Even some of the highest-paid employees, professional athletes, are using annuities to secure lifetime income, writes Stan The Annuity Man.

National Basketball Association players were paid an average of $5 million each in salary last season. However, within five years of retiring, statistics show that up to 60% of these highly paid players will file for bankruptcy.

There are a lot of reasons and excuses for this travesty, but now the NBA leadership has stepped in and instituted an annuity plan for the players. It’s about time!

As a direct shot at this problem, the NBA is instituting an annuity “future income” plan as part of the new ten-year collective bargaining agreement between the NBA and the players’ union.

Other professional sports should follow in the NBA’s path to establish these “transfer of risk” income guarantees for its players. Sports Illustrated recently estimated that in 2009, nearly 78% of all NFL players were bankrupt within two years of retiring from the league.

I have decided not to mention any player by name in this article because I cannot imagine the humiliation they suffer on a daily basis. The fact that they had it all and now have nothing has to be a haunting existence.

However, I will reveal some unbelievable numbers that are hard to grasp. One 10-plus-year NBA All-Star earned over $200 million during his career. He is now bankrupt. Another well-known NBA player earned $96 million during his career. Now bankrupt. Another well-known NBA player earned over $110 million. Now bankrupt.

This is hard to imagine for the normal salaried public. Common sense would ask, “Why not just put half in CDs, Money Markets, or Treasuries, just to make sure that you will always have money?”

The NBA has finally figured out that they can no longer wait for common sense to kick in. Now, common sense with NBA players’ money is contractual. By the way, congrats to both the NBA and the players’ union for getting this done!

This subject is near and dear to my heart because I grew up the son of two college basketball coaches. Yes, even my mother was a coach! My ability to shoot and pass a basketball paid for my education and allowed me to get a degree from a top institution. I am one of the few to take advantage of this opportunity.

The sad reality is that most college players are delusional and think that they will play professionally. Yes, even the guys on the bench will tell you that they are going pro.

The problem is that if they do go pro, they have no idea how to handle the success and the money that goes with it. I personally witnessed a couple of my teammates make it to the pros, get paid handsomely, and then end up with nothing at the end of their playing career.

The NBA has yet to release what type of annuity that the players will be utilizing, but my hope is that the NBA leadership will be smart enough to use deferred immediate annuities...also known as Longevity Annuities.

The reason that this would be the best choice is that you can defer turning on the lifetime income stream for up to 45 years. My suggestion would be to not allow the player to turn on that income stream until they turn 60 years old, even though the agreement allows the players to access it earlier.

Now, NBA players already have a pension that kicks in at age 50. A Longevity Annuity would prevent the player from prematurely accessing the money. The funds within the annuity would only be available to the player as an income stream, at the income start date as determined within the contract. In other words, this specific type of annuity structure would save the players from themselves and prevent family, friends, and “hanger-oners” from getting to the money.

The NBA says that some of the money for this annuity pool will come from what they call “basketball-related income” from league revenues. Last year, that number was $34 million, or 1% of revenues. Next year, league revenues will be over $4 billion, so $40 million will be placed into this annuity plan.

Also next year, players will automatically be enrolled into the annuity plan, and can place from 5% to 10% of their salaries into the strategy. A player can “opt out” in writing, but my advice to the NBA is to do everything possible not to let that happen.

So here is a question that you never thought you would be asked: “What can I learn from the NBA?” No, I’m not talking about turn-around jumpers or flying slam dunks!

In the real world, the role that the NBA is playing is eerily close to the role a conservative wife plays with her “trader” husband. The “trader” husband who thinks that he is the master of the universe when it comes to the stock market is eventually reeled in by the wife (playing the part of the NBA) to make sure that a future income strategy is in place.

Similar to the NBA, the wife (I have witnessed this at my workshops) throws continual elbows into her husband’s ribcage whenever I mention the importance of having a lifetime income stream plan in place. The elbows thrown from the wife become sharper as I show the contractual guarantees for both of their lives!

The NBA is now going to force its players to plan for retirement by annually contributing to a lifetime income strategy. Regardless of your athletic ability, you should force yourself to do the same thing for your income planning. And just like the NBA has concluded, the proper annuity “transfer of risk” strategy is the best way to accomplish these retirement income goals.

A reporter recently called me the National "Annuity Consumer Advocate" in the same vein as Ralph Nader and Clark Howard are for other products and services. My goal as Stan The Annuity Man is to be that person, and I hope to continually educate the public on the complex and sometimes ugly world of annuities and become the go-to resource for "all things annuity.”

I recently published The Annuity Stanifesto, fully explaining in an easy-to-read format how these misunderstood and misrepresented products actually can work within your portfolio. You can get a free copy of The Annuity Stanifesto by going to my Web site and downloading your copy.