Ask Paul: I'm a 78-year-old pensioner, should I sell my shares?
Dear Paul,
I am 78 and on the full age pension. I have $93,000 in shares and $5000 in savings. I own my unit and am mortgage free.
My question is: should I continue to keep my shares or sell them and put the cash in the bank?
My reason being: taking into account my age, if there is a market crash I am concerned I may not have the years left to recoup my losses.
I rely on the money from my shares to supplement my age pension for my daily living expenses.
My shares are low-risk and over the years the annual return has been around 7%. I would appreciate your opinion. - Jan
Hi Jan, yours is an excellent question and relevant not just to you and many of our readers, but also my own situation. I'm 70 this year and most of the advice is to reduce investment risk as we get older.
So, like you, I ponder whether my wife, Vicki, and I should consider selling some shares and holding very secure term deposits. With term deposits returning around 5%, this is hardly a silly decision. But is it the right decision for you?
I think the way to go about this is to look at the downside of a sharemarket crash. We'd need to be fools to imagine this won't happen. Of course it will, typically three times a century. But when?
In your situation, I'd rather be earning the higher average returns from shares.
When a crash happens, the really important point for me is that, historically, dividends keep flowing. Our big listed companies - the banks, food retailers, etc - don't suddenly stop running their businesses. So, I'd expect some income to flow from my shares.
I always laugh when people tell me 'banks may fail'. But to be 'safe', they hold bank term deposits.
The summary here is that it is really important that you do what feels best for you. Sleeping at night is an important part of this.
A real plus of shares is you could sell all or half of them, or whatever amount you choose. I think a key issue for you is that you have arguably the most secure income possible: a government pension from a strong economy and country. That pension takes care of the basics for you.
Your investment income is a supplement to your main source of income and 5% from a term deposit will do this very nicely, providing interest rates hold up. Shares will see a major drop at some stage, but who knows when that might be. History also says they will recover their value.
If you were to sell all or some of your shares, please consider any impact on your tax or pension.
A capital gain does not impact your age pension, but any gain will be added to your income and there is the possibility of you paying some capital gains tax. Make sure you check how any sale may impact you before you proceed.
I don't think there is a right or wrong here. Both shares and term deposits, or a split between the two, are sensible options for you.
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