A self-managed super fund (SMSF) can look wealthy on paper and still struggle to pay a modest pension. It happens more often than trustees expect: the fund owns a commercial property or a large parcel of shares worth well over a million dollars, yet there is barely enough cash in the bank to meet the year's minimum pension payment. This mismatch between asset value and available cash — being asset-rich but cash-poor — is one of the quiet risks of running an SMSF in retirement, and it is entirely avoidable with planning ATO SMSF Investment requirements.

Why retirement phase is cash-hungry

When your SMSF starts paying you a retirement-phase pension, it must pay at least a minimum amount in actual cash each year. The minimum is a percentage of your 1 July pension balance that rises with age — 5% at 65-74, climbing to 7% at 80-84 and higher still beyond ATO income stream rules. On a $1 million pension, that is $50,000 a year at 65 and $70,000 at 80. If the fund's Wealth is locked inside a property that produces only modest rent, finding that cash every year can be a genuine problem.

The obligations that Demand cash

Pension payments are only part of it. An SMSF also needs cash to pay its running costs — audit, administration, ASIC and supervisory levies — as well as any tax on accumulation earnings, insurance premiums where held, and, critically, benefits triggered by events you cannot time: a member's death, a marriage breakdown, or a member wanting to commute part of their pension. Each of these can require the fund to hand over cash it may not have sitting ready.

What the law expects of your investment strategy

This is not just a practical concern; it is a compliance one. Trustees must prepare and regularly review an investment strategy that considers the fund's circumstances, including the Liquidity of its investments and its ability to pay benefits as members retire and other costs fall due ATO SMSF investment requirements. A strategy that parks almost everything in a single Illiquid asset, with no thought to how pensions will be funded, is difficult to justify. Liquidity is a required consideration, not an optional one.

The danger of a forced sale

When cash runs short, trustees can be forced to sell an asset at the wrong time — into a soft property market, or a share market dip — simply to fund a pension payment or a death benefit. A forced sale can crystallise a poor price and, in some cases, realise capital gains at an inopportune moment. Worse, if the fund cannot pay the minimum pension at all, the income stream can be treated as having ceased, costing the fund its Earnings tax exemption for the year ATO income stream rules. An illiquid fund is therefore exposed on two fronts at once: bad pricing and lost tax concessions.

A hypothetical example

Hypothetical: The Whitlam SMSF owns a $1.4 million commercial unit that returns $56,000 a year in net rent, plus $20,000 in cash. Bill, 80, has a pension balance of $1.2 million, so his minimum for the year is 7%, or $84,000. The rent covers only part of that, and the cash buffer is quickly exhausted after fund expenses. With no other liquid assets, the trustees face selling the property — their main investment — just to meet the pension. Had they held, say, $150,000 in cash and listed investments alongside the property, the minimum could have been paid comfortably without disturbing the core asset.

How to avoid the squeeze

The fixes are practical. Hold a cash and liquid-investment buffer sized to at least a year or two of pension payments and expenses. Model the rising minimum drawdown percentages as members age, so the buffer grows with the obligation. Consider the fund's liquidity before buying a large indivisible asset such as property, not after. Where appropriate, in-specie (asset) transfers or additional contributions can inject liquidity, subject to the contribution caps of $32,500 concessional and $130,000 non-concessional for 2026-27 ATO contribution caps. And review the investment strategy whenever circumstances change, documenting how the fund will meet its cash needs.

Death benefits are the hidden liquidity test

The event trustees least like to plan for is the one that most often exposes a liquidity gap. When a member dies, the fund usually has to pay a death benefit, and a non-dependant beneficiary must generally be paid as a lump sum rather than an ongoing pension ATO death benefits. A fund whose value is locked in a single property can be forced to sell it quickly, sometimes in a falling market, to fund that lump sum — and the surviving member may not want to sell at all. Holding some liquid assets, or arranging Life insurance within the fund where appropriate, can provide the cash to pay a death benefit without dismantling the fund's core investment. This is a planning question best resolved long before it becomes urgent.

Review the strategy as circumstances change

Liquidity is not a set-and-forget calculation. As members age, retire, start pensions or pass away, the fund's cash needs shift, and the investment strategy should be reviewed to keep pace ATO SMSF investment requirements. A strategy written when both members were 60 and accumulating may be badly out of date when one member is 82 and drawing a 7% pension. Documenting these reviews is part of Trustee good practice and gives the auditor evidence that liquidity has genuinely been considered rather than assumed.

One big asset is not automatically wrong

None of this means holding property in an SMSF is a mistake, or that concentration is prohibited. The law does not ban a fund from holding a single large asset; it requires trustees to turn their minds to diversification, risk and liquidity and to document their reasoning ATO SMSF investment requirements. A fund can hold one dominant asset provided the trustees have genuinely considered how they will fund pensions and other liabilities. The point is deliberate planning, not avoidance of property.

The lesson for anyone approaching or in retirement is to stop thinking about the fund's Balance Sheet in headline value alone and start thinking about cash flow. Ask each year: where will the cash for my pension, my fund's expenses and any unexpected benefit come from? If the honest answer is “I would have to sell the property”, the fund has a liquidity problem to address before it becomes a compliance problem. Being asset-rich is a good position to be in — but only if the fund can also find the cash when it counts.