I have been working with professional athletes now for five years. Through all my client meetings I have learned so many things about what happens in the life of a professional athlete during their playing careers and as they begin to plan for life after their playing careers. Below I have detailed a short list of priorities that should be on every professional athlete’s life planning agenda. At the end of the day it is never too late to plan, but the sooner the better.
Everyone wants financial success for themselves and their families. The dreams that we spend long hours working toward—whether it’s a first home, a college education for the children, or a retirement home some place warm—are all goals on the path to financial security. Unfortunately, it’s all too easy to stumble on the way to your destination. I’ve compiled a list of what I’ve found to be the most common errors people make in achieving their insurance and financial goals. They are all potentially costly, and they could mean the difference between financial success and failure.
1. Failure to Plan — An old saying goes, “Most people don’t plan to fail, they fail to plan.” This is particularly true when it comes to insurance and finances. If any planning is done it’s on a piecemeal basis, but that’s just not enough. To have a shot at accomplishing what we want, we must first set our goals, analyze what it will take to achieve those goals, and then implement a plan. The plan should include everything from savings and checking accounts, to longer-term vehicles like annuities, CDs, and IRAs, and the protection provided by life, health, and disability income insurance.
2. Insufficient Diversification — Another old adage still rings true: “Don’t put all your eggs in one basket.” Diversification is generally considered a key to reducing risk and enhancing potential return. Some people believe that because they have CDs in three different banks they’re properly diversified. True diversification cuts across product types, lengths of maturity, and asset categories. With a well-diversified portfolio, you’re never too dependent on how well one product performs.
3. Insufficient Life Insurance — We’re quick to insure our cars and our homes, but too often we overlook our most important asset — ourselves. With mortgages, tuition, and bills to be paid, it’s important to have proper coverage on all income earners. Some people may have group term life insurance through their employers, but this alone may not be sufficient. Be careful not to be overly dependent on group term, for these plans can be inflexible, may not be portable, and may not be available when you need it most — after age 65. Look into purchasing individual coverage to suit your particular needs. How much life insurance is enough? That depends on a number of personal factors including income and number of dependents. It’s best to sit down with an insurance professional to go over your needs and look at the available options.
4. Inadequate Disability Income Insurance — Your earning power is the generator that keeps the wheels of your household running smoothly. But what if that generator breaks down? The risk of disability, as well as its potential cost, is simply too great to ignore. Once again, a company-sponsored plan may be too limited for your needs. Typically, disability income insurance plans will cover 50 – 60% of your annual income for a pre-determined period of time. You’ll want to study the policy carefully to understand all of the provisions, including the definition of disability, the waiting period following disability before you can collect, and the length of the payment period.
5. No Estate Plan — Many professional athletes are caught up in the here and the now of making millions and have the impression that estate planning is not something they need to worry about. Unfortunately, that view can be costly to their heirs. Your estate includes such items as your home, cash, investments, personal property, and other assets you and your spouse may own jointly or as community property. These may add up to a lot more than you thought you were worth. Federal estate taxes apply to estates valued at more than $2 million in 2007 and 2008*, and can climb to over a 45% tax rate for large estates. Add in state death taxes and final expenses and your death can be quite costly to your loved ones.
You owe it to your family to have an estate plan in place. An effective will, a trust arrangement, and adequate life insurance are some of the options available to you to help your heirs get what they deserve.
“To err is human” is yet another pearl of wisdom. Sure, everyone makes mistakes, but all of the ones outlined above can be avoided. With proper insurance products and financial strategies you can steer past those costly blunders and be on the road to financial success.
*This amount increases to $3,500,000 by 2009. In 2010, the estate tax is repealed for one year only. It resumes in 2011 at $1 million.
For more information about insurance and other financial products, contact Marc J. Shuster, Partner, New York Life Insurance Company, at 443-415-9507.
New York Life and its agents do not provide tax, legal, or accounting advice. Please consult with your professional advisors regarding your particular situation.