Retirement Benefits for Athletes

Professional athletes make millions! Why would they care about retirement benefits?

You might find it difficult to have any sympathy for people making millions per year playing professional sports but the major sports leagues have recognized that saving for retirement is harder for athletes than meets the eye.

It’s true that pro athletes enjoy average salaries considerably higher than most Americans but unlike most people in the workforce, the average career of a pro athlete is much shorter. The average NFL player will play for 3.3 years according to the NFL Player’s Association. After an athlete’s professional career, they will likely enter the workforce outside of athletics, sometimes will little marketable skills outside of the sport they played.

Statistics show that 60% of former NBA players and 78% of former NFL players will experience financial distress within 2 years after retirement.

Combine an ultra-short career with often poor financial management while earning a large salary and sometimes a challenging transition into the more traditional workforce, the financial plight of the professional athlete is real. Sports leagues took notice and after years of bargaining, most have adopted retirement packages for athletes that meet certain criteria.

The retirement packages don’t guarantee financial security in retirement—at least not in most cases, but it definitely helps.

Major League Baseball

MLB’s retirement package was the first among the leagues and continues to be the best. Players reach full pension benefits after 10 years of service. At 10 years players earn a minimum of $68,000 per year starting at age 45. If they wait until age 62, they receive $220,000. Raise your hand if you could live on $220,000 per year during retirement.

National Hockey League

All you have to do is play in one game and you’re entitled to a pension if you’re a professional hockey player. Players earn one-fourth of a year’s benefits for every 20 credited games. 10 full years of benefits gives the player the maximum benefit of $255,000 per year.

National Football League

NFL players receive credits for each season they play. With each additional season they play, the benefit rises. 2 or 3 seasons might only pay the player a few thousand dollars per month but for veterans, the number is much higher. The average yearly pension amount is around $43,000 as of 2018.

The NFL also has a 401(k) program that pays $2 for every $1 with the maximum match reaching $28,000 in 2020.

After 4 credited seasons, players receive contributions to the Player Annuity Program. The contribution for a credited season is currently $95,000 and players can begin taking benefits as early as age 35 and 5 years out of the league.

National Basketball Association

The pension portion of a professional basketball player lands them over $63,000 after 10 years of service. For an unmarried retiree with at least 3 years of service, benefits come in around $20,000 annually. For players with more than 10 years of service who wait until age 62, that benefit rises to over $200,000.

The NBA also offers a 401(k) plan with a generous employee match and an annuity program that pays a monthly income to players through age 50 following their termination from the NBA.

Professional Golf Association

Golfers receive money in their pension accounts based on the number of cuts they make, their position on the money list at the end of the season, and their performance in three schedule segments throughout the season. Players have to make 75 cuts to be 50% vested and 150 cuts to be fully vested.

If players become fully vested, it’s possible to have millions in pension money at the end of their careers.

Funding Problems

Pensions are close to extinct among companies largely because they’re expensive. Data from the Society of Actuaries show that all of the pension plans from the major professional sports leagues have unfunded liabilities. The NFL, for example, has an unfunded liability of $3.6 billion while the NBA’s current unfunded liability is $601 million.

The National Hockey League is in the best shape with an unfunded liability of only $168.3 million.

This is what you’re not likely to be the beneficiary of a pension during your career, especially if you’re early in your career.