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If you are lucky, you have an employer who offers some percentage of matching contribution for your individual retirement account. If you are really lucky, you have a guaranteed pension plan.
If you are Tiger Woods, or any PGA Tour pro, you redefine what others consider lucky.
Woods, the world's greatest golfer has the world's greatest employer funded retirement package. How great?
Path to a billion
If Woods keeps winning at his current rate, enjoys a nine percent annual return and captures just seven FedEx Cups in his career, he could reach $1 billion in retirement payouts courtesy of the PGA Tour Inc.
Yes, a billion. As in a thousand million. As in $1,000,000,000.
As in, if the PGA right this moment started handing Tiger a dollar bill every second of every minute of every day, it wouldn't reach a billion until 2039.
Even without this retirement plan, Woods is well on his way to becoming the first American billionaire athlete. He might accumulate several billion. In 2006 Forbes reported he cleared $100 million in on- and off-course revenue.
But even if he found a way to spend every last penny of that fortune and his own personal retirement savings, he might have $1 billion coming to him after he turned 60 thanks solely to the contributions of the PGA. Golfers are independent contractors and not employees of the PGA. But the governing body, in lieu of a traditional pension, offers contributions based on a number of performance variables to a retirement fund that each player controls.
Since turning pro at 21, Woods has been collecting the contributions and watching them grow. Back in 2001, Golf Week estimated he might one day retire with $300 million. But with the new FedEx Cup funded deferred compensation plan, what was an astounding figure might now be the richest retirement payout ever.
All the 31-year-old has to do is keep winning, most notably the annual FedEx Cup, which in a combination of season-long success and a four-event "playoff" pays the winner a $10 million contribution to his tax-free retirement account.
Woods can't touch the money until he's 45 and would be a fool to do it before the plan forces him to at 60. If it generated a nine percent annual return (the assumption for all calculations in this article) for 29 years, the magic of compounding interest will turn the original $10 million into a cool $123.1 million.
With investing, the caveat is always that past performance does not guarantee future results. But when it comes to Tiger Woods and golf, there is less fear his dominance will subside. Woods will win. For the foreseeable future, he could win the FedEx Cup any year he commits to doing it.
Which means he could make the $1 billion retirement account projection look Newt Gingrich conservative.
"When it came to figuring out the plan, Tiger was the last person we thought about," said Joe Ogilvie, the tour pro who helped implement it. "For Tiger, $10 million is a rounding error."
Ogilvie was motivated to help the ordinary touring pro, the one who might only clear a couple hundred thousand and last on tour just a few years.
The old pension plan – where the PGA donated money based on a formula of cuts made and place on the money list – was already considered the best in professional sports. According to Golf Week, in 2006, the average payment was $195,000 and Woods received $510,800. While that paled next to his total earnings that sum is worth $6,853,298 when he turns 60. He also received more than $100,000 in other bonuses.
That plan alone was so staggering that it required some political maneuvering to avoid IRS rules that apply to most high-end retirement plans. The PGA Tour is a non-profit and according to the Wall Street Journal, a line was slipped onto page 598 of a 650-page 2004 tax bill that would have adversely affected the plan. It offered "an exemption for any plan 'established or maintained by an organization incorporated on July 2, 1974.'"
Guess which date the PGA Tour Inc. was incorporated?
But then, Ogilvie and the Tour board took it to another level. Parts of the old plan remain, but now the FedEx Cup will donate $35 million into players' accounts each year. While the $10 million for first and $3 million for second are the eye-popping numbers, everyone in the top 70 receives at least six figures.
As it stands, even journeyman players should finish with tens of millions in deferred compensation.
"The key is the money can accrue tax free," Ogilvie said. "Clearly from a financial standpoint this is much better. You want your money accruing for as long as possible."
Actually, clearly isn't so clear. At least with golfers. Most didn't like, understand nor care about the idea of deferred compensation. If he won the FedEx Cup, Phil Mickelson complained that he should get the $10 million immediately.
However, just the $3.5 million Mickelson would save on immediate federal taxes would be worth nearly $26 million when he is 60 years old.
