Twenty Good Summers

Martin Hawes is the best-selling author of twenty books on personal finance as well as a regular contributor to financial columns in the media. He is widely regarded for his ability to explain complex financial issues in ways that people can understand and apply.

Martin was a successful business consultant for more than ten years and now provides individualised wealth planning to help clients become wealthy and free to pursue their dreams.

Martin Hawes is sixty years old and lives in Queenstown, New Zealand. His interests include rock climbing, mountaineering (in 1995 he attempted Mt Everest), skiing, and cycling.

Martin is an Authorised Financial Adviser and his Disclosure Statement is available free of charge at www.martinhawes.com.

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This book is dedicated to the memory of Paul Scaife, who died on Mt Tasman on New Year’s Eve 2003.

Since the first edition of this book was published, I have learned a great deal. From all the presentations that I have done and clients I have worked with, I have learned much about the way that people plan for and face retirement. There is no doubt that people find the whole idea of stopping full-time work and giving up a steady monthly pay check as scary—it creates insecurity at the very time when life should seem secure. It’s a major development stage to be traversed at the very time when we are not terribly good at change, and it is not just financial change. There is plenty of change happening at this time beyond the need to make ends meet from investment returns—there is change within the family, change to your social status, change to how you spend your days and change to your health, to name a few.

However, over and over again I find that it is the change of investment strategy that causes the most anxiety. The prospect of a changing financial situation is difficult—from growing wealth, usually with a regular salary, to being dependent on the performance of financial markets for your income is a major shift.

Many people receive a lump sum from the sale of a business or cashing in superannuation funds as they start to ease back into some kind of retirement but, of course, few of us get much practice before then at investing lump sums. When the lump sum is received, we know that this is it—we need to look after it because this is all we are going to get. The pressure is great and some people do not invest their money well —they either default into bank deposits, which are generally safe but give a low return, or go into other inappropriate, generally higher-risk investments that lose money. If there is one thing that the Global Financial Crisis should have taught us, it is that bad stuff does happen and a careful, well-thought-out diversified investment strategy is essential. In any event, it is most likely that the investment strategy that got you to retirement will not serve you in retirement.

People go into their twenty good summers financially fearful—and so they should. Provided that this fear does not encourage them into an excessively low-risk investment plan, a bit of anxiety is a good thing. After all, you have the whole of the rest of your life on the line.

For several years now, cash yield has been difficult to achieve—property yields are low, bond yields abysmal and share dividends fairly ordinary. A lack of cash yield leads some who are reliant on their investment capital for income into strange investment decisions. Much of the packaging of sub-prime mortgages into bonds and the like was driven by the quest for yield, just like the boom and bust of finance companies and Icelandic banks.

I have long thought that retired investors should adopt a fairly conventional investment strategy that includes investments, like shares, that pay low dividends knowing that they can periodically skim off some of their capital profits by selling a few units when the market is up.

Investing for capital growth like this is fairly safe, provided that you do not become a forced seller. Forced sellers nearly always have to sell when the market is down because they need cash, which is obviously a disaster. Chapter 20 has been added to this edition to show how holding some cash can act as a buffer to get you through the tough times when the market is down—you will still be able to carry on buying the groceries without having to sell out.

When I came to revisit this book, I had thought that I might push the reset button. Now, as a sixty year old, it is tempting to say that sixty is the new fifty and so I could start to count my twenty good summers from about now. However, when I think about it, I do not want to do that. The whole idea of Twenty Good Summers is that the time ahead of me is getting shorter and this is a positive motivator to get on and do the things that I have always wanted to do.

In fact, a few people have (fairly gently) taken me to task about the idea of Twenty Good Summers. These people tell me that I am counting my life down, that it is a very negative thing to think about and that I may fall victim to some kind of self-fulfilling prophecy. In other words, if I think that I have twenty summers left, that is the number I will get, instead of, possibly, a much greater number. These comments miss my point.

