Cash flow management - sweeping accounts, etc.

[LarryMelman]

In ER, I plan to pay my bills just like I've always done. A "paycheck" hits my credit union checking account, I pay my bills and credit cards from it, and invest any excess. In ER, I need to create this paycheck entirely on my own - I won't have any pension or anything else coming in.

I get stock dividends and mutual fund distributions in several taxable brokerage accounts - at Fidelity, Schwab, and E-Trade. I'll turn off all automatic reinvestment for a while and just let cash start to pile up.

Right now, EFT is set up from each brokerage account, into my checking account. (i.e. I don't do EFT between the brokerage accounts). I can do manual EFT transfers but I'd rather automate things if I can. Can I set up something like "on the 1st of the month, sweep all the cash out of my Fidelity account, into my checking account by EFT"?

Does anyone have experience to share in this area?

 

[njhowie]

Go here - it explains setting up automatic transfers from Fidelity to your bank account by EFT:

https://www.fidelity.com/cash-management/automatic-withdrawals

If the web pages do not allow you to set up what you would like, call a rep and ask if they are able to set it up for you.

 

[pb4uski]

What I do is rather than have dividends from taxable accounts go into my brokerage sweep account, I have them go into my online savings account.... I think have a fixed amount monthly transfer from that online savings account to the credit union account that I use to pay my bills.

That credit union account usually has anywhere between $5-15k in it depending on may spending.

I like having the online savngs account be the "gatekeeper" between the rest of my retirement savings (which includes taxable, tax-deferred and tax-free accounts) and my local credit union account because it makes tracking withdrawals easier.

 

[LarryMelman]

What I do is rather than have dividends from taxable accounts go into my brokerage sweep account, I have them go into my online savings account.... I like having the online savngs account be the "gatekeeper" between the rest of my retirement savings (which includes taxable, tax-deferred and tax-free accounts) and my local credit union account because it makes tracking withdrawals easier.

I like that idea, thank you. Yes, an intermediate or "gatekeeper" account. I already have an account at Ally that I can use for that.

 

[jpeter1093]

I like that idea, thank you. Yes, an intermediate or "gatekeeper" account. I already have an account at Ally that I can use for that.

I do something similar from Vanguard. A monthly 'paycheck' from Vanguard to Ally, then a weekly 'paycheck' from Ally to my regular checking account.

 

[Spock]

I briefly touched Fidelity's robo-xfers from Fidelity to my non-fido checking account.
2 months in I hit a pot hole in the timing... Because the CD's pay interest into the brokerage account very late in the month, the robo-xfer missed the EOM window.
The suck part if Fido held it in limbo... xfer in progress... until the next transfer a month later instead of putting it in my brokerage account to draw interest.


I called Fido to fix and the rep (not one of their best) improvised some transactions to get the funds out of limbo and then to actually do the transfer.
He then changed the robo-xfer to move $ whenever there is an income event. It works.

But. I now get one $0.03 xfer from the cash dividends plus the bigger CD xfer. The 3 cent transaction triggers the receiving banks fraud alert alarms every month that somebody might be trying to do test deposits as part of setting up a new access to the acct.


I'm sure there are simple ways of cleaning this up... like moving the robo-xfer date out of the EOM deposit windows.

 

[OldShooter]

... Does anyone have experience to share in this area?

I dunno. All these schemes seem unnecessarily complicated to me.

Every month I get a small ($700) pension check from megacorp plus my social security. My spending generally runs slightly ahead of this total, maybe by $1K/month. Plus I have semiannual property taxes of around $5K. Income tax payments in December. Vacations and other lumpy expenses come from time to time.

I transfer money into checking for the lumps. In addition, when the checking balance gets low I transfer in $2-4K. This happens every few months. I see no reason to make anything automatic.

DW's situation is similar.

OP, I would suggest that you not overthink this. Wait until your retirement boat leaves the dock and get some experience with the ride. That will tell you more about what will work best for you than any number of SGOTI opinions.

 

[Dalmore]

I am far from being an expert, or even experienced in this, but based on what I have read, it is actually better to reinvest your dividends, and have a regular periodic withdraw. The way it was explained to me is that when dividends are paid, your stocks take an immediate value hit in the amount of the dividends paid. By reinvesting the dividend, you maintain your portfolio value, and can cash in the stock when it is more favorable. Doing the periodic withdraw is just the reverse of the periodic purchase to avoid "timing" the market.

 

[LarryMelman]

when dividends are paid, your stocks take an immediate value hit in the amount of the dividends paid.

Possibly true in theory but really not observable in practice. Except in the cases of very thinly traded stocks - and I don't reinvest those dividends because of the thin trading volume.

Dividends are taxable whether you take them in cash or reinvest them. Selling shares would create another taxable event on any capital gain.

I can see a case for automatically reinvesting only in those stocks where you expect growth, but that's market timing and I'm just not that smart.

