Most clients’ employment income follows a pattern: it increases incrementally for two decades, and then peaks 10 to 15 years before retirement. Saving for life after work is, in a way, a life’s work.
But some careers offer ultra-high salaries over short time spans. Think pro hockey, investment banking and labour-intensive oil patch jobs.
If you have such clients in your book, you’ll need a different approach to retirement planning.
The biggest danger for NHL players, like most other pro athletes, is giving in to the temptation to quickly spend astronomical sums, says Robert Stammers, director of investor education at the CFA Institute in New York.
He cites a 2009 Sports Illustrated article reporting 60% of NBA players are broke within five years of retiring. NFL players fare worse: 78% are bankrupt, or close to it, within two years. Terry Willis, vice-president at T.E. Wealth in Toronto, uses similar articles to warn the NHL players he advises.
The NHL Players’ Association (NHLPA), he adds, also does a good job of cautioning new players about overspending. Athletes must have higher savings rates because they have to live off those assets longer, notes Stew Gavin, president of Gavin Management Group in Toronto.
Gavin himself played five seasons with the Toronto Maple Leafs, starting in 1980, before moving to the Hartford Whalers (1985 to 1988) and, finally, the Minnesota North Stars (1988 to 1993).
He transitioned to a career on Bay Street in 1995, and soon began catering to NHL players. Savings should be about half of net pay, he says; or 30% at the lowest. Adds Stammers: “Advisors should push them to automatically save increases and bonuses.”
Matthew Bacchiochi, portfolio manager at Gavin Management Group, says prudent planning doesn’t mean players have to forego wealthy lifestyles.
“When you map out a plan and tell them they’ll live on $25,000 a month, they begin to realize, ‘Hey, I can still spend money and live the lifestyle I’m fortunate enough to have earned, while saving and planning for my future.’ When they see it this way, the story becomes easier to buy into.”
Gavin and Bacchiochi shoot for 6% to 8% annualized returns after fees and taxes. As long as clients stick to spending targets, these returns will get them through the rest of their lives, helped in part by the NHLPA’s current $210,000 annual pension (beginning at age 62 and indexed for inflation). A 10-year career is needed to get the full pension; those who play one year get $21,000, for two years $42,000, et cetera.
Some continue to attract lucrative endorsements after leaving the ice; others get high-paying managerial or broadcasting roles. But that’s rare, says Gavin. “Amateur scout jobs or minor-league coaching positions don’t pay more than $75,000, regardless of how great your playing career was. Few guys get high-paying jobs when they hang up their skates.”
Gavin’s financial plans are designed so the player won’t need to work post-hockey. In cases where this isn’t possible, he forecasts employment earnings needed to bridge the gap between the retired player’s investment income and projected cost of living.
Willis notes first-year players are especially vulnerable to bad private equity deals. “I’ve come across a couple situations where a rookie who just landed a big contract comes into the dressing room, and a veteran pulls him aside and says, ‘Hey, I’m starting up a restaurant or clothing line and you should get into it.’ There may be pressure [to invest].
“We say, ‘This is how much money you’re going to need after 10 years for your lifestyle and this is how we’re going to get there. You can afford to put in a little, but the more you take from your core savings, the less chance you’re going to have of achieving your end goal.’ ”
Pro athletes’ portfolio breakdown
Advisor Matthew Bacchiochi says a typical portfolio looks like this: