A Plan to Prevent Professional Athletes (and You) from Going Broke

Allen Iverson was once the most famous basketball player in the NBA. According to one report, he earned a salary of $154 million during his playing days. Now he may be broke. The same report indicated a judge in Georgia ordered him to pay $860,000 to a jeweler. He didn't have the cash, so the Court ordered his bank accounts frozen and his earnings garnished.

[See 10 Important Ages for Retirement Planning.]

Iverson's sad plight is not uncommon among professional athletes. Another report noted that a representative of the NBA Players' Association indicated in 2008 that 60 percent of retired NBA players are broke five years after they stop receiving their paychecks. At the time, the average player' annual salary was $5.36 million.

It's even worse for former NFL players. By some estimates, up to 80 percent of them lose their fortunes in the years immediately following their retirement.

So far, efforts by the players associations to protect athletes from greedy managers, promoters, financial consultants, dumb investments, and their own profligate spending habits have been a dismal failure.

It's time for drastic action. Here's a simple plan to save athletes from the fate of their peers. You can adopt it as well.

Forced savings. Require the teams to withhold taxes and deposit 25 percent of the after-tax amount of the total salary of every athlete into a designated trust account. The trustee would be a "directed trustee", typically a bank that provides fiduciary services relating solely to the administration of the plan assets, but does not engage in investment advisory services. Those services are provided by an independent investment adviser. Directed trustees are fully insured and bonded. Some of the leading directed trustees are Advisory Trust of Delaware, Santa Fe Trust, Reliance Trust, and Wealth Advisors Trust Company of South Dakota.

[See How Long Should I Work Before Retirement?]

Designated investment advisers and fees. Prepare a standard trust agreement for use with all athletes, unless there is a compelling reason to deviate from it. It would require the directed trustee to retain independent investment advisers who meet the following criteria:

--Their primary focus would be on an appropriate asset allocation of the portfolio.

--The adviser would agree to limit investments solely to low management fee stock and bond index funds, passively managed funds, or exchange traded-funds.

--The portfolio would be globally diversified, with the goal of capturing market returns.

--Advisory fees would be established by a simple formula, depending on the amount of assets invested, with a cap of 0.5 percent. With the ability to direct significant assets to the adviser, the negotiated fee could be much lower.

Limit withdrawals. Absent extraordinary circumstances, no withdrawals could be made from trust assets until after retirement, at the earliest. Players would be encouraged to defer withdrawals for as long as possible. The trustee would be required to prepare a Monte Carlo analysis which simulates thousands of portfolio outcomes based on long term risk and return data. This analysis presents statistical probabilities of portfolio survival at various ages of retirement. Withdrawals from the trust will be governed by the results of this analysis.

Here's what a Monte Carlo analysis would have shown for Allen Iverson: From total earnings of $154 million, $38.5 million (pre-tax) would have been withheld during his playing days. After taxes, $25.1 million would be left in the trust. While this money would typically appreciate over his playing life, let's assume it remained the same. This assumption should offset fees relating to trust administration and advisory fees.

Iverson is currently 37 years old. Let's assume he will never make any money until he dies in 58 years at age 95, so he will need to start withdrawals immediately. I used long term risk and return data from a portfolio consisting of 60 percent stocks and 40 percent bonds, invested as required by the trust documents.

The Monte Carlo analysis showed that Iverson could withdraw $700,000 a year (pre-tax), adjusted annually by 4 percent to account for inflation. The inflation adjustment is meaningful. At age 57, his withdrawal would be more than $1.5 million in today's dollars. There would be almost no statistical likelihood of depleting these assets before his death. In fact, it is statistically far more likely that his ending wealth would be many millions of dollars. Obviously this report is based on many assumptions which can significantly alter the outcomes. While it can't cover all the changes that occur throughout a lifetime, it provides a very helpful guideline.

[See Invest With the Silent Minority.]

