High Earners May Think They Have It Made for Now—But Can They Secure Their Future?

Key Points

  • High earners like athletes often don't have a good track record when it comes to managing their money.

  • The lure of a lavish lifestyle can derail future financial security no matter how much money you have.

  • Good money management—budgeting, goal setting, tax-planning, saving and investing—can help you plan for the future while enjoying the present.  

Dear Carrie,

My son is a professional athlete making a good deal of money. He spends his money as if he'll play forever and I worry he'll burn through it and be left with nothing. What advice can I give him to help him protect and grow his finances for the future?

—A Reader

Dear Reader,

This is a great question because in today's world of astronomical sums being earned by some athletes, entertainers and tech workers alike, there are a lot of young people able—and inclined—to live the high life. But while the numbers may be dazzling short-term, even if money is managed wisely, there's no guarantee it will last. 

Recent studies by the Global Financial Literacy Excellence Center (GFLEC) found that even for NFL and NBA athletes with long careers, being successful and well-paid does not provide much protection against the risk of going bankrupt. Unfortunately, we hear too often about pro athletes—or anyone else, for that matter, who quickly attain large sums of money—mishandling their finances.   

However there are some positive examples, too. For instance, NFL linebacker Brandon Copeland reportedly spends only 10-15 percent of his $1 million-plus salary and saves the rest. Golden State Warrior Draymond Green is a big proponent of smart investing to grow one's wealth.

With a little coaching, anyone, including your son, can learn the basics of good money management. Here are some cautions as well as concrete actions to discuss with him.

Beware of lifestyle creep

When what once was a luxury now seems like a necessity, you can easily be drawn into lifestyle creep where you spend more as you make more. And while it's great to enjoy one's financial success and the increased standard of living that comes with it, maintaining an unsustainable spending rate can lead to financial ruin.

It may seem counter intuitive, but your son should actually try to live below his means. High earners often have big fluctuations in how much they make one year to the next. Because the money he’s earning now could stop suddenly and with little warning, he really needs to focus on what he's spending—both on necessities and extras. Does that sound like creating a budget? It is. And it's necessary no matter how much money you have.

Don't fall for the hype

Part of what leads to lifestyle creep are the "expected" trappings associated with high earners—things like big houses and fancy cars. Social media pressure has been shown to negatively affect people's finances. For someone in the public eye, the pressure can be even greater. Encourage your son to focus on what he wants—not on what other people expect. And that includes what he might want in the future, which leads to my next point.

Set some goals

Now's the time for your son to consider his future self, not just theoretically, but practically. Will he have a family? Put kids through college? What will he do post-career? Launch a new business? Create a charitable foundation? Encourage him to be realistic on how long his career may last, write down his goals and put dollar figures and a timeline against them. Professional sports careers are often short and transitioning into another career can take time. 

With money flowing freely, he's in the enviable position of being able to direct a good portion of his income toward his goals now—and probably reach them far sooner than most.

Play defense by saving

Saving is the best defense against future unknowns no matter how much you earn. This is especially important for your son. Here's how I'd prioritize his savings:

  • Create a substantial emergency/contingency fund. This is a good backup plan for everyone, and it's generally recommended to keep enough cash to cover 3-6 months worth of essential expenses easily accessible. For a professional athlete, where a serious injury or job change could mean a major financial shift, I'd suggest 1-2 years and looking into specialized disability insurance.
  • Max out tax-advantaged retirement accounts. Your son should take full advantage of whatever retirement package is available. With his salary he may be able to max out a 401(k) and add an IRA as well. The maximum annual 401(k) contribution for 2021 is $19,500. For an IRA, it's $6,000. Contributions can offer both present and future tax perks. Tax, investment and legal specialists can help determine if other types of retirement accounts like a SEP IRA or individual 401(k) are a good fit for his situation.
  • Save even more in a brokerage account. Unlike 401(k)s, IRAs and annuities specifically designed for retirement (withdrawals prior to 59½ are subject to a 10 percent penalty and ordinary income taxes), you can save for any goal in a brokerage account and withdraw money at any time.
  • Consider annuities. A deferred annuity could complement other retirement plans. There are no contribution limits, earnings grow tax-sheltered and it can be set up to provide guaranteed income. Because annuities are designed for long term investing, and can be more complex when it comes to taxes and fees, it's best to work with a trusted advisor when considering a purchase. 

Play offense by investing

Saving gets you in the game; investing can take you to the goal—especially over the long-term. Young people have the advantage of time to potentially ride out market volatility and invest more aggressively. Diversifying by owning different kinds of investments (stocks, bonds, cash, commodities) based on your risk tolerance can help reduce risk and is often essential to long-term success. But while your son has the means to put his money to work, he should be wary of risky business ventures (nightclubs, restaurants, hedge funds). 

Recruit the right financial team

A good financial team—an investment advisor, accountant, attorney, insurance and tax professional—is essential, and can help your son uncover risks and develop tax-smart strategies to secure his financial success. For example, his financial team could potentially help set up insurance and trusts to shield his assets, provide advice on compensation and benefit plans, or help him select the most advantageous principal residence.

With these things in place, your son can continue to enjoy his current success and at the same time feel more confident about his future. To me, that's the best game plan.

Have a personal finance question? Email us at askcarrie@schwab.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.


The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager. 

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