20 Valuable Financial Lessons From Retired Athletes

Editor's Note: This story originally appeared on NewRetirement.

Retired athletes too often face financial ruin. According to authoritative reporting by Sports Illustrated, approximately 78% of NFL players either go bankrupt or face some serious financial stress within two years of ending their playing careers, while 60% of NBA players are broke within five years of retiring from the game.

More recent data from the National Bureau of Economic Research estimates that 2% of retired football players file for bankruptcy within the first two years of retirement and almost 16% do so by year 12.

While professional athletes may reach superstardom in the arena, their lives outside of the stadium can often be difficult and wracked with financial strain. And, in some instances, when it’s time to hang up the jersey, those million-dollar salaries can disappear and leave nothing for retirement.

One would think that making hundreds of millions of dollars over the course of a career would be quite the nest egg on which to live out your non-working years. However, in the realm of professional sports, the half-life of one’s earnings can be devastatingly short.

Money management problems aren’t unique to everyday people who might work a 9-to-5 job, nor are they to superstar retired athletes who raked in $100 million per season.

Here are 20 tips for a successful retirement — based on stories of professional retired athletes who either found the thrill of victory even after their sports career ended or lost it all when the stadium cleared, the lights went out, and the salary stopped rolling in.

1. Know About Personal Finance — and Continue to Learn

Financial intelligence is rare among pro athletes and the general population alike.

“Personal management of one’s finances plays a large role when it comes to financial longevity, regardless of whether you’re a professional athlete or just an average Joe,” Doug Dawson, a former NFL player and University of Texas Scholastic All-American and now Northwestern Mutual wealth management adviser in Houston, told Forbes.

“I see it every day in my practice with just normal people,” said Dawson. “It’s pretty easy to be financially dysfunctional, and it generally takes the old school of hard knocks to realize that’s not the way to do it.”

The NFL now considers financial education so important that they have a program that provides players with knowledge to manage their personal finances and improve financial decision-making. The objective of the program is to ensure the long-term financial stability of players throughout the league.

The seminars teach players about cash management, insurance, tax planning, estate planning, investments, retirement planning and other related topics.

In addition to learning by building and maintaining your own plan, NewRetirement also offers free demos, webinars and question/answer sessions to help you learn about ways to strengthen your finances.

2. Work as Long as Possible

One problem for pro athletes is that they usually have a very short window of time to make money from sports. Players with median-length careers earn about $3.2 million in a few years.

We normal human beings typically work from our early 20s through our 50s and 60s. But, if you really want to build wealth, it is a good idea to work longer.

Warren Buffett is wildly wealthy in part due to investing acumen. However, consider this analysis from CNBC: If Warren Buffett had waited until he was in his 30s to start investing and stopped at retirement age, he would have amassed mere millions instead of billions. … That is a colossal difference!

The longer you can work, save and invest, the wealthier and more secure you can be.

3. Aim to Maintain Your Desired Lifestyle Over Your Entire Lifetime

Economists have a concept called “consumption smoothing.” It expresses the idea of having a stable path of consumption — or spending — over one’s entire life.

Many economists believe that the goal of a financial plan is to provide a consistent quality of life across someone’s life — helping people achieve a consistent level of inflation-adjusted (real) income for consumption of goods and services every year. So, in higher-earning years, you save and invest. In lower-earning years, you create income from your savings and investments to maintain your desired spending levels.

Consumption smoothing is particularly challenging for pro athletes. If you are making millions a year, it is tempting to spend millions a year. Why shouldn’t soccer star Cristiano Ronaldo collect cars, including a $400,000 Rolls Royce? Well, perhaps that money will need to be used when he is no longer able to be on the field.

The trick of consumption smoothing is in remembering that you need to spread your earnings across your entire lifetime. It is not a matter of cash flow during the high earning years, it is a matter of funding your entire life.

Consumption smoothing is really the whole idea behind saving for retirement. You are taking a part of your earnings now to fund your future. And, it is easier for people who have fairly stable incomes, but remember the concept whenever you get a raise or a bonus.

4. Build and Maintain a Detailed Financial Plan

You might be looking forward to retirement. However, most sports stars probably wish that they could play their game forever. As such, you have an advantage over the professional athletes, you are motivated to create a good plan.

Financial planning might seem stressful, but it actually relieves stress by helping you know what you need to do and when. There are so many benefits to having a personalized plan:

• Achieve clarity about what is possible.
• Know how to realize today’s priorities.
• Reach your goals for the future.
• Make better decisions for more wealth and security.
• Studies show that people who maintain a plan have better outcomes.

5. Watch Out for a Forced Early Retirement

Andrew Luck retired from football after just seven years. He was considered a generational prospect when he started, but injuries and weak teams meant that he never really showed his talent. He retired in 2018 after playing just 38 games saying that he was mentally worn down from pain, rehab and setbacks. The Indianapolis Colts owner said that Luck was potentially giving up as much as $450 million in future salary.