First, I have always made it clear that I would like to have twenty summers for fairly extreme things like alpine climbing and ski mountaineering. That doesn’t mean I think that my life will be over after that, even though Joan tells me if I wear my crampons inside one more time I definitely will be history—well within twenty summers. In fact, I am trying to program myself to live to a ripe old age. It’s just that I probably won’t be doing some of the things at seventy that I am doing now.

The second reason I do not think the idea is negative at all is that I use it as a motivator. I have stopped saying that I will do something ‘one day’ and, instead, ask myself ‘why not today?’ The basic idea of this book is compelling—it is time to get on with it!

The third reason I do not think the idea is negative is that it seems to me that thinking of a series of good summers is better than ‘retirement’. I still think that word, retirement, has negative connotations and one thing that I have not learned since the first edition of this book is a better word for it. To me, retirement still implies withdrawing and living an inactive life. Even though I know that many ‘retired’ people live very full and fulfilling lives, I don’t like the word.

Although some people have not warmed to the central idea and phrase of the book, many others have and they will often tell me how the book has changed their lives for the better. I have given many talks on this title and I know that people have made big changes in their lives after reading the book. Some have sold businesses and others have given up full-time work to get on with the things that they have always wanted to do.

So, the first book, as it was originally written, is still here, but with a good number of additions. I have inserted two new chapters and numerous breakout boxes providing new material learned from my clients over the years.

We have also had another economic meltdown since the first edition and I have seen close up, once again, the effect that such things have on people depending on investment capital for their income. At the point of retirement, people are at a crossroads and they will usually take a different path from the one they have been following for several decades. This intersection needs to be approached with care—the booms and busts of the economic cycle can wreck lives and you do not want yours to be part of the rubble.

Older people need to act conservatively and cautiously. They are no longer in a position to greatly enhance their financial position. In fact, they can only really mess it up. This is a time for good advice. I know that sometimes it is hard to find—financial advisers are often implicated in financial crashes, as I have seen over the last thirty years. Nevertheless, not all professionals are ratbags and if you think that dealing with a good professional is expensive, just wait until you have taken advice from an amateur.

We will all necessarily worry about whether or not we have enough money. Although this book tackles that question head on, calculating how much you need is very difficult. This is made more difficult by advances in healthcare as medical science continues to make major progression; for example, things like stem-cell therapies and other biotech breakthroughs mean potential medical treatments for a whole range of complaints become possible.

This has financial ramifications: we should live longer, although this will require money. Many of the new treatments that are becoming available are expensive and may not be available unless you pay. Health has always been a financial issue—those with money live longer and this is about to become even more obvious than it was, as all sorts of treatments become available to keep our battered old bodies going, and give us really good quality of life for longer. If you are planning to spend your capital in retirement you will need more of it: first to keep you alive, and second because you will be spending for longer.

Arriving at the crossroads of retirement is a time for big decisions and we all have to ask ourselves some big questions: What do we want? How do we want to live for the rest of our lives? What is truly important? Then we need to go out and get it or make it happen. A new life has to be resourced—we need money, as always—but this book offers a fairly optimistic view of the amount that is needed. Provided you are prepared to make some compromises, such as working a bit longer or carrying on part time, or downsizing the house, you may be able to have the life that you want right now. In any event, retiring or continuing to work part time or full time, you will never be better—fitter and more capable of doing things—than you are right now. The original message still stands: it is time to get on with it and enjoy some good summers.

Ten years ago, I turned fifty. Any birthday which has a zero on the end is always a bit of a wake-up call, but for some reason my fiftieth in particular was accompanied by feelings that time was sliding by. I have always been heavily involved in the outdoors—mountaineering, climbing, hiking and skiing—and I was starting to feel that there were more things to do than I was ever going to have time available to do them. I kept looking at mountains to climb and trips to go on and thinking, ‘How am I ever going to have time to do all this stuff before I get properly old?’ On my fiftieth birthday, I spent the day climbing frozen waterfalls. From the top, I could see the vastness that is the Southern Alps of New Zealand and said (for the hundredth time) to my climbing mate, ‘So little time—so much to do!’