 

[LarryMelman]

I briefly touched Fidelity's robo-xfers ... I'm sure there are simple ways of cleaning this up... like moving the robo-xfer date out of the EOM deposit windows.

Through the web site, the transfer date can be customized. You can have up to 3 transfer dates every month. I set up a transfer on the 3rd, because I have several stocks that pay on the last day of the month. Although really, it doesn't matter... I won't be using January's dividends to pay January's bills. They will just go into the Ally "bucket" from which I'll create my "paycheck" to my checking account each month. A bucket which will steady fill over time... I expect that from time to time, I will have excess in the bucket that I'll reinvest somehow.

 

[dirtbiker]

I'm just curious why you have multiple brokerage accounts from different companies? Maybe it's just me, but I prefer to keep things simple and have as few accounts as possible.

I am far from being an expert, or even experienced in this, but based on what I have read, it is actually better to reinvest your dividends, and have a regular periodic withdraw. The way it was explained to me is that when dividends are paid, your stocks take an immediate value hit in the amount of the dividends paid. By reinvesting the dividend, you maintain your portfolio value, and can cash in the stock when it is more favorable. Doing the periodic withdraw is just the reverse of the periodic purchase to avoid "timing" the market.

Your stock doesn't take a hit (a paper hit) when the dividends are paid. They take a hit on the ex-dividend date. It is often a month or so from the ex-dividend date that the dividends are actually paid. The stock price will build up in the days prior to the ex-dividend date and then drop sharply on the ex-dividend date and then build back up. By the time the dividend is paid (and reinvested) the stock is at its fair value (usually. Some companies pay very shortly after ex date), and the actual dividend payment date has no effect on the stock price.

 

[pb4uski]

I am far from being an expert, or even experienced in this, but based on what I have read, it is actually better to reinvest your dividends, and have a regular periodic withdraw. The way it was explained to me is that when dividends are paid, your stocks take an immediate value hit in the amount of the dividends paid. By reinvesting the dividend, you maintain your portfolio value, and can cash in the stock when it is more favorable. ....

It doesn't make any difference.

Let's say that you have 100 shares of a $100 stock.... $10,000. The stock then pays a $1 per share dividend or $100.

If you reinvest you then own 101.01 shares of a $99 stock or if you don't you own 100 shares of a $99 stock and have $100 in cash.... $10,000 portfolio either way.

 

[Cobra9777]

We use the Fidelity tool linked above to automatically transfer dividends, as paid, from our taxable brokerage account to our cash management account (CMA). The CMA functions as our checking account but earns Fidelity MMF rates. Everything stays at Fidelity and no delays associated with EFT.

The CMA also collects our pension and rent deposits. All our bills are auto-paid via cash-back CC. The CCs are auto-paid from the CMA. All I do is log in and validate things every few days.

Typically once or twice a year when cash needs to be replenished, I sell some stock in the taxable brokerage account and then manually transfer the proceeds over to the CMA. You can also auto-sell with the Fidelity tool. But I like to keep that part manual since it doesn't really happen with any specific regularity. Plus I like to pick what (and how much) to sell based on a variety of considerations like taxes, rebalancing, market timing, and other expected near-term cash needs.

We also have an Ally online savings account but we don't use it as a "gatekeeper." We just use it for extra cash that we don't need in the CMA. In the past, it earned a better rate. Not so much anymore.

 

[LarryMelman]

I'm just curious why you have multiple brokerage accounts from different companies? Maybe it's just me, but I prefer to keep things simple and have as few accounts as possible.

In addition to spreading risk (although I really don't expect anything bad to happen), it's due to promotional offers. I had been Fidelity-only since the 1980's, until a few years ago when Capital One had a new account promotion. (E-Trade acquired Capital One Brokerage last year. My employer's employee stock account is also at E-Trade.). Schwab also had a good offer awhile back when I had some free cash available.

I let Quicken collect all the data for these accounts, it's really not a big deal.

 

[gwraigty]

I'm just curious why you have multiple brokerage accounts from different companies? Maybe it's just me, but I prefer to keep things simple and have as few accounts as possible.

My general preference is to not have all of our money with one firm in the admittedly unlikely event that the firm/account gets hacked/has an outage or some other event that makes our money inaccessible until it all gets straightened out.

OP's response reminded me that the initial reason we opened up a Schwab account was because of their 2% VISA at the time. I think Fidelity's was paying 1.5% at the time.

 

[dirtbiker]

In addition to spreading risk (although I really don't expect anything bad to happen), it's due to promotional offers. I had been Fidelity-only since the 1980's, until a few years ago when Capital One had a new account promotion. (E-Trade acquired Capital One Brokerage last year. My employer's employee stock account is also at E-Trade.). Schwab also had a good offer awhile back when I had some free cash available.

I let Quicken collect all the data for these accounts, it's really not a big deal.

My general preference is to not have all of our money with one firm in the admittedly unlikely event that the firm/account gets hacked/has an outage or some other event that makes our money inaccessible until it all gets straightened out.

