If you are a professional rugby player, it is likely that your current priorities relate very much to living for the present, focusing on your current career, and maximising what you can get out of it.
However, it is important not to entirely lose sight of your future after rugby, both in terms of what you intend to do once your playing career is over and, even further ahead, your eventual retirement.
With that in mind, discover six good reasons why it can make sound financial sense to prioritise setting money aside for your retirement while you are at the start of your professional career.
1. You will be making hay while the sun shines
Professional sportspeople can earn good money, but it is a sad fact of life that your playing career will not last forever. Furthermore, there is the ever-present reality that it could end prematurely through injury.
Because of this, it does make sense to maximise contributions into your pension pot at a time when you are best placed to do so, and your earnings potential is at a peak.
In a candid interview with the Irish Independent, former international prop forward, Marcus Horan, confirmed how important it was for him to get into good financial habits during his playing career.
“A lot of players retire from rugby in their thirties, often at the top of their rugby career,” Horan says. “Earnings dip substantially when you leave rugby.”
It is prudent to adopt a savings habit in any event, as it will stand you in good stead throughout your working life.
2. You will not have many other financial commitments
At the very start of your professional career, you are unlikely to have other major financial commitments. You may have a car loan, but substantial outgoings such as a mortgage, and the cost of raising a family, are likely to be further down the road.
Understandably, you will be tempted to enjoy life to the full while you have the freedom, and the financial means, to do so.
There is no reason not to do this. No one is suggesting you live like a monk during your career, apart from maybe on the day before a big match!
But while you have plenty of disposable income, it makes sense to prioritise, at least to a certain extent, setting some of your earnings aside for your future.
3. You can benefit from “free” money
The third good reason is a simple, yet compelling one. By not saving into a pension, you will be missing out on what is essentially “free” money.
For one thing, your club will have a workplace scheme for you to pay into. By law, they have to contribute to this on your behalf as well.
Contribution levels can vary. The minimum is 3% of your annual salary, but some employers will exceed that, or will match your contributions up to a certain amount. As a result, it pays, literally, to maximise your personal contributions.
As well as free money from your club, you can also get free money from the government.
Your personal contributions will attract basic-rate tax relief, so for every £80 you contribute, the government add a further £20.
On top of that, you can also claim back tax relief at your marginal rate of tax, through your self-assessment tax return.
Bear in mind that the amount of tax relief you can receive may be reduced if you are a particularly high earner.
4. Your future self will thank you
As you get older, you will mentally thank your younger self for being so prudent and setting money aside into a pension while you had the chance.
In a This Is Money interview, the retired Harlequins hooker, Matt Cairns, revealed that he started saving into a pension when he was just 21. Doing this meant that he had accrued a substantial fund in his 30s after his playing days were over.
Clearly, pensions are a long-term financial commitment. You will not be able to access your fund until you are at least 57.
Yet, by putting money into your retirement pot now, you will have the reassurance that, whatever happens once you finish playing professionally, you will then have a lump sum working for you.
It also gives you some valuable breathing space if your earnings dip as you settle into your post-rugby career.
5. You will take advantage of the “eighth wonder of the world”
It is alleged that Albert Einstein once described compounding as the “eighth wonder of the world”. Sadly, there is no conclusive evidence whether he did actually say that but, if it is true, he was certainly on to something.
Compounding is the growth you get on your savings through interest being added annually, so you end up benefiting from interest on interest, and so on.
The key compounding benefit you will enjoy on your pension fund will typically derive from dividends. The annual accumulation of reinvesting these dividends and buying extra shares can help boost your fund.
Do not forget, your dividend bonus is based on the number of shares you hold, rather than their value. So, every dividend declaration will mean more shares added to your portfolio, even if the actual value has fallen.
6. Starting contributions early can help boost your fund
According to the Calculator Site, if you started investing £500 each month into a pension from age 20 for a 10-year period then, assuming a 5% annual investment return, you would accrue a fund of £77,964 by the time you reached age 30. That means you contributed a total of just £60,000.
Even if you made no further contributions, continued growth at the same rate would mean you would have a fund of £348,323 by the time you reached age 60.
In contrast, to achieve the same fund at 60 if you only started contributing at age 30 would require you to make contributions of £417 each month. That would see you contribute a total of £150,120.
As you can see, paying into a pension from early on in your career really can save you money in the long run.
Please note that all figures quoted are gross and do not take into account tax relief, and any charges or other deductions.
Get in touch
If you need advice about the best way to save for your retirement, then please do get in touch with us at DBL Asset Management.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
