Ask Paul: Should I sell shares to top up my pension shortfall?
I am considering a move to pension mode in my self-managed super fund. I have run it for about 14 years in accumulation mode and have achieved good results because of the low fees paid by SMSFs.
The assets are Australian shares (33%), US shares (32%), a share of a commercial property (15%), cash and term deposits (20%).
While I would like to continue managing the SMSF in pension mode, my problem is how to find the funds to pay out the 4% minimum annual pension.
Aside from the commercial property, all the asset classes earn significantly less than 4% in dividends/interest, so I will have to sell shares regularly to make up the shortfall.
What is doing my head in is how to decide on which shares to sell each year. Is there a logical framework for making these decisions? - Peter
There is much in the world of investment that does my head in, Peter, so I am glad to hear it is not only me!
I also have a similar challenge as I am increasingly moving to part-time work and also draw the minimum pension amount.
Your US shares, cash and term deposits are 52% of your SMSF and pay low income. But I would think that your share of a commercial property and your Aussie shares would give you pretty good income and dividends. I imagine these would generate income of around 2% of the value of your total super fund.
My guess is you need to find another 2% a year. I'd use a rebalancing strategy to determine where this comes from.
So, if you plan to keep your current weightings across asset classes (incidentally, these look pretty good to me), then I would trim my strong performers.
This in the last year would be your US and Aussie shares. I'd be doing a small trim to find that extra cash you need to complete your 4% minimum payment.
I reckon that is a logical way to approach this issue. Never hurts to take a profit!
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