Forced early retirement is not unique to professional athletes. According to a study by Sun Life Financial, more than 20% of American workers are forced into early retirement by layoffs, cutbacks and shutdowns.

And an EBRI report about retirement confidence found that 43% of respondents reported retiring earlier than planned — of which 33% said it was because they could afford to do so. However, another 35% of the early retirees said they made the decision to retire because of a hardship or disability. And 35% said they retired early due to changes at their company.

Many people hope to keep working in order to have a secure future, but it is not always possible.

6. Seek Professional Advice

Pro athletes have trainers, nutritionists and specialized doctors to help them care for their bodies. More really ought to hire a well-vetted financial adviser to help manage their money.

The same might be true of you.

7. Be Careful Whom You Trust

While hiring a trustworthy financial guide is a good goal, many professional athletes have been absolutely fleeced by supposed “advisers.” Hockey great Bobby Orr sacrificed his career and lucrative contracts because of his agent, Allen Eagleson. The Hockey Writers called Eagleson, “duplicitous, destructive, and vampiric destroyer of both hockey’s honor and the careers of many of its players both great and small.”

The problem is actually pretty widespread. An Ernst & Young study found that between 2004 and 2019, professional athletes alleged almost $600 million in fraud-related losses.

Here are a few tips that might help retired athletes and you choose a trustworthy adviser:

• Make sure the adviser is a fiduciary.
• Understand their fee structure — ideally, you are paying them a flat fee, but if they are earning any commissions or cuts on investments they do for you, it must be disclosed.
• Know the adviser’s specialties. Many financial advisers can help with investments as you accumulate savings, but might not be as experienced with turning your assets into income for retirement.
• Ensure that the adviser is answering your questions in a way that you understand.
• Be capable of vetting the adviser’s advice on your own. Personal finance can be complicated, but the right tools can enable you to gain knowledge.
• Seek a second opinion, especially for particularly big money moves.

8. Retire to Something, Not Just Away From What You’ve Been Doing

Professional athletes have put their heart and souls into careers that don’t last a lifetime. It is really important for anyone retiring from a career also to retire to something. It is important for retired athletes and regular people alike to find a pursuit that is rewarding — emotionally and financially.

Write your retirement manifesto.

9. Avoid Overspending

The big mistake that many athletes make is living an over-the-top lifestyle now without saving enough for the future. The real trick with budgeting and retirement planning is to be able to maintain your desired lifestyle for your entire life — not just your working years.

Making small changes to your budget when working can enable you to save more now and need less later.

10. Avoid Extravagance

There is overspending, and then there is outright extravagance.

Mike Tyson was arguably one of the most feared boxers in the history of the sport — for more reasons than one — but Iron Mike’s finances had the former undisputed heavyweight champion up against the ropes for much of his career and the years following it.

Tyson, who is believed to have earned more than $400 million throughout the course of his boxing career, filed for bankruptcy in 2003. Despite after having received over $30 million for several of his bouts, Tyson claimed to have frittered much of it away on lavish expenses, including luxury cars, mansions and even pet tigers — not to mention the cost of numerous legal battles for substance abuse, sexual misconduct and divorce settlements.

Upon his bankruptcy filing, Tyson claimed to have debts of $27 million.

While these are big numbers, you might be making some extravagant decisions in your own realm.

11. Look Out for ‘Hidden’ Costs of Ownership

Former NBA star Latrell Sprewell maintained a solid career from 1992 to 2005, making it to the All-Star Game on four separate occasions and helping the New York Knicks reach two NBA Finals. But Sprewell’s financials were another story.

Sprewell reportedly earned almost $100 million over the course of his playing career, but as they say, “easy come, easy go.” Nearly all that cash vanished almost as easily as it was made.

By 2007, the unemployed NBA star had his yacht, which he dubbed “Milwaukee’s Best,” repossessed by federal marshals after he skipped out on payments and insurance of over $1 million. A year later, a default on the mortgage of Sprewell’s Milwaukee home sent it into foreclosure.

The moral of Sprewell’s story is that even if he could have afforded the home and yacht, he obviously didn’t think through the ongoing costs of those assets.

Finance isn’t simple.

12. Be Careful With Taxes

So, you think your taxes are complicated? Try being a pro athlete. They pay something called a “jock tax.” (Players have to pay a withholding tax when they are out of state on the road. However, they also get a tax credit in their home state for those withholding taxes. If their home state has a higher tax rate, they may owe more than they anticipate.)

Furthermore, where they live when they get a signing bonus is important, and different types of income (endorsements versus salary) are all taxed differently.

The point is that tax planning can help you to preserve wealth. (Remember all that debt Mike Tyson racked up? Included in that debt was $13.4 million he owed the IRS.)

It has been reported that the average football, baseball or basketball player pays around $1 million in federal taxes each year.

It is important that you be able to predict your taxes for the next 20 or 30 years.