This got me thinking: maybe I only have twenty good summers left—just twenty good summers to enjoy the mountains and do the other things that I love. In twenty summers I would be seventy (my allotted three score and ten). Hopefully, at that age I won’t be dead and I will still be enjoying life—I know lots of people in their seventies, eighties and even in their nineties who are still very active and enjoying life. But chances are that by the time I am seventy, I won’t be doing a lot of the things that I love at the moment—I probably won’t be out climbing, doing seminars, biking, skiing and so forth. I may have only twenty good summers to do these kinds of things. Perhaps I won’t get even that number, and I am surely not going to get a whole lot more than twenty even if luck is on my side.

Well, last year my twenty good summers came down to twelve good summers; and by the time you’re reading this book it will be down to ten . . . Time no longer stretches forever in front of me, with endless potential. These are small, finite numbers—never-never land is starting to look like it doesn’t exist! It really is time to act, to live the life that I want. Assuming that this life on Earth is the only life we have, and evidence to the contrary is not particularly great, now is the time to live it to the full—to spend the remaining summers wisely, making each one count. Now is the time to be as free as possible to do the things that I have always wanted to do. Maybe I will get more than twenty good summers to go climbing, but I am not prepared to bet on it!

I have told this story at seminars many times now. It always strikes a chord, especially with people of a similar age to me—that is, the generation known as Baby Boomers. They recognise that, in spite of what they thought in the past, they are not going to be forever young, and that if there was ever a time to take dramatic steps to live the life that they want, that time is now.

I am a quintessential Baby Boomer. By and large, we Baby Boomers have had a very comfortable, easy existence. We are used to having it every which way, with the lifestyle we wanted and a high level of comfort. We don’t want to work now, or at least not so hard, but we don’t want to go without. As a generation we’ve had it very good, with no world wars, no depressions, no epidemics, nothing to spoil our easy existence. And we want to keep things good!

Some of us are still wondering what we are going to do when we grow up. We invented sex. We are starting to discover middle age and tell each other that it does not really start at forty but at fifty, and we will push that out to sixty when we need to. No doubt sometime soon we will invent death and dying! At least it will seem like it. Having established the permissive society, now we want to give ourselves permission to work less and live more. These are the things that characterise the Baby Boomers—the ‘now’ generation.

Most importantly, there are lots of us and we have always been able to dominate simply because of our numbers. As we come to our numerical peak and take political control and, therefore, control of our nations’ cheque books, we will continue our dominance. That there are so many of us makes a big difference to what happens across society, including the economy and business markets. That there are so many of us is important to business, as we create trends that businesses can sell to. It is also important in that while there are a lot of us—before we start to die off, which is likely to start happening very soon—governments will have to support us as we age.

This sizeable generation of people who thought they would never grow old is starting to want to change what they do. We have always said that we would never retire—retirement is a swear word to many Baby Boomers, who think it means giving up and withdrawing from society. So, ever inventive, we have tried to come up with a new word for it. ‘Lifestyle’—more and more, we want to surrender our jobs and our houses in the suburbs to pursue a new lifestyle. Look at the evidence—we are flocking to the coast or to small farms on the edges of cities. People are downsizing their houses and their jobs to live near a beach or in the country, or are moving into lock-and-leave apartments in order to be able to work less and play more. The result: higher prices for coastal land and floods of people buying holiday homes or apartments in the mountains or on a beach.

Truth be told, Baby Boomers are probably starting to get tired. Some of us have had high-pressure jobs requiring us to work hard for years, and now the generation that believed it would never age and never want to retire is starting to feel the need to slow down. We do not want to admit that we are starting to age and really want to ‘slow down’ so we are seeking this thing called lifestyle but, really, lifestyle is a euphemism for retirement that saves us from having to use the dreaded ‘R’ word. Because there are so many of us this is making a huge difference to property and other markets, and will continue to make a difference for twenty years or so yet.