If the players associations in professional sports want to do more than pay lip service to the financial plight of their members, all they have to do is adopt these recommendations. But you don't have to be an athlete to benefit from these recommendations. You can run your own Monte Carlo report here.

Dan Solin is a senior vice president of Index Funds Advisors. He is the New York Times bestselling author of The Smartest Investment Book You'll Ever Read, The Smartest 401(k) Book You'll Ever Read, The Smartest Retirement Book You'll Ever Read, and The Smartest Portfolio You'll Ever Own. His new book, The Smartest Money Book You'll Ever Read, was published on December 27, 2011.

The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.



More From US News & World Report

--

Get stories like this on the Yahoo app and discover more every day.
Download it now.
Loading...
  • Oil prices dip as focus returns to global supply overhang
    Oil prices dip as focus returns to global supply overhang Reuters - 4 minutes 39 seconds ago

    Crude prices dipped on Thursday as brimming U.S. and Asian fuel inventories returned investor attention to a large global supply overhang, cutting short a price-rally and restricting Brent crude futures to below the $50 a barrel mark. International … More »

  • Aluminium giant Rusal reports 70% net profit plunge AFP - 8 minutes ago

    Russian aluminium giant Rusal said Thursday net profit fell 70 percent in the first half of 2016, as weaknesses in global commodities markets keeps prices depressed. The cost of aluminium sank to six-year ... … More »

  • Weekend guide (26-28 Aug): Singapore Night Festival, Tanjong Goodman Weekend Market and Singapore Rhapsodies The Concert 2016
    Weekend guide (26-28 Aug): Singapore Night Festival, Tanjong Goodman Weekend Market and Singapore Rhapsodies The Concert 2016 Yahoo Newsroom - 16 minutes ago

    Do everything from planet-gazing at the Science Centre, attending the Singapore Night Festival, shopping at the Tanjong Goodman Weekend Market to catching a concert by Mando pop-rock duo Power Station and more fun events this weekend. … More »

  • Malaysia's closing tin prices for Aug 25 Reuters - 30 minutes ago

    KUALA LUMPUR, Aug 25 (Reuters) - Following is a table of Kuala Lumpur tin market prices provided by a Malaysian trader. (Prices in $/tonne, and volumes in tonnes unless stated) Date KL Premium/ Spot Bid ... … More »

  • Why It Makes Sense To Own A Credit Card From Young DollarsAndSense.sg - 31 minutes ago

    Being financially responsible starts from a young age. The post Why It Makes Sense To Own A Credit Card From Young appeared first on DollarsAndSense.sg. … More »

  • Dollar edges lower as market awaits Yellen speech AFP - 32 minutes ago

    The dollar was barely moved Thursday ahead of a speech by Federal Reserve boss Janet Yellen that could shed light on whether a 2016 rate hike is still on the cards. With the economic calendar relatively ... … More »

  • Gabon's Bongo finds new pep on the campaign trail
    Gabon's Bongo finds new pep on the campaign trail AFP News - 1 hour 0 minutes ago

    Ali Bongo of Gabon, who is running for a second seven-year term in Saturday's presidential election, has spent more than half his 57 years cruising the corridors of power. Known variously by his initials ABO, Ali B and less flatteringly as … More »

  • Asia energy firms extend losses as oil falls
    Asia energy firms extend losses as oil falls AFP News - 1 hour 4 minutes ago

    Asian energy firms fell further on Thursday as oil extended losses, while currency traders moved cautiously the day before a key speech by Federal Reserve boss Janet Yellen. World markets have struggled to gain traction this week with few catalysts … More »

  • Indonesia finds ship that was taken by disgruntled crew Associated Press - 1 hour 14 minutes ago

    Indonesia's navy said Thursday it has located a fuel tanker that was missing for a week after being taken from port by its disgruntled crew. The navy said in a statement that the MT Vier Harmoni with 10 ... … More »

  • China's CNOOC reports $1.16 bn net loss
    China's CNOOC reports $1.16 bn net loss AFP News - 1 hour 19 minutes ago

