Ask Paul: Should I sell shares to top up my pension shortfall?


Dear Paul,

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%).

ask paul clitheroe should i cash out shares to top up my pension smsf

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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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. View our disclaimer.
Bob Horgan
February 9, 2022 10.38pm

I just terminated my Superannuation account with a reputable Fund. They were adding interest to my account and then withdrawing the entire amount within days. This means I have to drawn on my savings to maintain my cost of living. They insist its all to do with market flucuations. When I terminated my account they withdrew all the interest they paid Me. Whats happening?

Val H
February 11, 2022 5.30pm

Start by calling and asking to speak to the supervisor if the rep. you speak to doesn't give you an adequate explanation/resolution. ALWAYS write down their names plus a brief memo of their responses with the time of call. Should you get no suitable outcome, find out who the CSR manager is and go from there. I've always had success in getting resolution with smaller issues relating to Funds but see how you go. They need to be transparent and responsive.