What Will Working One More Year Net You?


After starting in 254 consecutive regular season games, Green Bay Packers quarterback Brett Favre is finally hanging up his cleats. Favre, who has debated retirement for the past couple of seasons, announced his final decision March 4.

The 38-year old Sports Illustrated (TWX) Sportsman of the Year is ending a record setting career, including most career victories and most touchdown passes as a starting quarterback. Favre also set salary records: His 10-year contract extension in 2001 made him the first $100 million player in NFL history. After leading the Packers to the NFC championship game last season, Favre decided that another year would only be worth it if it meant a Super Bowl title. “Anything less than a Super Bowl win would be unsuccessful,” Favre told ESPN's (DIS) Chris Mortensen in a voice mail message. “And, honestly, the odds of that, they're tough. I guess it was a challenge I wasn't up for.”

Giving up the remainder of his contract was not an issue for Favre, who was banking about $10 million per season with salary and bonuses. But before you decide to retire, make sure you’re financially secure for the lifestyle you’d like for your golden years. For instance, are you going to stay in your current home, upgrade to an oceanfront villa, or scale back to a new condo? “Once you have a clearer idea of what that’s going to cost in a specific projection, you can then back into how much you’re going to have to retire,” says Charles Failla, a Certified Financial Planner and Principal with Sovereign Financial Group in New York. Be prepared to account for inflation. “If access to $100,000 of spendable money makes you happy today, you’ll need $200,000 to have that same kind of happiness 15 years from now,” he says. 

As Farve could tell you, it is not easy to decide when to retire, especially when you are making a good salary. But after analyzing your intended lifestyle, it shouldn’t be hard to calculate when to stop. For example, say you decide to work another year and generate an extra $200,000 in savings. “Invest the $200,000 in a bond portfolio and multiply by 6.4%, estimating interest and capital withdrawal,” says Failla. “Your $200,000 produces $13,000 a year of additional cash flow before taxes.” You can do that for 30 years before you dry up the principal. Remember Favre flirted with retirement for years before closing his locker for good. For every additional season the quarterback played, he banked roughly $10 million dollars. Assuming he saved that income, each season’s salary would generate an extra $650,000 a year for 30 years.

According to the Urban Institute’s study, Does Work Pay at Older Ages?, investing several more years in your career can help your retirement budget big-time. After analyzing 2005 work incentives for an unmarried man age 55 with some post-secondary education, the study concluded the sample worker “could nearly double his real annual income at age 75, net of health insurance premiums and federal taxes, by stopping work at age 65 instead of age 55.” If the worker put off retirement until age 68, he would bank enough savings to finance a lifestyle “nearly three times as much as he could finance if he retired at age 55.”

Still, it all comes down to determining your personal goals for retirement. Do your homework and calculate how much you need versus how much you have. “One of my clients wants his last quarter to go into the oxygen machine,” says Failla. Others want to save enough to leave to children and grandchildren. “But the rule of thumb that says you’ll spend 70% a year of your current income is hogwash,” says Failla, who has plans to play on an even bigger budget when he retires. “I’m going to travel like crazy and spend more, because I’ll have the time," says Failla. "So, I'm saving for that now.”


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