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PERSONAL FINANCIAL PLANNING MONTHLY APPENDIX B E1. Percentage of Earnings – Education Funding c. accumulation objective = $60,000 d. required initial deposit = $4,027.90 determined as follows: E4. Retirement Case – Refined E5. Retirement Case – Refined FV 2 = $293,342(1.08) 10 = $633,303 E6. Retirement Case – Refined E2. Retirement Case – Accumulation E7. Retirement Case – Refined E3. Retirement Case – Withdrawal The future value accumulation ($688,890.83) is the amount available for withdrawal and, therefore, represents the present value of the withdrawals. The initial withdrawal, x, can then be calculated as follows: E8. Retirement Case – Refined FV = $39,944(1.04) 24 = $102,389 = last withdrawal 10 November 2002
INVESTMENT STRATEGIES Advising the High-Net-Worth Athlete or Entertainer By Allen F. Ross Providing long-term financial advice to the high-net-worth athlete or entertainer is a complex and sometimes frustrating undertaking. Their backgrounds usually do not coincide with the need for taking a longer term outlook on their financial affairs. Nevertheless, their unique situations still require a consummate professional advisor that can provide the proper guidance. Probably one of the most difficult aspects of an athlete’s or an entertainer’s financial affairs rests with the rather unusual ways in which the individual is compensated. Getting a regular salary check, with growth, over a period of years, is just not feasible for these professionals. Rather, the biggest contracts come with large-scale payments over a short period of time with no definitive knowledge that these contracts will be regularly repeated. This can create both the normal investing and planning problems as well as some outrageous tax problems. Developing strategies that restructure the method of payment or the timing of payments can lead to significant improvements in the after-tax value to the client. These programs would usually be undertaken by previously established professionals with outside sources of revenue for ongoing expenses. The key is to provide long-term reservoirs of funds in the most tax-efficient manner. However, each client is different and may require different longterm solutions, which may include supplemental income, retirement income, estate planning, as well as the usual financial planning requirements. This should not be considered a comprehensive financial plan, but rather a dynamic niche of a fully developed program. Perhaps the best way to begin our analysis is to provide an overview of the typical situations confronting athletes and entertainers. Then we will construct a program to help alleviate the financial and tax crisis. Finally, we will show how this type of program can be a significant part of the client’s long-term planning. The Athlete Leading athletes have a number of sources of income and each type determines the way it can be used. For the team athlete in basketball, hockey, football, or baseball, the key components are generally salaries, signing bonuses, and endorsement programs. These constitute the major revenue sources, but unfortunately, none have been designed to provide any real tax efficiency, nor any other related benefits. Team players’ salaries provide an ongoing source of funds, but with the way the leagues are structured it is all considered W2 income with little opportunity for restructure or design. However, the other areas, bonuses and endorsement programs, do remain an avenue for reconsideration. For individual athletes, particularly golf and tennis players, there are no significant salaries or bonuses, but there is a substantial amount of money in the endorsement arena. Thus, for our purposes, we will spotlight bonuses and endorsements. For the team athlete the periodic signing bonus can be a key portion of the long-term well-being of the individual. It is above and beyond the normal salary and can provide the opportunity for the athlete to dramatically increase his or her net worth. Unfortunately, whether paid in one lump sum or over a period of years, it is not designed to give any initial or future tax benefits. In reality, between the federal, state, and related tax authorities, usually 43 to 50 percent of each marginal dollar will be confiscated. Furthermore, once the athlete has control of the funds, they usually remain in a taxable invest- November 2002 11
Page 1 and 2: Volume 2 • Number 11 THE JOURNAL
Page 3 and 4: PERSONAL FINANCIAL PLANNING MONTHLY
Page 5 and 6: RETIREMENT PLANNING Treatment of Gr
Page 11: PERSONAL FINANCIAL PLANNING MONTHLY
Page 19 and 20: RISK MANAGEMENT Reducing the Wealth
Page 25 and 26: INSURANCE Using Private Placement L
Page 31 and 32: CASE STUDY Unexpected Death Complic
Page 35: WATCH FOR THE DECEMBER ISSUE OF Per

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