Watching Roger Federer on the grass courts at Wimbledon recently, I was once again struck by the mastery he has gained over his sport.
Sometimes it’s easy to forget that world-class athletes like Federer, Tiger Woods and Sidney Crosby, while making huge amounts of money, have a limited career span and need to plan and manage their finances like everyone else. The world is full of examples of great athletes and other wealthy persons who have, due to a variety of different circumstances, made and then lost fortunes.
In June, young hockey hopefuls congregated in Los Angeles for the NHL draft. Those who made it into the big leagues had a good couple of days.
According to the current agreement in place through the NHL Players Association, rookies in the NHL can make an annual salary of $810,000 U.S., with a signing bonus of $90,000.
“With new-found wealth comes new-found responsibility to manage it,” said Darwin Shandor, regional vice-president of the sports professionals program at RBC Private Banking. “With most NHL players retiring in their late 20s or early 30s, it is critical that the newly-drafted put the right planning in place to ensure their wealth can last for 50 years after they leave the ice.”
The financial planning needs of professional athletes can be a complicated business affected by international travel schedules, cross-border tax considerations and general cash-flow management requirements.
Prashant Patel, vice-president of high net worth planning services at RBC Wealth Management, works with clients such as athletes and average citizens who have received an inheritance or lottery win to manage a sudden and substantial increase in wealth.
“Our strategy is to help them to focus on the long term, ensuring they manage their finances today to preserve capital to meet their goals in the years to come,” Patel said.
RBC offers some dos and don’ts to help people manage that sudden influx of wealth.
Set aside a small amount of fun money to enjoy your initial financial success and stick to it. Then develop a personalized long-term financial plan with the help of a wealth management professional.
Invest to provide a regular cash flow for your future years and ensure you have adequate disability and life insurance. Some forms of life insurance can provide tax-free investment growth.
As well, guard your assets from lawsuits. High income and high net worth individuals are more likely to be subject to lawsuits, so you may want to consider strategies to protect your wealth from creditors by setting up a domestic or foreign trust.
On the other side of the ledger, don’t change your lifestyle. It can be tempting to buy big ticket items and live an expensive lifestyle.
With new wealth come new friends. You may be approached for financial requests.
You may want to have a charitable donation strategy as part of your financial plan. So avoid committing major gifts until your plan is in place.
And don’t forget about taxes. The more you make, the more you pay in tax. Engage a professional to advise you on ways you can minimize your tax burden.
If you are fortunate enough to hit that pot of gold, remember that money can come and go, so it’s important to develop a wealth management plan.
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors. He can be contacted at boggsyourmoney@rogers.com.