13. Don’t Try to Keep Up With the Joneses

Part of the problem that pro athletes have with spending is that “everyone is doing it.” If your teammate is buying a Porsche, you think that you should too.

Playing 15 seasons in the NBA reportedly accumulated an estimated $60 million for Kenny Anderson, but not even a career that long was enough to support the point guard’s lifestyle by the time he ultimately called it quits from the league.

In his 2005 bankruptcy filing, the 1994 NBA All-Star listed his monthly expenses as $41,000, which included giving himself a $10,000 allowance per month, which Anderson dubbed as his “hanging out money.”

He was apparently hanging out with some pretty wealthy Joneses!

Your attitudes toward money reflect your values. Make sure your spending also reflects who you are and what you know to be important — not what anyone else is doing.

14. Watch Out for Divorce

Superstar Michael Jordon is one of the wealthier retired athletes. Salary aside, endorsement deals with Nike, Gatorade, McDonalds and others put his net worth at around a half a billion dollars in 2006 when he and his wife filed for divorce.

The settlement was one of the most expensive ever. Juanita Jordan left with $168 million, a seven-acre estate and custody of their three children.

Yep. Divorce is costly. And, there are actual massive financial benefits to marriage through taxes, credit scores, shared household expenses and higher household income and savings.

While divorce is not something you want to plan for, it is common enough among regular retiring people that it should be an important consideration. The number of people over the age of 50 who divorce nearly doubled between 1990 and 2010, according to a study from Bowling Green University researchers. They have dubbed this divorce age range for those over the age of 55 as the “gray divorce,” and have started to note its many financial consequences.

15. Have an Encore Career

Retiring from one job in order to start another or even start up your own business can be a smart financial and lifestyle move.

This tactic has certainly worked for Roger Staubach, former quarterback for the Dallas Cowboys and Magic Johnson, star player for the L.A. Lakers.

Staubach is reported to be the richest NFL player of all time. But his current wealth doesn’t come from football. After founding his own real estate company, Staubach sold it for more than $600 million in 2008.

Johnson has been reported to also be worth about $600 million. His post-basketball financial success comes from ownership of movie theaters, Starbucks outlets, health clubs, real estate, a promotional marketing company and partial ownership of different sports franchises: the L.A. Dodgers, L.A. Sparks, and more.

You too can achieve success later in life with an encore career or by starting your own business!

16. Make a Little Extra Income Doing Something You Love

Retired athlete Karl Malone was one of the top ballers for the Utah Jazz. After his retirement, he had a successful career coaching and making investments in various businesses. What is more interesting though is that he also spent time hauling lumber as a trucker — not really for the money, but because he really loved doing it.

After retirement from figure skating, Kristi Yamaguchi created an activewear clothing line — with some of the proceeds going to childhood literacy.

Retirement jobs don’t have to be all about the big money — it can also be an important way to stay engaged, do work that gives you meaning and enjoyment and, sure, maybe make a little extra to extend your savings.

17. Beware of Debt

Antoine Walker, who helped lead the University of Kentucky to an NCAA Championship in 1996 and collected one NBA title with the Miami Heat a decade later in 2006, reportedly earned $110 million throughout his basketball career.

In his 2010 bankruptcy filing, Walker claimed assets totaling $4 million and liabilities of approximately $13 million, including a $2 million home in Miami with a mortgage of nearly $4 million.

That is a big hole to have to climb out of for a retired athlete.

18. Watch Out for Depression

While 20% of all adults in the United States experience some form of mental health problem, research suggests that nearly 35% of elite athletes experience these problems.

Someone once said that a sports star will die twice, the first time at retirement.

Research indicates that the real problem is that elite athletes have typically endured extreme personal sacrifices in pursuit of excellence and much of their identity is wrapped up in the sport. Retirement can trigger feelings of regret over what they have missed out on and a loss of identity — they are no longer the athlete they have been.

19. Consider Carefully How to Spend on Family Members

Imagine you suddenly got $100 million. How many people would you want to help and would want help from you? Pro athletes are often faced with the desire to spend lavishly on friends and family. A new house for mom and dad, a sports car for their brother and lavish nights out with friends.

Experts say that this desire to spend on loved ones is a big factor in retired athletes’ bankruptcies.

Those demands might seem foreign to you. However, are you trying to figure out how to help your kids pay for college and your parents fund medical care?

Same problem, different scale.

20. Save as Much as Possible as Early as Possible

One advantage that pro athletes have is that their peak earnings usually come relatively early in their life. That means that if they can save a big chunk of their salary and money from endorsements and carefully invest it, then those funds have time to compound.

However, because professional sports careers are very short — an average of 3.3 years in the NFL, 4.6 years in the NBA and 5.6 years in the MLB — players don’t have a lot of time to save for their future. That means that a huge percentage of their salaries should go to savings.

You probably don’t need to save as big of a percentage as pro athletes do, but the more you can save earlier, the easier it will be to accumulate the next egg you need.