    China's main offshore oil and gas producer CNOOC saw its shares on the Hong Kong stock exchange fall on Thursday, after it reported a $1.16 billion net loss for the first half of 2016. It was the company's first half-year loss since it started … More »

  • Marketing solutions company CtrlShift names new CEO, CFO and Malaysia Country Head
    Marketing solutions company CtrlShift names new CEO, CFO and Malaysia Country Head e27 - 1 hour 21 minutes ago

    Team to take on Southeast Asia’s digital advertising industry, expected to hit US$9.9 billion by 2025 CtrlShift, a data-driven audience-focussed marketing solutions company, has announced three new appointments to its management team. Deepika … More »

  • Asia stocks mark time before Yellen speech; dollar firm
    Asia stocks mark time before Yellen speech; dollar firm Reuters - 1 hour 25 minutes ago

    Asian stocks edged higher on Thursday but clung to recent well-worn trading ranges while the greenback held firm against regional currencies ahead of a speech by Federal Reserve Chair Janet Yellen at a global central bankers' meeting. MSCI's … More »

  • PBOC Money-Market Tactic Has Traders Trying to Decode Signal (2) Bloomberg - 1 hour 29 minutes ago

    The People’s Bank of China sold 50 billion yuan ($7.5 billion) of 14-day reverse-repurchase agreements on Wednesday, its first offering of anything with a tenor other than seven days since February. Officials are signaling they’re ready to curb … More »

  • Asian shares waver in thin trading after Wall Street decline
    Asian shares waver in thin trading after Wall Street decline Associated Press - 1 hour 32 minutes ago

    Shares wavered in thin but volatile trading in Asia on Thursday, following a bleak day on Wall Street led by declines in health-care stocks as outrage mounts over steep price hikes for Mylan's EpiPens. ... … More »

  • This is what the world of finance really thinks of Donald Trump
    This is what the world of finance really thinks of Donald Trump Truewealth Publishing - 1 hour 36 minutes ago

    The chances are slim – somewhere between 4 and 21 percent, depending on the source – that Donald Trump will become the next president of the U.S. But as long as there’s any chance at all that he’ll become the American president (and as long as he’s … More »

  • Mobius Says Helicopter Money Will Be Japan’s Next Big Experiment Bloomberg - 1 hour 38 minutes ago

    Haruhiko Kuroda decides to act. Helicopter money is coming, says Mark Mobius, even as soon as next month. For Mobius, executive chairman of Templeton Emerging Markets Group, traditional easing measures have just made people save instead of spend … More »

  • Dollar Rally Fades as Markets Calm Before Yellen; Kiwi Advances Bloomberg - 1 hour 52 minutes ago

    The Bloomberg Dollar Spot Index snapped a four-day winning streak that was fueled by hawkish comments from Fed officials. Fluctuations in the MSCI Asia Pacific Index over the past two weeks have been the most muted since 2012 and gauges of expected … More »

  • High-Speed Trader IMC Under China Stock-Index Futures Probe Bloomberg - 2 hours 10 minutes ago

    The firm has received inquiries from the China Securities Regulatory Commission related to futures trading at its Shanghai-based affiliate, said Ian Bickerton, a spokesman for IMC. Discussions between IMC and the regulator have been constructive … More »

  • Kuroda Money-Go-Round Undercuts Japan Negative-Rate Windfall (1) Bloomberg - 2 hours 23 minutes ago

    Japan’s Ministry of Finance made about 110 billion yen ($1.1 billion) more in the year to April than it would have if yields had been zero, according to Bloomberg calculations. This money-go-round shows how intertwined the finances of the BOJ and … More »

  • Two strata office floors at AXA Tower for sale from $2,550 psf
    Two strata office floors at AXA Tower for sale from $2,550 psf The Edge Property - 2 hours 34 minutes ago

    Perennial Real Estate Holdings has released two strata office floors at AXA Tower, 8 Shenton Way for sale by expression of interest (EOI). The indicative price starts from $2,550 psf, according to marketing agent JLL. … More »

