and rich.”

And so too is the case when it comes to retirement. If you’re not prepared to deal with it both mentally and financially, it will only magnify the positive or negative things you’re already doing instead of creating the legacy you deserve.

Full article can be seen here:  http://www.forbes.com/sites/robertlaura/2012/05/24/how-star-athletes-deal-with-retirement-financial-lessons/3/