The Problem With Hindsight
“The fact that an opinion has been widely held is no evidence whatever
that it isn’t utterly absurd.”
“For the first part of your life people tell you what you should do,
and for the second half they tell you what you should’ve done.”
“There must be reason for all this inaction. Does it mean that everything must change?
Sometimes I’m looking for perfection. When I’m waiting on the waiting game.”
“Life is never easy. Death is even harder”
Neil de Grasse Tyson
As time goes by let me tell you what also gets harder. Writing these monthly letters, intended to give you, whether an investor, pension-builder or retired income-seeker a different perspective on how best to manage your financial affairs, reduce your taxes and your worries, and how best to protect your loved ones no matter what. But this month it’s easier to know what I want to say. It’s about hindsight and problems.
A week ago well-known and experienced financial journalist Ian Cowie, who you may remember as a long-term Family Finance Editor at the Daily Telegraph, now at the Sunday Times, contacted me for my thoughts on “sensible” investment and pension income strategies in the light of the current confusion felt by many regarding the increasingly complicated pension choices in our post “Pensions Freedoms” world. Especially at this time of tariffs, record-low interest rates, global-slowdown concerns, ongoing Brexit fears and every other worry we’re exposed to day after day on telly.
He asked me, “While the waiting game continues at Westminster, the rest of us must continue to cope with life, including our newish retirement choices”. And “how can readers make the most of tax-efficient income drawdown and phased capital depletion?” Then went on to highlight “the growing need for guidance in an ever complicated world, on top of the uncertainties of not knowing when we won’t require money any more, or indeed, how much we will need before then”.
Or as my grannie McKay used to say - “there’s only one of two things that can happen to you. You’ll either live too long or die too soon”. And that is our challenge. How do we set out strategies for you that will work for you and your loved ones (instead of unwanted nasty surprises) no matter how your dice rolls?
Let’s kick off with what we think is happening in “the markets”. There’s no end to the widely-held negative views which has made investors hold back, afraid to invest anywhere until “things get better”. When I ask current ditherers when they’d feel confident to invest - when prices are higher or lower? - they all reply “higher”. (Waiting for hindsight. Usually too late)
Over the fifty years since I started (trying to add some fun to an actuarial department) there’s been no link between political crises and subsequent falling stockmarkets. Strangely enough widely reported crises plus bleak predictions have always rewarded those sitting tight in diversified portfolios or adding to their undervalued positions. Even Nobel Prize winning economists like Paul Krugman get it wrong. When asked in November 2016 about the economic impact of Trump heading for the White House he replied, “If the question is when stockmarkets will recover, the answer is never”. Oops. Wrong again.
What stockmarkets don’t like, is uncertainty. But historically, times of uncertainty have proved to be a good time to stay positive. It’s the future that matters after all. Do read a blog piece by Morgan Housel from the 4th October entitled “Three Big Things: The Most Important Forces Shaping The World” www.collaborativefund.com/blog/ But if you’re still not convinced, why not move your money into low risk funds with little to do with stockmarkets? The fund I mentioned last month which has low exposure to equities, and is designed to be a safe harbour when it’s stormy, is up 10% net of costs this year already. Yes really.
But if investing right now is causing headaches to so many, imagine what it’s like for those heading into retirement and not only facing investment decisions, but also trying to see their way out of a complex maze of mumbo jumbo choices. In the good old days before “Pensions Freedom”, most of us had the security of either guaranteed annuities or retirement incomes with added protection for partners from final salary schemes. No need to worry about investment returns, political or economic crises, or grapple with the lottery of mortality statistics. All that complicated stuff is best left to cheery actuaries.
Surveys show that four fifths of retirement income seekers want an income guaranteed for their life and that of their partner but on the other hand don’t want an annuity or pension from their secure final salary scheme. Doh! So thousands of them have transferred into their own plans, leaving themselves with the additional and stressful decisions of how to invest, and how much to draw as taxable income so as to not empty their pension kitty too early.
So for how long do you have to plan? Tell a chap at 60 that on average he has 18 years before he pops his clogs and he’ll assume he can run out of money at 78. Once he finds out that he has a 50/50 chance of living longer, it changes everything. If he’s married to a lassie 5 years younger who has at least a 50/50 chance of living 15 years longer than him, he now faces the probability of at least 30 years of his fund management decisions further complicated by a need for long term income from the kitty. How would that lassie react if she sat beside him as he stumbled through his responses to these issues? (Not recommended chaps).
Now look back over the last 30 odd years of political and economic unrest, tax and inflation changes, and look at how many 100 year olds there are today. (I read that the Queen has had to increase her staff by 700% to cope with all the extra telegrams she sends out these days). How confident are you that you would have coped running your own pension pot since the mid-1980s? How sure are you now that you’ll be able to limit investment losses provide a rising income and reduce taxes should you die too soon or live too long? Your family won’t be happy with the mess they inherit if you guess wrong.
To which sadly I now turn. Under a fortnight ago I had lunch with a good friend ten years younger than me. We swapped ideas on music and wine and laughed at funnies on YouTube. Three days later he suffered a massive brain haemorrhage, and sadly he passed away at the weekend.
Despite telling his wife he had a Will, he hadn’t. No Power of Attorney either, had he survived mentally impaired. She can’t access his bank accounts, nor can she access his online accounts/credit cards etc. She thinks he has a pension pot, no idea how much, where it is, never mind if it’s organised to pay out to her by simply producing a death certificate. There might be a life assurance policy, but she is not sure and if there is who knows if it is written properly to cope with these tragic circumstances.
In short, it’s a mess. Winding up the estate could take years. Not only does she have to cope with the shock and the grief, she has to deal with a total financial shambles. I wish I could say in my experience this is unusual. It isn’t.
If you would prefer your finances to be in ship-shape condition whether you die too soon or live too long, and would like to ensure your family isn’t subjected to the same nightmare my friend’s wife now faces, please, as a matter of urgency take action. Ensure you have a will as well as Power of Attorney in place and your loved ones are aware of any policies and bank accounts you own.
And if you find any of your affairs confusing we would be delighted to help as much as we can. I’ve never forgotten what I was told when I first started 50 years ago about legal and pension documents… “The big print giveth but the small print taketh away”. The small print is something we’re very good at translating and fixing for you. So please don’t be shy. The alternative is relying on guesswork and hindsight. Not a good combination.
PS - We have identified a very useful piece about sharing and protecting your digital legacy. If you’d like a copy please speak to us.