Every July 1 until 2035, former MLB star Bobby Bonilla receives an annual payment of $1.19 million dollars from the New York Mets. He hasn’t played a game since 2001.
He was owed a $5.9 million buyout in 1999. He and his agent offered a deal. The Mets could defer payments until 2011 with 8% interest, then make 25 annual payments through 2035. In total Bonilla will receive nearly $30 million.[i]
According to a New York Times article, one of the reasons the Mets were confident enough to enter the deal was their owner was invested with Bernie Madoff. The double digit returns he was seeing would more than make up for the interest promised to Bonilla.[ii] Of course these returns were determined to be fraudulent and therefore never came to fruition.
The late 1990s was an era of booming stock market and higher interest rates, but Bonilla still valued contractually protected income over a lump sum.[iii] [iv]
Today, we’re in a post-pension world where we use 401(k)s and IRAs to accumulate savings for retirement.[v] Now investors are responsible for:
- building their own retirement assets
- figuring out how much they need to have saved
- determining how much they can spend without running out
Investors are faced with sequence of returns risk (experiencing a down market near or shortly after retiring) and the risk of outliving their money.
In era of market volatility and perpetually low interest rates, understanding what Bonilla and his representatives valued can help lead to a more successful overall financial plan.
The views and opinions expressed are those of Andrew Eppes. Andrew Eppes's views are not necessarily those of Massachusetts Mutual Life Insurance Company, MMLIS or its subsidiaries.
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