Let's pretend to rake in $1 million a year for life


November 27, 1992|By MIKE ROYKO

In the mood for a jolt of envy? Some grinding of teeth? Then let us talk of baseball contracts, which can always get the old resentment juices flowing.

As all sports fans know, Greg Maddux, the Cubs' young star pitcher, will soon sign a five-year contract for about $32 million. If not with the Cubs, then with some other generous souls.

So will Barry Bonds, the Pittsburgh outfielder, who is considered super-duper star after having a season that would have made Ted Williams or Joe DiMaggio blush with shame and take a cut in pay.

By now, we're accustomed to reading about huge sports salaries. The numbers have become so big that they begin to lose meaning.

Take a look at it: $32,000,000. It's hard for most of us to comprehend that kind of money.

But to help us comprehend, I decided to play let's pretend.

I pretended I was Greg Maddux, age 26, with that new contract in hand. As part of the pretend game, I called a professional financial planner, Marc Liebson, vice president of Mesirow Financial, and told him who I was pretending to be and what I wanted.

"I'm going to pitch for five years. But I'm worried. What if my arm falls off and at the end of the five years, I'm washed up. So I want to be sure that I don't end up tending bar or washing cars."

Liebson asked me if I was a daring investor or a prudent sort.

"Very conservative," I said. "No dry oil wells or TV sit-com pilots."

[After] only five years of pitching . . . $100,000 a month for the rest of my life.

He asked how much I would need to live on while I was still a player.

"Well, as a successful major league pitcher, I already have a nice house, cars, and lots of other trinkets. So I can get by on $25,000 a month, about $300,000 a year. I'm not the sort to buy gold chains."

With that, Liebson went to work with his spreadsheet. Before the day was over, he had my future neatly planned.

"Your salary will be $6,400,000 a year. But your agent will be taking 10 percent. Then there will be income taxes. We'll use Bill Clinton's 36 percent figure. We'll also subtract the $300,000 in living expenses.

"That will leave $3,386,400 in savings after the first year."

We looked down the spreadsheet and the numbers were very impressive. After five years, I would have $18,934,777 in savings.

And that was after Clinton's 36 percent, the agent's 10 percent, and living expenses that had climbed to $364,651. (We factored in 5 percent a year for inflation.)

It didn't include any extra money I might make from endorsements or public appearances. Nor were there any tax shelters, not even a mortgage on the house.

"Very nice," I said, "but how much will I have to live on if I am washed up at age 32 or thereabouts?"

Liebson explained his plan to keep me from becoming a street person. "We're going to put 50 percent of your savings in tax-free municipal bonds; 15 percent in blue-chip stocks; 15 percent in what we call small cap stocks, which really do better; 10 percent in the international stock market; 5 percent in tax-free money markets; and 5 percent in real estate.

"The bonds will return 6 percent, the money market about 3 percent and we're going to estimate the real estate and stocks at their 25 year historical rate of return."

I nodded sagely and said: "I like it. Especially those tax-free bonds. So, when I am a doddering coot of 32 or 33, how much will I have to live on?"

Liebson brought out those numbers: "Without touching your principal -- the $18,934,777 that we've invested -- you will receive $1,142,372 a year."

"A tidy sum," I said. "And how long will I get that?"

"For the rest of your life," he said. "That will be the earnings on your principal."

"Not bad," I said. "And my pocket calculator says that comes to about $95,197.66 a month, give or take a nickel. I suppose I can get by on that."

Liebson nodded. "But there will be more. Remember, as a baseball player, you'll get a nice baseball pension when you are only 45. And some day you'll get Social Security."

"Good, I can use that for Christmas shopping."

I thanked Liebson for his help. Then I studied the comforting numbers on that delightful spreadsheet.

Only five years of pitching every fifth game. Then I could walk off into the sunset and be sure of almost $100,000 a month for the rest of my life.

And when I am laid to rest, that $18,934,777 in principal would still be there for my grieving widow. And probably more, if the stocks went up.

Then I thought of something else and called Liebson.

"Say, what if my arm is sturdy and I'm still going strong when this contract runs out? And I sign another contract just as big. How much will I have when I retire after that?"

He said: "Oh, figure on another million or so a year."

Ah, that was much better. With $2 million a year for life, I just might buy a gold chain after all.

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