Woods, for his part, wondered if he'd even see the money. "I may be dead by the time my retirement fund comes around for me to be able to utilize it," he said.
Mickelson, who currently leads the Cup (Woods is in third), said Tuesday he would skip the third event (and thus essentially take himself out of the running for what might be a deferred $73.1 million) in part because he wants to take his kids to school and watch them play soccer.
Some would say you can't put a price on spending time with your children, but few of them had $73.1 million in mind when they said it.
Not to be outdone, Woods skipped the first event of the FedEx Cup, which is the only reason he hasn't already all but clinched the championship. Since Woods is six years younger than Mickelson, his $10 million would be worth around $123.1 million when he turns 60.
So you can add another record to his career – he has to be the first man in history to risk $123 million so he didn't have to play golf.
Ogilvie, however, was unconcerned by the complaints. "We acted in the best interest of everybody," he said.
Ogilvie has an economics degree from Duke and if he wasn't such a talented golfer (he's earned over $1.1 million this year), he'd probably be working on Wall Street. To him, the "Power of 72" is not shooting par at the U.S. Open, but a mathematical truth. His post-golf career will assuredly be in finance.
While the other golfers might not be as smart as he is at this, they were smart enough to elect him to the Tour board where he and other players were able to help create this plan. What they came up with was a groundbreaking idea.
So how does Tiger end up with a billion?
First off, based on the old plans, Woods already had an estimated $300 million in post 60-year-old payouts coming to him according to Golf Week. However, those plans have changed and now will generate less money.
On the other hand Golf Week was estimating using an eight percent annual return. Three separate financial planners we spoke with said nine percent was more than reasonable for Woods since even though the PGA funds the account, he controls it. That means he'd have constant, high-level attention paid to making it perform. He'd likely do better than even the Standard and Poor's average of 11.3 percent.
In the end, our planners, under orders to remain conservative, stuck with nine percent and believe that the original Golf Week estimate should hold up at about $300 million.
The new plan is where the big money is, however. The FedEx Cup has confused fans and players alike. But competitively everyone agrees that since the title is based on mostly consistent, year-long dominance, for the foreseeable future, Woods should win it anytime he wants. He barely wants to this year and he's the heavy favorite anyway.
So let's say Woods were to play at a dominating level for the next, say, decade. He will probably go far longer, since top players routinely compete into their mid-40s and Woods is (and likely will be) in the kind of phenomenal physical condition that should defy the aging process.
But for arguments sake, we'll have him drop off around then. Let's even argue that he doesn't finish in the top 70 in any year he doesn't win (although a second place in, say, 2009 is eventually worth $31.1 million to him). In reality, Woods will be high in the money, if not the winner, for a long time to come.
So how many can he win?
"I think seven is very reasonable," Ogilvie said. Fine, seven it is. We'll fan it out over the next 11 Cups, which means an estimated approximate retirement worth of:
2007: $123.1 million
2008: $112.9 million
2010: $95 million
2011: $87.2 million
2013: $73.1 million
2015: $61.5 million
2017: $51.8 million
That totals up to $604.6 million when he is 60.
At this point, according to PGA Tour spokesman Bob Cook, Woods would have to start making withdrawals that would empty the account in five years. The payments are made monthly based on a yearly recalculated number. The decreasing money, however, will continue to accrue interest during the 60 months and will earn an estimated additional $114.7 million.
That gives Woods $718.7 million in FedEx Cup money alone. Add on the $300 million in payouts from the other, original pension plans and you have $1,018,700,000. And this is a number Woods can easily shatter in any number of ways – more victories, longer career, better investment performance.
So there's your $1 billion. All from an account Woods never had to contribute a cent too. Woods was unavailable for comment Tuesday, but he's long maintained he pays little attention to his PGA retirement.
Of course, if the billion doesn't hold him over, he always has Social Security, which for someone Woods' age will kick in at 67 in 2042. How much will that be worth?
About $2,066 a month, according to the Social Securty administration.
So he's got that going for him. Which is nice.