How to Sell Down SuperLife Index Funds
Lynn emailed me with a great question. She has been thinking many years ahead to her retirement and was wanting to know how to start to sell down her SuperLife Index Funds of which she has been buying the NZ Top 50, US500 and Overseas Bonds Fund when she hits her retirement number. It’s a good question to ask because there is always a lot of content on a website about how and what to purchase, but finding how to divest yourself of your funds over time is a little harder to come by.
Just to be clear, there are no affiliate links here, Lynn asked specifically about SuperLife, hence my focus on them.
Her question was “How do people actually go about getting a regular income from these sorts of investments once they are ready to?” Being new to this type of investment she said she has struggled to find much, if anything so far, on the ‘back end’ of share market investing, that is, how to go about selling units and taking an income to live off. She does not want to sell them all in one go but wants to know if the sell down process is as manual as it appears to be to her, that is that you have to send in a form each time you want some units sold. It all sounded a bit clunky she thought and she wanted to know if there was an automated process that she has yet to find out about.
Lynn is more used to using banks etc for her savings and investing and she is relatively new to Index Funds, so wants to be sure she knows how to get out, once the time comes and that it does not become an enormous hassle.
She found this simple explanation from U.S. based blogger Mr Money Mustache (MMM) about the perfect sell down scenario:
“On your first day of freedom, you log into your account, find the option for what to do with dividends, and set those to get automatically deposited into your checking account.
Right now, the VTI fund happens to pay a 1.89% annual dividend, which means that the $500,000 account in that green box above will pay $9000 in annual dividends straight to you.
Then, if you’re shooting for $40,000 of annual spending, simply set up an automatic monthly withdrawal of an additional $31,000 per year ($2583 per month) to be sent to your checking account, which is set to automatically pay off your credit card, which you use to buy your groceries.”
Sounds simple enough, but as is often the way, finding information to solve this simple question is often harder than it should be here in NZ, so as always, I’m happy to help.
For those nearing retirement, my hope for you is that you have built up cash and investments to see you through to your last breath. I think one of the biggest fears for retirees is stuffing up the math and either using up all of your money too quickly, meaning you end up living a meagre existence, or not using it up quickly enough, denying yourself some great final years and dying with too much money left over. Knowing how long you are going to live is a very tricky equation, so knowing how much cash you can spend while living is even trickier.
Lynn might not know how long she is going to live, but she does know how much she is spending right now because she keeps a budget, and that is an excellent place to start from. As in the MMM example above, if you know how much it costs to run “you” each year, then you can plan ahead and begin to work out how to draw down on your investments (from both dividends and using some of the capital) to keep that amount of money rolling in to top up your government superannuation payments during your retirement.
Now, this could turn into a blog post all about how you can work out how much you need, how long you will live (spoiler alert: no one knows!), how to adjust payments for inflation etc, but Lynn really just wanted to know HOW to sell down her SuperLife index funds.
Now, I have to say, the SuperLife website has improved in recent years, but it’s still hard work finding specific information, but I found the following section useful: https://www.superlife.co.nz/investment/help-me-choose
In particular I looked into the Managed income tab because this answers Lynn’s question:
If you are thinking about retirement, SuperLife’s managed income solution pays you a regular tax-free* monthly income from your savings, at a level that you choose (e.g. $2,000 a month). As long as you are eligible to make withdrawals, the income can be taken from your SuperLife account and credited to your bank account. The balance of your savings can continue to be invested with SuperLife.
Your managed income can be changed at any time (up or down, or stopped). You also have the flexibility to take out a lump sum at any time and for any reason, for example, to buy a new car. This way you can spend your savings when you need to.
To learn more about SuperLife's managed income solution, read our article here.
*In case you read “tax free” and got excited that you had found some loophole, it’s tax free simply because you have paid tax on your investment as you went along already. I also read the article they have linked to and it is worth a read.
Next, I picked up the phone and spoke to one of their extremely helpful staff members. And she was able to confirm that the process can indeed be automated and it’s pretty simple to arrange. Just a note, never feel nervous about just phoning the help desk of any organisation you are signing up to because their staff are experts at what they do and can make the conversation as simple or as complex as it needs to be to make sure that you understand it!
All you have to do is log in online and go to “change strategy” and it’s here that you can arrange to have your dividends paid out, first into your NZ Cash fund and then on to your bank account. You can also set weekly, fortnightly or monthly transactions where you sell some units at a set date and then these are paid to your NZ Cash fund, then on to your bank account. So, not only can you automate it Lynn, you don’t pay a brokerage fee for this either and this is possible due to the unlisted nature of the managed funds that then invest in the underlying ETF’s. As long as you have units in there, you can increase them, sell them or change your investments at any time. It takes three to five days to sell your units but I would imagine that once it was all set up you would just get used to seeing money appear in your bank account at the intervals you have set.
By way of comparison, I have SmartShares ETF’s and these are different. My units must be sold “on the market”, via a broker (of which there are many, I’ve registered with Direct Broking) and there will be transaction costs associated with using a broker, something I will need to think about when the time comes for me when I decide to sell some day (in the far distant future). I don’t want to be selling units often, because I’ll be hit by fees and transaction costs (unlike Lynn). The treatment of ETF units in this circumstance is comparable to other listed entities on the exchange, such as if I were to sell down some of my Meridian shares on a regular basis for example.
Lynn was looking for more of a ‘set and forget’ strategy, she didn’t want to be logging in every month to release some cash and I think by choosing the funds she has then this will be possible for her. I think she will want to gain some advice before she does, with shares you don’t want to kill the goose that laid the golden egg, you want to regularly harvest off that goose instead, meaning that it’s going to keep producing for you hopefully long after you need it to.
But I was more than happy to read up on this question, send a few emails and make a few phone calls because I think that the “great unknown” that is share market investing is what puts a lot of people off who want to branch out from say, an investment property or a term deposit into shares. And of course you want to know when you are going into something new what your exit strategy is going to be. I hope that helps you Lynn to feel more confident in your investing journey.
UPDATE: Since writing this Lynn got back in touch and said that try as she might she can’t find the correct paperwork online to get this rolling. Currently you have to email or phone SuperLife to do this. Sometimes, you have to go old school! So if this is you, just get in touch with them personally and they will help you out.