Own goal

An ex-footballer's charity recently publicised an alarming statistic: within five years of retirement, three out of five Premier League players are bankrupt*. This reinforces something that I have said for many years: "It's not what you earn but what you spend that matters."

The average Premier League player has a fairly short earning career and pays high taxes. Even so, with average earnings of around £1m a year for ten years, most people would think that there's no danger of running out of money in their lifetime.

However, some simple cash flow analysis would make unhappy reading for any footballer hoping for all the trappings of fame and wealth:

• Based on a gross salary of £1m for ten years, followed by an 'average' paying job until retirement, our imaginary footballer could afford to spend around £200,000 a year for their whole life. This depends, however, on investing the excess income from those ten years.

• If the footballer spends just £250,000 a year for the rest of their life, they face the prospect of running out of money in their 60s. Spend £300,000 a year and the crunch comes in their early 50s.

A vital component of this plan is the investment element. And it's a long-term investment. So to counter the effects of inflation, it's important to use investments that provide an inflation-proofed (rising) income. That rules out cash deposits, which rarely even keep up with inflation. And using bank accounts would support spending only half the amount (about £100,000).

So how should they invest? Historically, the only two mainstream investments that provide that rising income are equities (company shares) and property (commercial or residential). Based on the example, an equity biased investment approach is likely to be most appropriate to support the lifetime income of £200,000. Anything more cautious would mean a much lower level of income - or facing the prospect of running out of money much earlier.

As with all investments, of course, judging the right level of risk is key. People may assume that such big earners can afford to take a highly adventurous strategy but that's not true. As the high earnings last only for a relatively brief period, most would have little opportunity to recover from big capital losses. A lucky few ex-footballers may become well-paid managers or TV pundits, but, for most, this short window of high earnings points to quite a low capacity for loss.

For all investors, I would always urge using appropriate investment funds to avoid having all your eggs in one basket. For example, if you have £100,000 available to invest then buying one buy-to-let property could be a poor choice because when the property's unlet for any reason, or the tenant unable or unwilling to pay rent, your investment income will stall.

Of course, equities can also be high risk from a capital perspective. From an income perspective, however, they aren't high risk, because dividend income from holding a wide range of companies (both UK and international) is normally fairly stable and tends to rise most years.

Some would find it hard to feel sympathy for somebody earning £20,000 a week. But similar concerns affect all of us after our working lives - only we have a 20-year retirement rather than 60 years.

Save now to meet costs later, and using investments that give rising, above inflation returns. Those that get it right could be drinking champagne in retirement - just like those two in five footballers.

Scott Gallacher is a director at Rowley Turton

He writes the regular IFA comment in Private Client Adviser