I haven't been paying much attention to golf lately. But after seeing a lot of mentions of the FedExCup, I began wondering what it was. I'm familiar with The Masters, with the U.S. Open, and other major events -- but not this one.
Players get points toward the Cup throughout the year; at the end of the year, they're reseeded and some participate in four final tournaments. At the end of the event, a grand prize winner -- based on points -- gets a $10 million bonus provided by FedEx
But here's where it gets interesting: That $10 million isn't awarded via a big check on the green. And Tiger didn't get a suitcase filled with $50s and $100s. Instead, it's awarded as deferred compensation. As I understand it, Tiger can't collect that money until he's at least 45, but if he plays at least 15 tournaments each year, he can defer getting paid until he's 60.
Does this sound familiar? It might, because it sounds an awful lot like a retirement account -- like an IRA or a 401(k) that many of us invest in to provide for our futures.
Pros and cons
So how did the players like this idea? Well, Tiger won even though he skipped the first of the four events. And it didn't seem to stop many of the other contenders from playing their hardest.
But I can think of some problems with the arrangement: Mainly, it smacks a little of patronization. Instead of trusting the winners to manage their own money, it's putting the cash aside and letting it grow until retirement. (The age of 45 might seem like a rather early retirement to you and me, but it's realistic for many professional golfers.)
There's a considerable upside, though. Remember that many of us just aren't good at saving for our futures. That's why employer-sponsored retirement plans have been so effective and why there's a movement afoot to automatically enroll workers in them, to prevent their never getting around to it themselves. I suspect that some golfers aren't so different from us. They may expect to keep doing well for many more years and may not sock moola away for their golden years. They may end up with long dry spells, wishing they'd saved more.
For example ...
We can draw some inspiration from the FedExCup. According to The New York Times:
- If Woods, who is 31, cashes in at 45, and the $10 million gets an annual return of 8%, he would get $29.4 million.
- If a younger player had won, the deferred prize would have been even greater. For instance, Hunter Mahan is 25 years old. If he had won and taken his prize at 45, earning an average return of 8% over 20 years, he would have had $46.6 million in his account. And if he had played until age 55 and his $10 million earns a smashing 12% annual return, he'd have $299.6 million.
Kind of amazing, eh? Just about $300 million. That should surely be welcome money in 30 years. If you're thinking that because you don't have $10 million to invest, you're out of luck, think again. If you have just one one-hundredth of that -- $100,000 -- you might end up with $3 million. That's still darn handy to live off of. Withdraw a conservative 4% yearly and that's $120,000.
You can compete
You can achieve similar or better returns, too. That 8% return is certainly what you might earn, but it's well below the historic annual average return of the stock market of 10%. That 12% might seem amazing, but there are some mutual funds out there with better long-term records.
You can match the market's return via a broad-market index fund such as the Vanguard Total Stock Market ETF
Learn more and get started
Starting or maximizing your own personal FedExCup-like retirement account isn't so hard. You can learn all about IRAs (and you should!) in our IRA Center.
Beyond that, you can take advantage of a free 30-day trial of our Rule Your Retirement newsletter service. It's prepared by Robert Brokamp, a smart and witty guy who distills what you really need to know into a manageable volume each month. A free trial will give you full access to all past issues, allowing you to gather valuable tips and even read how some folks have retired early and well. Robert regularly offers recommendations of promising stocks and mutual funds, too.
Longtime Fool contributor Selena Maranjian doesn't owns shares of the stocks mentioned in this article. Biogen Idec and FedEx are Motley Fool Stock Advisor recommendations. Fidelity Capital Appreciation is a Champion Funds recommendation. Try any of our investing services free for 30 days. The Motley Fool is Fools writing for Fools.