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Paying Myself

Howard Rohleder

WHEN I RETIRED 10 years ago, I need to replace my biweekly paycheck. Because I was retiring early, and there would be no pension or Social Security for many years, my goal was to use savings to create a synthetic paycheck.

During my final few years of work, I prepared by channeling most of my paycheck into both taxable and tax-deferred accounts. My pay was much higher than what I needed for living expenses.

As I’d religiously tracked my spending in Quicken, I could run reports of my historical outlays. I added what would become my single largest expense in the first decade of retirement—purchasing health insurance. I also reduced my budget for those costs I figured would go away in retirement, such as dry cleaning.

I built an Excel spreadsheet showing my total expected annual expenses. Next, I divided the annual total by 26 to see my biweekly spending needs. I wanted to track how closely my actual expenses matched my estimate.

Though interest rates are nowhere near as high as when I began investing in the late 1970s, I tried to earn as much interest as possible on my savings until I spent the money. Our taxable investment account was a money market fund at Fidelity Investments. I also opened a high-yield savings account with Synchrony, the online bank. Between the two, I kept enough cash for two years of expenses, plus an emergency fund.

Over the next 10 years, I moved money between Fidelity and Synchrony to catch the higher rate. For instance, during the pandemic, Fidelity’s money market rates dropped to 0.01%, while Synchrony’s high-yield savings rates stood at 0.5%. Neither was very satisfying, but I moved cash to Synchrony to earn the higher rate.

I’d also purchased certificates of deposit at each company, laddering them so one would mature every four months or so. When CD rates dropped to nothing during the pandemic, I still had several that paid 2% to 3%. As they matured, I didn’t buy new CDs because I didn’t want to lock in the low yields. Eventually, I began tapping retirement accounts to meet expenses, moving the money to the Fidelity money fund or Synchrony.

I keep my checking account at the local bank, replenished with transfers from Fidelity and Synchrony on the 15th and 30th of each month. I can transfer electronically between all three firms.

With each transfer to my checking account, I move enough cash to bring the balance up to a predetermined amount. Being somewhat meticulous, this transfer is to the penny. I might have a transfer of $2,321.47 if that’s what it takes to hit my desired target.

On each transfer date, I pay whatever bills have accumulated, and also enter anticipated electronic withdrawals into Quicken. My health insurance premiums and my utilities are due on the first of the month. I arranged for all my credit card bills to be due around the 15th to help balance my monthly spending.

Occasionally, I have earnings from consulting or some other onetime payment. Since these are deposited into my checking account, they allow me to lower my next biweekly withdrawal from savings.

Each year, I compare my total withdrawals to my investment balance. I want to see how my actual withdrawals compare to the magical 4% figure that many sources say is a sustainable withdrawal rate. I also revisit my annual expenditures in Quicken to see if I need to adjust the biweekly transfers to my checking account.

The Synchrony and Fidelity accounts are replenished with interest, dividends and mutual fund distributions. With inflation spiking, I expect CD rates to begin inching up. I’ve begun rebuilding my CD ladder at Synchrony whenever the bank offers a special rate. For instance, it was recently offering 1.15% on a 13-month CD.

All this juggling between accounts takes time, but I figure it adds $1,200 to $1,600 a year over what I could earn at my local bank. I do lose some of that to taxes, but every little bit helps. If nothing else, it pays for a month of health insurance.

Howard Rohleder, a former chief executive of a community hospital, retired early after more than 30 years in hospital administration. In retirement, he enjoys serving on several nonprofit boards, exploring walking paths with his wife Susan, and visiting their six grandchildren. A little-known fact: In May 1994, Howard was featured—along with five others—on the cover of Kiplinger’s Personal Finance for an article titled “Secrets of My Investment Success.” Check out his previous articles.

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