Retirement Life
31 May 2022

Cracking Open the Nest Egg: common questions from Martin Hawe’s latest book

In April, Martin Hawes published his 23rd book. Journalists and readers alike asked many questions and, here, Martin addresses the common themes.

It had been nine years since I had written a book and, to be honest, I had forgotten how much work there is in writing a book (this is not helped by being a slow typist!).

Soon after a book is published, you find out whether people like the book (or not!). Journalists study the book and go into detail with their questions. People read the reviews and comment; others buy the book and send emails with questions and comments. For the author, there is no shortage of feedback!

Within days, a pattern emerges; most journos are interested in the same stuff, which is largely the same for readers. For my latest book (Cracking Open the Nest Egg), three main lines of question and comment were apparent:

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1. What does “decumulation” mean?

That’s a good question, given the topic that the book addresses. Decumulation is the opposite of accumulation; we spend most of our lives accumulating wealth, but there comes a time (retirement) when we need to use that wealth to give us an income when we no longer have one from work.

My parents’ generation would not have recognised the word (or the idea) of decumulation. They invested their savings (usually in bank deposits) and lived off the interest (or dividends if they owned any shares). Essentially, the capital remained intact – they only spent the cash returns.

Today, retirees genuinely decumulate – they run the capital down (perhaps aiming to die with nothing) as they spend not just their investment returns but also their capital as well. The current generation of retirees has to use capital as well as investment returns because life expectancy is much greater (your money may now need to last 25 years or longer) and because interest rates are lower.

Decumulation is difficult because we want to spend at a level that gives us the best life, but we do not want the money to run out before we do. That balance, and drawing the right amount from your portfolio, can create a tension running right through retirement.

2. How should investors handle inflation?

Inflation is a scourge and is especially difficult for retirees. Over the last year, you have become nearly 7 percent poorer in spending power terms (inflation has been 6.9 percent over the last 12 months). That is really bad, and if it continues, it would be a disaster for some (especially those who are only invested in bank deposits).

Inflation steals from savers and gives to investors. Those in fixed interest investments or bank deposits are getting returns that, after tax, are significantly less than inflation. They are going backwards and getting poorer. Those in shares and listed property are also getting poorer at the moment (because of market volatility), but you would expect shares and listed property to turn around sometime soon and start to give good, inflation-adjusted returns.

The thing about shares is that the businesses you own have income that can often be adjusted for inflation. Good businesses usually have the ability to put up their prices – some may have more pricing power than others, but most can meet their higher costs with price rises to maintain or improve profits.

Retirees need to have some shares and listed property in their portfolios to counter the effects of inflation. Markets may look scary at the moment, but with share prices down, this is a better time to invest than a few months ago.

3. With markets in turmoil, what is the safe haven?

Well, sorry, but there is no such thing as a perfectly safe investment – whatever the investment, there is always some risk that you will not get your money back. Although people talk about “risk-free” investments, the reality is that there is no such thing.

The best store of wealth is diversification – having a set of investments that has all the main investment types, shares, listed property, fixed interest and cash. This is the classic diversified portfolio. Although it may sound boring; it is the best thing to keep your money safe over long periods of time.

The thing that retirees need to understand is that they are likely to be retired for some decades. Over these long periods of time, there will be all sorts of economic and political events that could devastate your money: inflation, deflation, recession, war, plague, pestilence… Different asset classes perform differently according to what the event might be: for example, shares do well in inflationary times, but fixed interest performs well in deflation.

We do not really know what will happen in the next 25 years, and so we need some of everything – a mix of diverse investments.

Times are unusual at the moment, with no particular asset class performing. That has people looking around for the investment silver bullet. Such a weapon does not exist, and my big message in these times is to stay diversified and be patient.

So, these are the main themes on the topic of decumulation as judged by the media and readers. You learn a lot when you write a book (a lot of research), but you learn a lot again when it is published, and people start asking questions.

A financially resilient investment portfolio is one that is fully diversified, and which includes growth assets to protect against the effects of inflation over the long term.

The loss of a partner through relationship breakdown or death can have a significant impact in retirement, which is difficult to recover from. The costs of living alone are far greater than half the costs of a couple. Many living costs, such as rates, insurance and internet, are fixed costs that don’t change when the household goes from two people to one. If a relationship breaks down, and this is increasingly common later in life, assets can be halved, leaving both parties in a poor financial situation. Taking care of your health and your relationship is therefore vital for the protection of your financial resources.


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Written by:

Martin Hawes

Martin Hawes is not a Financial Adviser or a Financial Advice Provider, and the views in this article are not intended to be financial advice. The views and opinions are general in nature, and may not be relevant to an individual’s circumstances. Before making any investment, insurance or other financial decisions, you should consult a professional financial adviser. Martin Hawes is a director and shareholder in Lifetime Income.

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