Planning for the unexpected: why a career-ending injury doesn’t have to derail your finances

At a glance

• For elite sports stars, a serious injury or illness can throw your career – and your finances – into uncertainty. By taking the right steps today, you can make sure your plans withstand an unexpected setback.
• Having a good understanding of your finances, including what your financial goals are and what you need to do to reach them, is an important starting point. Protection against an injury or illness impacting your earnings is also a good idea.
• We can support you by helping you create and evolve your financial plan and put in place the right protection to secure your future.

It’s every elite sportsperson’s worst nightmare: suffering an injury or illness that could end your career.

You may be at your professional peak, or heading towards it, with all the success and financial rewards that come with it – and then, suddenly, one bad tackle, twisted limb or serious diagnosis can set you on a completely different path.

Of course, there are leaps and bounds being made in the treatment of sports injuries, meaning a condition that might have stopped you playing for good some years ago can now be successfully managed. However, a career-ending mishap is still a risk that you need to consider and prepare for, particularly as it could deliver a devastating blow to your finances.

Here, we’ll examine some of the most important factors you need to consider and how financial advice can help you to be ready for any situation, no matter how bad.

Financial education

Financial education is the key to everything when it comes to being prepared for the worst. If you don’t have that financial awareness, you might not know what actions you should be taking.

A major aspect of that is understanding the importance of starting to plan ahead as early as possible in your career, especially as it’s likely to be short and could be made even shorter by injury. This could mean, in the first place, learning to avoid the temptation of spending all your income – which is an easy trap to fall into if you suddenly find yourself earning millions of pounds a year and aren’t used to that kind of wealth.

A general rule of thumb, advocated by many financial advisers, is to save and invest at least one-third of your earnings. It might not be seen as hugely important for an 18-year-old who’s making £50,000 a week. But unfortunately, you see highly paid sports stars who become bankrupt when their careers end, when they never should.

Cash-flow modelling

A big part of financial education is cash-flow forecasting. This is where a financial adviser will demonstrate what your income is likely to look like in the years ahead, based on various scenarios, such as earnings, sums invested and the performance of those investments. This is hugely important in terms of giving you a view of the future and encouraging you to start planning early in your career.

As most professional sportspeople will expect their careers to end in their thirties, modelling can help to determine if you’ve saved enough by then in order to live a comfortable life when you stop receiving an income.

But it’s also important to examine how your cash flow will look if your career is unexpectedly cut short. This can demonstrate the effects of, for example, suddenly finding yourself without a contract – and with no income – in your mid-20s.

Getting the right protection in place

As well as being prudent and ensuring you’re putting enough money to one side, it’s important to protect yourself with the right insurance.

This means taking out a career-ending insurance policy and paying regular premiums. Then, if you’re injured or ill and consequently find yourself without a contract, you’ll receive a tax-free lump sum that will compensate for the income you would have earned.

Specialist insurers will offer a range of policies that cover different scenarios and different sports, and premiums will vary according to how much you’re earning and how old you are.

In all cases, we’ll be able to introduce you to insurance specialists who can find the right policy to suit your circumstances and ensure you’ll be financially protected should the worst happen.

Managing a lump sum

If an injury or illness means you can no longer earn an income in your sport, but you have a good insurance policy in place, you’ll receive a large tax-free lump sum.

As this is intended to cover your lost income, this money – and anything else you’ve saved and invested until now – will potentially need to last you for the rest of your life. Therefore, it’s important to ensure that the cash is invested sensibly, in order to protect it from the effects of inflation and to continue to give you a comfortable income – possibly for many decades.

The value of regular financial advice

Throughout your time as a professional – and beyond – expert financial advice can be invaluable. We can help you make sensible long-term decisions around spending and saving, and ensure you have the right plans and protections in place for the future, whether you have a long, successful career or one that’s tragically cut short.

Whatever your situation, we’d always advise regular catch-ups, usually on a six-monthly basis. We can then continually check that your plan is evolving and adapting to your particular circumstances and help to keep you on track, whatever happens.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Where we refer you to an insurance specialist, their services will be separate and distinct to those offered by St. James’s Place.

SJP Approved 24/07/2024