Travon Walker received a $37.4 million contract for being selected as the 1st pick in the 2022 NFL draft. Walker, after winning the 2022 national championship at Georgia, joins the Jacksonville Jaguars in an effort to improve their defense. The Travon Walker deal is a guaranteed 4-year contract which Ostrich breaks down the numbers below.
How Much Travon Walker Pays in Taxes
The first thing you have to plan for when landing a big deal is making sure you cover your tax liabilities. Fortunately for Travon, he now lives in Florida which has no state income tax meaning he’ll only have to pay federal taxes saving him money on a monster deal.
Since we are unsure of exactly what the tax laws will be past 2022, we’ll assume Travon received all of the money in one year. This should actually overestimate how much he’ll pay in taxes if the tax brackets don’t change.
With that caveat, Travon will pay $13,791,942 in federal income tax which leaves him with $23,580,679.
What Travon Walker Can Buy
Using that after-tax money Travon can afford to purchase many things, including winning $3.5 billion if he bet it all on the Jaguars winning the Super Bowl and they happened to pull it off. Travon Walker could also purchase 0.84% of the Jacksonville Jaguars franchise at its current valuation! Travon could buy 29,475,849 pounds of peaches, 73,921 of the cheapest season tickets to the Jaguars, 7,926 of the most expensive season tickets to the Jaguars, or 1,684 Jaguar F Type Convertibles.
What Travon Walker Can Invest In
With the after-tax money of $23,580,679, Travon could choose to invest the money using some tried and true practices. Let’s take a look at some of those options.
The 4% Rule
The 4% rule is used to help you determine how much income you’ll have in retirement. We take Travon’s after-tax money of $23,580,679 and we simply multiply it by 4%. This gives us the annual salary that Travon would receive if he retired today and never made another dime.
Which for Travon results in an income of $943,227 a year if he chose to retire now. Not bad for a 21-year-old football player.
How does the 4% rule work exactly?
The 4% rule has its origins in the idea that you can achieve 8% returns over the long run by investing in a diverse stock market portfolio. This doesn’t have to be a complex portfolio, and may be made up of just a few low cost ETFs, such as VOO that we discuss below. In the first year of your retirement, you would withdraw 4% of your portfolio to live on. In future years, you adjust that withdrawal amount by the inflation rate. You can read more about the 4% rule in this excellent Forbes article written by Rob Berger.
Investing in the S&P 500
Another option for Travon is to invest in a low-cost index fund that tracks the S&P 500. This is a popular strategy because, since its inception, the S&P 500 has historically returned an average of 10%. A low-cost index fund means you can buy all of the companies in the S&P 500 with one stock purchase. You’ll own a tiny bit of each company. Our founders are big fans of Vanguard’s S&P 500 index fund that trades under the stock ticker: VOO.
If Travon put that $23,580,679 in the S&P 500 with dividend reinvesting on, in 25 years his money would be worth $278,575,453 based on historical returns.
Purchasing a Rental Property
A third option for Travon is to purchase an investment property. There are many benefits to owning rental property, from regular cash flow to beneficial tax treatment and more. A popular way to purchase real estate is to get bank financing so you can buy a larger property, but let’s assume Travon pays cash and puts all of the $23,580,679 into a property with a 10% cap rate.
In that scenario, Travon Walker would cash flow $2,358,068 a year after expenses.
How does a cap rate work exactly?
A 10% capitalization rate is calculated by taking the net operating income (total income minus expenses) and dividing that by the purchase price of the property. The cap rate allows you to measure the return and risk across different types of real estate investments.
What Should Travon Walker Do?
Our hope is that Travon will adopt one or multiple of these investment strategies while he’s young in order to set himself up for long-term success. While we don’t know what Travon will do, you can start to adopt these strategies yourself.
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