OP's response reminded me that the initial reason we opened up a Schwab account was because of their 2% VISA at the time. I think Fidelity's was paying 1.5% at the time.

This does make sense. I always figured it probably doesn't matter because SIPC protects brokerage accounts... But you're right, money may be frozen for awhile while it's figured out.

 

[marko]

Living on our dividends and a few MF Cap Gains, we have them deposited each month (and year-end) into a MM account within TRPrice.

At the start of each year we transfer about 4 or 6 months of cash into a BoA 'holding' account which then sends our 'paycheck' (don't call it income!!!) each month to our BoA checking, replenishing from the MM as that holding account gets low mid-year.

We use the BoA holding/checking scheme because TRPrice might have a 3 or 4 day lag in depositing from the MM whereas BoA becomes an instant transfer.

 

[LarryMelman]

OP's response reminded me that the initial reason we opened up a Schwab account was because of their 2% VISA at the time. I think Fidelity's was paying 1.5% at the time.

When I moved my IRA's to Schwab, I was surprised to see all the promotions available for moving accounts of even modest size. It's a higher stakes version of the credit-card-point game or new-account deals at banks.

 

[gwraigty]

This does make sense. I always figured it probably doesn't matter because SIPC protects brokerage accounts... But you're right, money may be frozen for awhile while it's figured out.

And it was slightly amusing to walk into our local Fidelity office today to deposit the first HSA rollover into my husband's new Fidelity HSA that he opened up over the weekend, with a personal check drawn on our Schwab checking account.

The man behind the Fidelity counter took it in good humor, although he did ask about it.

 

[LOL!]

At least for ETF / stock dividends that are paid at Fidelity, one can have them sent directly to an external checking account automatically when they happen. They then never appear to hit one's Fidelity cash sweep account nor cash management account. I have a quarterly ETF dividend set up that way.

The payment of the dividend triggers the transfer, so that there is no scheduling-by-date to deal with. I don't think this feature has been discussed in this thread directly, but maybe it is.


Basically, one sweeps all the money out daily. If no money in the Fidelity account, then no transfer to external checking. The $0.03 extra transfer sometimes seen is as noted from the cash interest received for the apparently one day a dividend sits in some Fidelity account before it is transferred out. When these accounts paid a lower interest rate, these little transfers didn't happen because not even 1 cent in interest was earned in one day.

Here's how to do it:
https://www.bogleheads.org/forum/viewtopic.php?p=2740054#p2740054
though reading this it looks like it might not be exactly what everyone wants, but it does work for me to keep zero cash at Fidelity.

 

[scrabbler1]

I guess I am lucky. Because I have only mutual funds in my Fido accounts, I have no cash/core account to collect the dividends and cap gains spun off by the mutual funds. I can therefore have those distributions sent directly to my local bank's checking account, something I have been doing since I ERed 11 years ago. This gives me an automatic monthly "paycheck" without having to do anything. Furthermore, I can separately decide what to do with dividends versus cap gains. With one fund, I take the dividends in cash to my bank while reinvesting the cap gains. With another fund, I have used a variety of cash/reinvest combinations. And I can change these options whenever I feel like it, needing to give only a few days for them to take effect.


I don't know why Fido doesn't allow this option for mutual funds held in an account which does have a core/cash account. My (snake-bit) friend has a Fido account with the cash/core account and if he wants to sell shares and use its proceeds, it's a 2-step process: first sell the stuff then transfer the cash out.

 

[audreyh1]

My cash flow management:

• We withdraw a fixed % from our retirement account annually in Jan based on Dec 31 value.
• Those funds are moved to a high yield savings account, and some funds are set aside for expected income taxes.
• We have a monthly automatic draw on our savings account that goes to our checking account = "paycheck".
• If we need more to cover larger expenses like travel or home maintenance or whatever, then an additional manual pull is made on our savings account to cover it.
• During the year we let all dividends, interest and mutual fund distributions build in the retirement fund. Those will be drawn on the next Jan to fund the next year's withdrawal.

Pretty simple, I think. It certainly is mechanistically and most of it is automated. Has worked well for a very long time.

 

[LarryMelman]

Those funds are moved to a high yield savings account

What are you using for high yield savings? Ally yields 1.95% now.

 

[Gotadimple]

What are you using for high yield savings? Ally yields 1.95% now.

American Express Bank 2.1%


I also use the same method as Audrey, but, at Schwab if I get more than $2K in a sweep account, it gets moved to a Money Market Fund at Schwab. This is the first year I'm trying this method. At rebalance time it will be liquidating out of the MM to the brokerage account in order to buy ETFs.

- Rita

 

[LarryMelman]

at Schwab if I get more than $2K in a sweep account, it gets moved to a Money Market Fund at Schwab.

I've had more cash than $2K in my Schwab accounts and it's never been moved to a MM fund. I need to ask them about automated transfers, I looked last night and while they do have them, they seem to require a fixed amount. I couldn't find the "transfer all available cash" which is what I need.