Andrew Luck Walked Away From $58 Million, but That’s Not Necessarily Bad

Andrew Luck’s announcement that he was retiring from the Indianapolis Colts shocked football fans for two big reasons: He was at the top of his game, despite being repeatedly injured, and he was walking away from some $58 million in the final two years of his contract.

In fact, the owner of the team said he might be giving up as much as $450 million in future earnings, given his ability. Financially speaking, what was Mr. Luck thinking?

Unlike most men at 29, Mr. Luck had already earned $97.1 million. After paying his agent and taxes, he probably has about $44 million, seemingly more than enough to last a lifetime.

But that is not a given. Consider the case of another athlete, Antoine Walker, who won an N.B.A. championship with the Miami Heat. He burned through $108 million and filed for bankruptcy two years after retiring from basketball.

While Mr. Walker may be the extreme, his experience offers a sober reminder of what can happen to athletes who earned eye-popping amounts at the height of their careers but did not plan for life without a big paycheck.

“Not many people can walk away from millions of dollars,” said Peter Lee, founding partner of the wealth management firm Summit Trail Advisors. “That’s why it’s so important to have a game plan and be saving from day one.”

Mr. Lee was an adviser to Joe Thomas, a 10-time Pro Bowler for the Cleveland Browns, who may be more of a model for Mr. Luck. Mr. Thomas retired before the last year of his contract, giving up $13.5 million. He said in an interview that he had too much knee pain to play on.

Yet he said he had also been planning since his first year for a time after football. “I wanted to set myself up with a nest egg,” he said. “I didn’t think I’d get 10, 11 years in the N.F.L.”

He was one of the lucky ones in building that nest egg, ending his career with $110 million in earnings over 11 seasons. But that success was not preordained: His first-year guaranteed salary was $285,000.

Here’s a look at how athletes hold on to what they’ve earned — with a nod to how everyone else could do the same.

Compounding Advantage. For professional athletes, earning the bulk of their income early creates stress but also offers great potential. They can begin investing the income long before most people would ever see that much money, if ever.

“The difference of 1 to 2 percent of additional savings a year for 30 years is tens of millions of dollars,” Mr. Lee said. “Some of it is on our end as an adviser, driving an extra half percent a year, but some is on them to spend a half percent less.”

It’s not as if every 22-year-old leaves college with a solid knowledge of saving, investing and spending. The advantage athletes have is enough assets to make it worth an adviser’s time to educate them.

Mr. Thomas said that when he signed his first contract in 2007, he began investing slowly and conservatively because it made him comfortable.

Since retiring and knowing his family’s basic needs are taken care of, he’s taken an interest in riskier private equity investments, like one in early-stage companies in Africa. “If I never see the return on this, my life is going to be O.K.,” he said.

Frank Zecca, managing director of OFS Wealth, a financial adviser to athletes and celebrities, said he urged young players to invest and live on less than they needed. He has a client who is a basketball player drafted this year and earning $5 million a year for the next four years. The player’s endorsement deal from a sneaker company pays him an additional $500,000 a year.

“We just told him, you’re going to live on your shoe deal, and the entire salary is going away,” he said. “We set the spending expectations early.”

Plan for the End Today. Reggie Wilkes played for 10 years in the N.F.L. but planned for his career to be over from the start.

Mr. Wilkes said he had taken graduate classes in the off-season, and when his career ended in 1988, he became a financial adviser. He tries to impart this lesson to all of his clients. “We talk about the end at the beginning,” said Mr. Wilkes, a senior vice president at Janney Montgomery Scott.

While a player can see his professional career end unexpectedly, he said, executives can also see their jobs disappear or their industries change dramatically.

Players like Mr. Luck have “a game plan for their future,” Mr. Wilkes said. “They didn’t wake up one day and say, ‘I’ve been injured for the past three years, and I’m going retire.’”

Don’t Follow, Lead. Even when players avoid the temptations of spending on flashy things, they still need to resist flashy investment pitches.

The road to penury is littered with carwashes, car dealerships and enough surefire restaurants to give an N.F.L. dietitian indigestion.

“The average athlete is not investing the same way you’d see a more sophisticated chief executive invest,” Mr. Lee said. “Deals are brought to them in the locker room. That’s not the typical wealthy client. Our goal is to slow that down.”

That is a lesson for any affluent person, given the example of Bernie Madoff and the hundreds of friends who handed over money to him. More common, though, are investment tips and strategy suggestions floated by people at clubs or work.

Declare Your Next Milestone. Ask retired executives what they worry about, and it’s likely to be some form of staying relevant. Joe McLean, who played professional basketball in Europe and is the managing partner of the wealth advisory firm Intersect Capital, said he counseled his clients to think in terms of milestones.

This accomplishes several things, Mr. McLean said. It allows players to fend off pitches or requests for money. “If you declare a milestone, what it allows you to do is focus on that,” he said. “If you don’t have a milestone, money comes in and you have nothing to save it for.”

It also keeps friends from asking for money or gives a player a way to easily brush off the request. “You can say, ‘This is what I’m trying to accomplish.’”

Longer term, a milestone sets a player’s sights on life beyond his sport. Mr. Thomas said he was always hesitant to define himself solely as a football player. During his playing career, he continued to have hobbies, but he also maintained his interest in real estate, which began in college.

As the end of his professional career approached, he looked to other players who had been successful in retirement. “The guys who had the most issues were the ones who didn’t have something else to do,” he said. “Going fishing every day sounds great, but if you don’t have purpose and direction, you can struggle a bit.”

It’s like the retired executive who plans to play 200 rounds of golf: It’s fun until it isn’t.

Nest Egg Plus New Career. Mr. Zecca said most of his 250 athlete-clients needed a second career. “Most athletes go broke not because they’re stolen from or they make bad investments,” he said. “They go broke because they don’t have a second job.”

He said that the average salary among his clients was $1.5 million a year and that they played for about four years. That’s $6 million, but $3 million after taxes. If they spend $250,000 a year in each of those four years, they’re left with a nest egg of $2 million. That’s great for a 26-year-old. But when it comes down to retirement, drawing down at a rate of 4 percent a year means an annual salary of $80,000.

“I say, if you want to go be a high school football coach for $30,000 a year, cool, you’re now making $110,000 a year,” he said. “I have plenty of players who no one has ever heard of who have a really good life.”

The nest egg is just part of the strategy. Like many retirees, athletes often need other jobs to supplement their savings.

In Mr. Thomas’s case, he is also using his name recognition to promote a sports tech company that produces video messages from athletes and celebrities. Mr. Thomas said he is an investor but still liked it when fans wanted him to do a video for their friends.

And it keeps him in the game.