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Summer Relief

Sanjib Saha

LIVING IN THE PACIFIC Northwest, my favorite time of year is summer. I love the extra daylight and relief from the nagging rain. In recent years, there’s been an additional reason to look forward to summer: I get to see my paycheck again.

Some background: A few years ago, in an online investment forum, another participant—I’ll call him Dave—gave me a tip for early retirement. He suggested that I practice living off my investment portfolio even while working. Many early retirees, in Dave’s opinion, spend too little in the initial years because they struggle with depleting their savings.

I decided to give it a try. As a first step, I maxed out my payroll 401(k) contribution. The leftover money in each paycheck went to the employee stock purchase plan and additional tax withholding. These various payroll deductions exhausted my entire part-time pay. That meant I had to cover all my expenses with my investment accounts.

As Dave suspected, I’ve had a hard time spending from my brokerage account, especially if it involved selling investments. I figured that a monthly cash distribution would work better psychologically. This prompted me to look for more income-generating investments, such as closed-end bond, utility and real estate funds. Their monthly distributions cover my groceries and utilities. For most of my other funds, the first-quarter distributions arrive in April, just in time to take care of the property tax payments. I tend to defer big-ticket expenses until later months when I start seeing my paycheck again.

Recently, extra cash showed up in my bank account on payday. It’s a sign that that my total 401(k) contribution—pretax, catchup and after-tax investments—reached the maximum annual limit. The paycheck drought is over for another year.

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