You might not think pro athletes earning millions would have to worry about the risk of outliving their retirement savings. But when you consider that their retirement could conceivably stretch 50 years or more, that risk isn’t so far-fetched.
Even with the most popular major sports leagues offering such benefits as pensions and 401(k) plans with employer matches, an athlete’s relatively short career could make it hard to save adequately using those plans alone.
“They’re not going to be able to put away in qualified retirement plans enough money to live on,” says Andre Mirkine, founding member of the Sports Financial Advisors Association and associate vice president of investments at Wells Fargo Advisors. (Qualified plans refer to those with tax advantages.)
“Then it’s incumbent upon the advisers who advise them to try to convince them to save,” he adds.
Sometimes, former athletes run out of retirement savings chasing after wild investment deals, says Pete D’Arruda, a Cary, North Carolina, financial planner who frequently advises athletes.
“Many athletes take a lot more risk than they should after their playing careers,” D’Arruda says.
Players in these seven sports organizations, at least, have a formal employer-provided benefit plan to get them started. But data from players unions and collective bargaining agreements show that, when it comes to retirement security, the playing field is decidedly uneven.
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Retirement benefits: Major League Baseball
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Baseball was the first U.S. pro sport to have a pension plan, starting in 1947. Today, players become eligible for the minimum pension after just 43 days of service time at the major league level.
Major League Baseball pensions are reputed to be among the most generous in sports. Under the current collective bargaining agreement, which expires on Dec. 1, 2016, players accrue full pension benefits when they achieve 10 years of service time. In 2012, they were eligible to receive $200,000 a year for life at the age of 62. The pension is joint-survivor, meaning surviving spouses are entitled to some pension benefits.
The history of labor relations in baseball goes back to 1885, when a group of nine players formed the Brotherhood of Professional Baseball Players. A collective bargaining agreement between the union and the league would not come until 1968.
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Retirement benefits: National Hockey League
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The National Hockey League initiated a pension plan in 1947, though its benefits were said to be minuscule before a series of changes that began in the late 1980s.
Today, players automatically join the NHL pension plan after playing one regular season game. In the 2013 collective bargaining agreement, the players negotiated a new defined benefit plan. The plan allows players with 10 full seasons to receive the maximum allowable pension under IRS limits starting at age 62. Players with fewer than 10 seasons will receive a prorated amount of the pension.
The NHL had previously switched from a defined benefit plan to a defined contribution plan in 1986. Under the old defined contribution plan, retired NHL members who were credited with fewer than 160 games — roughly equal to two seasons in the league — received the maximum contribution under Canadian law (approximately 23,000 Canadian dollars in 2012). Contributions to the plan for U.S. club members were paid in U.S. dollars. Those credited with 160 games or more received the maximum contribution under U.S. law, which was $50,000 for 2012.
NHL players will start collecting a pension under the old defined contribution plan at age 45, while early retirement with reduced benefits is an option starting at age 35.
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Retirement benefits: National Football League
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The National Football League has had a retirement pension in place since 1959. Players with at least one credited season in 1993 or after are vested after three credited seasons.
Players earn benefit credits for each season they play. The credit for each season earned between 2012 and 2014 is $560, and the monthly pension is calculated as the sum of all benefit credits. So a player with just two credited seasons between 2012 and 2014 would receive a monthly pension at age 55 of $1,120 for his lifetime. Hanging on an additional year, when the credit goes up to $660, lifts the monthly pension to $1,780. The benefit credit reaches $760 for those playing in the years 2018-2020.
In addition to the pension, a 401(k)-type plan called the NFL Player Second Career Savings Plan provides an employer match of up to $2 for every $1 contributed by the player. The maximum match is $24,000 through 2014, rising incrementally to $28,000 through 2020. Players are eligible for the 2-to-1 club matching contribution once they have earned their second credited season.
In addition, players receive contributions to the Player Annuity Program once they have earned their fourth credited season. The contribution amount for a credited season from 2014 to 2017 is $80,000. The amount rises to $95,000 for 2018-2020. Players may choose to receive this benefit as early as age 35 and five years out of the league as a monthly annuity or in annual installments.
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Retirement: National Basketball Association
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National Basketball Association members are eligible to participate in a defined benefit pension plan and become vested in their benefit after three years of service in the NBA. The normal retirement age under the pension plan is 50. At this age, an unmarried retiree with the minimum three years of service would receive an annual benefit of approximately $19,160, while a retiree with 10 years of service or more would collect an annual benefit of $63,866.
For players who elect to defer collection of their benefit to age 62, unmarried retirees with three years of service would receive annual benefits of $61,499 and retirees with 10 years of service or more would collect annual benefits of $205,000, the maximum allowable by law.
In addition to the pension benefit, an optional 401(k) plan provides a generous employer match.
In October 2013, a new post-career income plan for players was launched, which generally provides for annuities to be purchased on behalf of eligible players each season that will pay monthly income to players following the termination of their NBA playing careers through age 50. The first contributions to purchase annuities were made in December 2013.
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Retirement benefits: PGA Tour
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Like a long drive down the middle of the fairway, the PGA Tour’s retirement plan, started in 1983, is pretty straightforward. And it offers the potential for some very lucrative post-career income.
With no guaranteed benefits, the program is built mainly around financial incentives based on player performance. Annual contributions to players’ accounts depend on the number of tournaments in which they make the cut.
Golfers draw from the plan at 50 if they play in fewer than 15 events. Those participating in the Champions Tour beyond age 50 start collecting funds at 60 if they continuously play a 15-event schedule.
A new twist came in 2007 with the inauguration of the FedExCup, a season-long competition in which the funding came in the form of a $35 million deferred compensation award. The FedExCup champion gets $10 million, while other participating players’ rankings at the conclusion of the season-ending FedExCup playoffs determine how big a share of the remaining funds they receive.
Since 2008, the top 10 finishers in the competition get most of their bonus in cash, while the rest get rewarded only through their retirement accounts.
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Retirement benefits: Major League Soccer
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Before the Major League Soccer Players Union formed in 2003, pro soccer players were represented by the NFL Players Association. MLS implemented a retirement plan in 2004 with the signing of the first collective bargaining agreement.
The league offers an elective 401(k) plan allowing player contributions up to the IRS limit, which in 2014 is $17,500. Employer matches were established in 2005, amounting then to 2 percent of each player’s base salary, up to the IRS limit. The employer contribution in 2014 is 3.5 percent, up to the IRS limit of $52,000. All contributions vest immediately.
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Retirement benefits: Women’s NBA
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The Women’s National Basketball Association was established in 1998, with the first collective bargaining agreement ratified the following year. The retirement plan has been in place since 1999.
The WNBA offers an elective 401(k), with player deferrals allowed to the IRS maximum and matching employer contributions of up to 25 percent of player deferrals.
In addition, for each WNBA season, employers contribute 2 percent of base salary to players with two years’ worth of experience at the end of that season, 3 percent of base salary for those with three years’ experience and 4 percent of base salary for those with four years or more.
Those salaries are nowhere near those for the NBA or other men’s professional team sports. The minimum WNBA salary for 2014 is $38,150 for players with up to two years in the league and $55,000 for those who have suited up for three years or more. The maximum player salary is $107,500.