Sports Illustrated estimates that almost 80% of NFL Players are broke three years into retirement. How can such high-paying careers possibly end in bankruptcy?
The NFL pays players the worst, on average, among professional sports organizations. Your typical NBA player makes a cool $5 million per year; your average NFL player makes $1.9 million — less than half. And the highest earners skew the average for both leagues, so the averages don’t represent most players. The median salary for an NFL player is $770,000.
That sounds like a lot, but that salary is only earned over a few years. NFL players’ careers are very short compared to white-collar workers. Football players might have a retirement that’s 50 years long. Combine this with the average 3.5 year career of a player and you can see the problem. These guys need to be really good at planning for their future, and they have a very small window of time to make the right decisions.
While young doctors can earn a decent amount of money over many decades, football players are front-loading their income at a time when their judgment hasn’t been tempered by experience: their 20s. Players like Terrell Owens, Lawrence Taylor, Michael Vick, Deuce McAllister and Bernie Kosar have all ended up on the skids. And they’re not going to get another chance to join the starting lineup.
The crazy thing is, when young athletes set aside a tiny fraction of their income in their 20s, compound interest can turn those savings into millions by the time they retire. Investing early and staying in the market is more effective than any other method.
The NFL is an organization that rewards the number of active seasons in both their pension and 401k plan. The pension, which players become eligible for at age 55, gives them $470/month for each season they played. A player with 4 seasons would get $1880/month starting at age 55, for the rest of their life. But most of them stop playing long before that, and inflation is eating away the value of those pension dollars with each passing year.
The 401k is structured more generously. After their second season, players can received 2:1 matching up to $24,000 until 2014, and $28,000 after that until 2020. Without careful money management, they still might come up short of the goal and miss their contributions. Though most of us aren’t playing in the big leagues, we share a lot of the same challenges as our favorite athletes.
Whether you’re investing large amounts of money over a short period, or small amounts of money over a long period, having an unbiased methodology can help make sure you’re in the end zone, not the red zone. (Hint: FutureAdvisor‘s free investment analysis can show you whether or not you’re on the right track.)
What about professional baseball players? According to ESPN, the average 2013 salary for a Major League Baseball player was $3.39 million. You can read more about their retirement strategies here.