Retirement

I only use the word ‘retirement’ because no one has come up with a better substitute that is not long-winded, and because everyone knows what it means. I do not like the word because it is a derivative of the French word meaning to withdraw, and it has connotations of living a poor, mean and miserable life, hunched over a one-bar heater existing on re-used tea bags and plain biscuits. While that’s a bit of an exaggeration I am sure that you know what I mean!

Yet, retirement is a fairly new concept—most people in previous generations have had to work until they drop. It was really only in the late nineteenth century that the idea of a pension started to gain some currency and with it came the prospect of a few well-earned golden years following work (and, of course, most people in those days certainly wanted to escape work because it was generally hard, physical labour).

‘Retirement’ is changing: it now takes many forms and is not so much an event that might happen on one day, but is instead a process of winding down and easing back into another lifestyle. It often includes some work, travel, sports activities, travel and, as life expectancy continues to improve, will go on for some decades. It is quite a different idea from what it was—but I do not have a nice one-word description.

What does this lifestyle look like? Well, it means working less, having more time to do the things you haven’t had time for in the past, enjoying living in a nice house in a nice place surrounded by good friends and family. It is not about buying a rocking chair, sitting in it and waiting twenty years to die. It is about being active in our hobbies, our gardens, our communities, on the beach or in the country, and active in our travel in the backblocks of home or to other countries. It may also mean being active in paid work—albeit not as active as before.

These are the things my clients have told me when they dream their dreams. For the last few years, I have been actively involved in WealthPlanning, helping people generate and arrange the money they need for the life they want. As part of each session with a new client, I ask about their ideas of a dream life. These are the things that nearly always come out: more time, more relaxation, travel, contribution to the community, time with the family and stepping back to enjoy the good things in life some more. Above all, the consistent theme is that people want to get out of the daily grind—to have more time, and the money and energy to enjoy it.

However, in easing back so that we can live the lives we want, we first need to sort our money out. Our parents might have called this retirement while we call it seeking ‘lifestyle’, but the problem is just the same—how do you fund the life you want when you are no longer part of the daily grind? How do we use the capital we have to obtain the passive income we need to be free? That is what this book is about.

This is a book for everyone who expects to work less and live off savings. Whether you are already at that point or aspire to be there in ten years’ time, you need to know how to use your investment capital to supplement the money you will have from superannuation and, perhaps, from working.

This book tries to answer these questions and show you how to use your money to give you the life that you want. However, it first assumes a couple of things:

• The first assumption is that you do have some capital—nothing comes from nothing and you cannot have financial freedom if you have to keep working as you are now. If you aspire to financial freedom you will have to set yourself a target for your wealth so that you can live the life of your dreams. I call it your ‘Freedom Figure’ and this is discussed in Section 2.

• The second assumption is that you want to work less and to enjoy a more peaceful and unhurried life—this is not to say that you will necessarily stop work altogether.

Lots of people happily work and run businesses well into their seventies and eighties. Stopping work completely is not the lifestyle of a lot of people’s dreams. Even if you are financially able to live entirely off passive income, you may not want to—there is a lot of joy and a lot of pleasure for some of us in our work.

This is not a book on how to develop the wealth that you need to live the life you want—there are other books on that sort of thing. However, having said that, I hope it will serve as an inspiration to you to develop the wealth required to live the life of your dreams. If you do not yet have adequate money to be free, you need to set yourself a target or a goal so that you can continue to work and strive with an endgame in mind. That endgame is financial freedom—a position where your money and your time are your own.

Money is not an end in itself—it is the means that will allow you to live the lifestyle you want. My experience is that there are many people who have quite a lot of money but who do not have it properly arranged and invested in a way that will allow them to be free. Sometimes people do not know how or when to stop, how to say that they have enough—that now is the time to get on and do the things they have always wanted to do. The habit of a lifetime, the habit of building up wealth, can be hard to break. But the number of good summers is steadily diminishing. What follows is how to use your money to make the most of them.

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