Life after sport: Saving and financial planning
Few of us will experience the highs, lows, glamour or pain that makes up the life of a professional sports star.
The active life of a professional sportsperson is an intense period. Without suffering a career threatening injury, the vast majority of professional athletes will have a career less than half that of a typical office worker. As a result, so much more financial planning needs to be done in that short period with little time to plan for your life after sport.
Like everyone else, a professional sportsperson needs somewhere to live and put food on the table. This needs to continue to happen long after their playing career is over.
This doesn’t happen automatically, so taking control of your finances will help you prepare for a new life and possible a second career after sport. People don’t plan to fail, instead they fail to plan. The earlier you engage a trusted and experienced financial planning advisor and embark on a saving and investment plan, the better.
Pensions are not enough
Professional sportspeople, especially footballers, will earn good money but only while they are playing. Many will be retired by their mid-thirties, with more than half their life still in front of them.
A pension used to be the primary source of income in retirement. The days when you could make large, infrequent contributions into a registered pension scheme, which you could access from the age of 35, are confined to the history books. Since 2015, athletes have had to wait until the age of 55 to get their hands on their pensions. The minimum retirement age is expected to be linked to 10 years below the state pension age in the future. This means that the minimum pension age will increase to 56, then 57. For an active sportsperson today, the reality is that it be only be possible to access their pension when they approach their 60th birthday.
Although there is no limit on the amount of personal pension contributions that can be made by, or behalf of an individual, tax relief for payments into a pension plan is capped for most people at £60,000 per year. However, for a lot of professional sportspeople earning more than £360,000 a year, tax relief is only given on contributions of up to £10,000. So, sportspeople need to think and plan about coping with life’s expenses between retirement and their 55th (or later) birthday, i.e. a period probably of at least 20 years.
From hero to zero (income) – don’t forget your future
You might be earning a decent wage now and not think about how bills will be paid, but bills will still be there when you retire. Indeed, retirement may coincide with the most expensive period of your life, with a sizeable mortgage, a growing family, private school fees etc. Sportspeople must, therefore, be aggressive in saving for their future, because the time they can invest surplus cash is so short. You might go on to work as a pundit, manager or coach but it’s likely your income won’t be anywhere near the same. The transition away from actively playing sport into doing something else needs careful management.
Don’t leave your future career to chance. It can be worth investing in yourself to develop a skill or even get a trade. That is an investment that will deliver returns throughout your lifetime.
Cashflow is king
Even if you have a second career after active sport, your earnings will probably fall, often by a considerable amount. You will need to think how you will make up the gap. That starts with an assessment of how much you need post the first career. Plan your cashflow – if you think you need £10,000 a month, double it, because tax and national insurance charges will broadly halve it.
Working with a trusted financial planner, you should consider a broad investment portfolio, some of which is readily accessible, such as ISAs or renting property so you have an income. Blend these with longer term investments to create that diversified portfolio. Such a strategy means all your eggs aren’t in one basket and you can invest in higher risk/higher return areas such as the stock market.
Have a plan and regularly review it
Bankruptcies among sports professionals are all too common. This is sometimes because they were badly advised, or they’ve fallen foul of the tax man, but one way or another they haven’t adjusted their spending once their careers ceased. There will always be temptation and peer pressure. Trying to keep up with your team mates’ spending habits is not usually the best option, particularly as your playing career draws to a close.
Living the life of a successful sportsperson is exciting, but you must think about what happens once the final whistle goes. Saving isn't easy, so getting into good habits early pays dividends for those with short careers. Then, you can enjoy more of your rewards at leisure, instead of racing towards a financial precipice.
For more information on the issues discussed in this article or to discuss your individual circumstances, get in touch with Peter Fairchild or your usual Crowe contact.
