More than 70% of retirees have less than a million dollars in net worth. This…
Being rich or poor can often have little to do with how much money you make, and more to do with how well you manage what you have. Just consider the case of Allen Iverson. The retired pro basketball star, who earned over $200 million during his 15-season playing career, was reportedly broke and heavily in debt in the final years of his career. During his 2012 divorce proceedings, he shouted to his estranged wife, Tawanna, “I don’t even have money for a cheeseburger!” She handed him $61.
Iverson is certainly not alone. Reports are that 60% of NBA players are broke within five years after retirement from playing. Their stories hold lessons for all of us.
Make a budget and stick to it
Although Iverson’s income from his NBA salary and endorsements was high, his expenditures were much higher. He treated his family, friends, and himself to expensive gifts, houses, and cars, and boats.
The Philadelphia Inquirer reported in 2010 that, according to “numerous NBA sources”, Iverson would “either drink himself into oblivion or gamble his life away”, and that Iverson had already been banned from casinos in Detroit and Atlantic City for unpaid gambling debts. While his monthly income was “only” $62,500 his monthly expenses included $10,000 for clothes, $10,000 for groceries and household items, $10,000 for entertainment and dining out, and $1,000 for dry cleaning.
A 2012 court filing suggested Iverson was spending about $360,000 per month, including $126,000 toward various debts. By the end of his career, he was $150 million in debt. He supposedly gambled away $1 million in one night.
Invest, don’t just spend
Had Iverson devoted just a small portion of his income to investing in stocks and bonds, he could have set himself up for a more than comfortable retirement. From 1998, the start of Iverson’s career to 2015, the S&P returned almost 200%. Just $1 million invested each year, out of the $200 million Iverson made in his career, would have grown to over $24 million after 15 years.
And Iverson certainly had the financial means to retain the best money managers in the business. He also had the intelligence to learn the basics of stock and bond market investing himself, if he desired.
In Iverson’s case, there is a happy ending: Reebok, which has a lifetime endorsement contract with Iverson, set up a $30 million trust fund for him. Iverson will be able to access this fund starting in 2030, when he’ll be 55, just in time to set him up for a nice retirement – if he can manage it well this time. Most of us don’t have a trust fund, so it’s crucial to budget and invest early and consistently.