Escaping The Rate Race: The Portfolio Income Strategy

Continuing to explore Uncommon Dream’s 7 strategies to escape the rat race. The portfolio income strategy is really the crux of the FIRE (Financial Independent Retire Early) movement. All you have to do is simply “accumulate an investment portfolio large enough to indefinitely cover your cost of living”. Sounds easy enough ehh! This is the strategy that I’ve been employing all along. The problem is, I’ve been going about it blindly. I have a date and number in mind, but no real plan to get there. I think its time to get real!

“The Key To This Strategy is Accelerating Your Savings Rate”

Spend SIGNIFICANTLY less than you make and invest the rest. Eventually the money you’re investing should grow large enough that it will cover your cost of living. At this point, work would be optional.

Michael goes on to add ways to achieve this goal and what he considers to be benefits and possible drawbacks of employing this strategy.

The size of the portfolio is personal and depends on your expenses.

We Need $1.5M To Retire…I Think

Our out of pocket family expenses are averaging right around $60K per year over the last 3 years. This does not include things that are paid for by our employers (healthcare, etc).

Using what we lovingly call the 4% rule, expenses of $60K per year would require a portfolio of $1.5M in order to support our lifestyle.

Somehow, I plan on living the FI life in the next 5 years. But our portfolio is no where near $1.5M. In fact, we won’t even GROSS $1.5M as a family in the next 5 years.

Time To Get Real…We’re Not Going To Retire (Early)

If we continue to save and invest diligently, I project we’ll be approaching $700K in our retirement accounts in the next 5 years.. And although we can use a Roth conversion ladder to access this money before we reach retirement age, it will be an additional 5 years before we can get to it without penalty.

That’s a total of 10 years.


In 10 years, my oldest baby will be a teenager. In 10 years, I’ll be well on my way to 50 years old. But also, in 10 years, our portfolio may double in size (based on the rule of 72)!

Our portfolio may not cover all expenses, but it will get us by!

The big three expenses in every major household are housing, transportation and food! In 2019, these three categories accounted for roughly 40% of total expenses in our household.

So if we can put together a portfolio that can generate $24K per year ($60K * 40%), we should at least be able to cover our bare bone needs.

Bottom Line

The one thing I need to figure out that makes every other decision easier is: How can we build a 5 year expense fund to get us by while we implement the Roth conversion ladder.

I have confidence that we will be able to build a portfolio that can cover our bare bone needs within the next 5 years.

However, with kids, things are constantly changing. In 5 years we will no longer be paying for daycare, which is a major expense in our household. We don’t know what we don’t know!

But that’s not a reason to fall back and be passive about the way we are handling our finances. We’re not just going to sit back and hope things work out for the best.

In order to figure out the size of the portfolio you might need to escape the rat race, do the following:

  • Track your expenses and figure out how much you spend on a yearly basis
  • Multiply the number above by 25

How do your numbers look? I showed you mine, how about you show me yours? lol. Let’s take the taboo out of money!

Next up we’ll explore the Passive Income Strategy.

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