Smoothing the ride through retirement

By Slow Dad - February 03, 2017

A benefit of working was a regular pay cheque. Retirees can have a lumpy earning profile, so smooth the ride by creating yourself a "pay cheque".
One of the benefits of working for a living is a regular pay cheque.

It might not be as large as we would like. It might not be as reliable as it once was. However knowing that a specific amount would land in your bank account on a specific day certainly made life more predictable.

It was possible to automate bill payments.

It was possible to automate savings.

It was even possible to automate investment purchases, dollar cost averaging into those revered Vanguard low cost index trackers the disciples of FIRE worship.

Then you retire.

You do the victory dance.

Perhaps you have a small celebratory alcoholic beverage. Hell, you don’t have to get up for work tomorrow, why not have several?

Happy days!

Victory Dance

The first day of the rest of your life

You awaken the next morning to the sound of quiet. No more having your blissful sleep shattered by a squawking alarm clock or the inane chatter of talkback radio hosts for you.

You glance at the clock and feel a smug sense of self satisfaction.

You spare a passing thought of all your former co-workers beavering away at work.

Perhaps you even think pityingly about the teeming hordes who had to sardine themselves into their daily dose of public transport commuter hell without you this morning.

It is good to be you.

You glance out the window, and observe absolutely nothing. No activity. No people walking dogs. Nobody mowing lawns. Nothing. The adults are at work. The children at school. It is like one of those post-apocalyptic sci-fi movies where you are the last living human on Earth. You shrug, people were such savages anyway... who needs them?

You shuffle out to the couch in your pyjamas and flip on unemployment television. The dull ache of a caffeine withdrawal headache makes you wonder whether you were actually addicted to that £5 Grande Latte with an extra shot on the way to the train station each morning.

The incessant blathering of Jeremy Kyle and Loose Women cause you to channel surf to reruns of Grand Designs.
Before long you find yourself watching a replay of the 1981 Ashes cricket decider.

You briefly wonder whether what time Wetherspoons opens.

What is it retired people do all day?

Fun and games until somebody loses an eye

A problem presents itself around the time your next pay cheque would normally hit your bank account. Strangely it doesn’t show up.

Oh wait, you’re retired now!

Sorry, I'm retired

So how do you make sure there is going to be sufficient funds to cover all those direct debit bill payments and automated transfers?

Retirement doesn’t automatically result in your bank account magically filling up, the way a lottery win or an inheritance might.

Dividends get paid out at the end of a quarter, or semi-annually, or perhaps not at all if you’ve remained invested in the accumulation versions of your managed funds.

That could be a long time to wait between top ups on your bank account.

Your rental properties kick off rent on a monthly basis… assuming there were no maintenance nightmares or void periods recently.

Bank interest is a figment of your imagination, a fairy tale your grandparents used to tell you about.

In short, the payment schedule from an investment portfolio might make for a bumpy ride.

You could always buy into that American urban myth of 4% “safe” withdrawal rates, and sell down some of your precious hard earned portfolio. But wait, the markets have had a bad week so it isn’t a great time to sell. And isn’t 4% a bit optimistic anyway? What happens if you run out of money.

Santa Claus is a fund manager?

The first couple of weeks of January felt like Christmas to me, with Vanguard and Fidelity and Blackrock and HSBC all doing passable Santa Claus impressions depositing large sums into my investment account.

As each arrived I was mentally checking off my bills for the year: gas, electricity, council tax, insurance, tv license and so on all covered by this wonderful passive income stream.

Then the dividend payments ceased, and I could see money leaving my account but nothing further likely to be deposited until sometime in April.

That made me more than a little uneasy I must admit.

So what?

The way I cured that anxiety about having an empty bank account was to simulate a regular pay cheque for myself.

When investment income arrived I set it aside. I would then periodically transfer a “pay cheque” into my current account. This way I will still felt like I was getting paid. My automated bill payments and so on will continued as before.

It certainly smoothed the ride. All I needed to do was keep a passing eye on the account where the investment income was landing to ensure there would be sufficient funds to cover my pretend pay cheques.

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