  • 69 industrial units at Kaki Bukit for sale from $37.5 mil
    69 industrial units at Kaki Bukit for sale from $37.5 mil The Edge Property - 2 hours 37 minutes ago

    A portfolio of 69 strata industrial units at the Ruby Warehouse Complex has been put up for sale by public tender. According to marketing agent CBRE, the guide price for all the units combined is between $37.5 million and $38.8 million, which works … More »

  • Hong Kong’s Equity Bull Run Tires as Fed, China Concerns Return Bloomberg - 2 hours 37 minutes ago

    Speculation China’s economy is stabilized has been dashed by July data showing faltering growth. At the same time, technical indicators are signaling that the Hang Seng Index’s 25 percent ascent since February’s low was too quick. For BNP Paribas … More »

  • GCB in Dalvey Estate for sale by auction at $30 mil
    GCB in Dalvey Estate for sale by auction at $30 mil The Edge Property - 2 hours 41 minutes ago

    A 2½-storey GCB in Dalvey Estate has been put up for sale by auction. The indicative price for the house is $30 million ($1,972 psf). It is currently tenanted at a monthly rent of $26,000, with the lease expiring in August 2017.The GCB sits on … More »

  • Israeli adtech startup MassiveImpact acquired by Taiwanese GMobi
    Israeli adtech startup MassiveImpact acquired by Taiwanese GMobi e27 - 2 hours 44 minutes ago

    The Israeli company has over a billion users each month. Taiwanese sources said the acquisition price was in the tens of millions of US dollars It is not only cyber. Foreign companies also find Israeli adtech startups attractive for both investments … More »

  • China Oil Giants Unmoved by Bull Rally After Worst Earnings (1) Bloomberg - 2 hours 50 minutes ago

    PetroChina Co., the country’s biggest oil and gas company, and Cnooc Ltd., China’s main offshore explorer, reported the weakest earnings since they were both publicly listed. Oil has whipsawed this year, flipping five times between bear and bull … More »

 
Recent Quotes
Symbol Price Change % Chg 
Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
You need to enable your browser cookies to view your most recent quotes.
 
Sign-in to view quotes in your portfolios.

MARKET MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    0.1290.0000.00%
    N21.SI
    0.600.000.00%
    5TP.SI
    1.055-0.025-2.31%
    OV8.SI
    1.00+0.01+1.01%
    Y92.SI
    2.81-0.01-0.35%
    C52.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    0.46+0.08+19.48%
    E8Z.SI
    0.140.000.00%
    UV1.SI
    0.335+0.030+9.84%
    41A.SI
    0.60+0.05+9.09%
    BDR.SI
    0.27+0.02+5.88%
    BRD.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    0.17-0.06-26.09%
    AWI.SI
    0.26-0.04-13.33%
    BDU.SI
    0.156-0.024-13.33%
    M11.SI
    0.40-0.05-11.11%
    BFK.SI
    0.14-0.01-9.09%
    RF7.SI

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.3530-0.0007-0.05%
    USDSGD=X
    1.5252+0.0003+0.02%
    EURSGD=X
    1.7897-0.0009-0.05%
    GBPSGD=X
    74.2230+0.08+0.11%
    SGDJPY=X
    5.7284+0.0048+0.08%
    SGDHKD=X
    2.9802+0.0033+0.11%
    SGDMYR=X
    9,797.3506+14.1094+0.14%
    SGDIDR=X
    4.9187+0.0054+0.11%
    SGDCNY=X
    1.0322+0.0015+0.15%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,328.90-0.80-0.06%
    GCZ16.CMX
    18.57+0.01+0.08%
    SIU16.CMX
    95.34-8.55-8.23%
    ^XAU
    2.09+0.01+0.58%
    HGU16.CMX
    46.76-0.01-0.02%
    CLV16.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.140.00
    ^FVX
    1.56+0.01
    ^TNX
    2.24+0.01
    ^TYX