Escaping The Rate Race…The Status Quo Strategy

After being introduced to Michael of Uncommon Dream by the one and only Paula Pant of Afford Anything, I knew I found another member of my tribe.

In the podcast, Michael discussed 7 strategies that he developed to escape the rate race, which is ultimately what I am after. After listening to him and then checking out the post, I thought I’d take the time to explore each one on a personal level.

The status quo strategy

In my own words, the status quo strategy is to simply continuing to do what you have been doing…as long as you are not digging yourself into a whole. Said another way, continue working for as long as you are able to able to find gainful employment, contribute something to your retirement funds, and don’t go into heavy debt to fund your current lifestyle. When you’re old enough, you’ll be able to withdraw your retirement savings and you can start collecting social security, pensions, etc., in order to live a comfortable life.

I’d think that this is probably most Americans’ reality. Following conventional wisdom to save 5-15% will provide some level of comfort when you finally escape the rate race, many years down the road. This is also assuming that you’ve been saving and investing for a fairly long time and on a consistent basis.

How the status quo strategy works for us

If we simply continue on the current path, I alone will accumulate a conservative $2.2M by the time I reach the age of 60. My wife will accumulate $1.4M, for a total of $3.6M. Using the 4% rule, this means we can live on $144K per year, starting at the age of 60, and expect our portfolios to last 30 plus years. Given that our current household budget only accounts for ~$60K in spending per year, it looks like we’re going to be balling out of control in our 60s and beyond! And that’s not taking into account (1) social security, which I think will be around, perhaps in a different form, or (2) a pension that my wife is currently entitled to.

How did we get here? Luckily, I my employer contributes 4-12% of our salary on a yearly basis. I’ve been able to recognize from the beginning of my career that this is part of my compensation and I should be taking advantage of it as much as possible by contributing at least the minimum to get the match. My wife got a later start, but I think she now recognizes the importance of saving and investing.

The status quo strategy is hard

While calculating our projected portfolio balances when we turn 60 years old, I assumed that we would both contribute the maximum ($19K – the Federal limit) to our retirement accounts and that would get an average of 7% rate of return.

First, 2019 is the first year that I will come even close to maxing out my retirement contributions. $19K is not an insignificant amount relative to my salary. But I am inspired by the FIRE community to push it to the limit. It is a bit of stretch for me and I don’t know how sustainable it is without an increase in salary!

Second, although $19K is the limit right now, those rules can and likely will change (for better or worse) throughout the next 24 years. This is an inherent risk with the status quo strategy. Even if you decide to play by the rules, they are always subject to change.

But, I don’t want to work for the next 24 years

I’m crying on inside at the thought of continuing on the current path for the next 24 years. I find a little bit of comfort in that throughout my career I’ve been able to switch roles every 3-5 years. But even with that in mind, I can’t shake the feeling that this path is less than optimal for me. I can’t stomach the idea of rushing off to work, seeing my kids for only 2-3 hrs a day, and commuting back and forth for the next 24 years of my life. I just can’t give all my good years away!

Bottom Line

I was very surprised to find that this strategy is an option for us, at least when it comes to the numbers. However, it is very doubtful that I will willingly continue the status the quo. The FIRE community has ruined my life in the best way possible. I mean $3.6M sounds nice, but at what cost? Besides, I think I can do way better than that via real estate (for example). I can’t wait to explore the rest of the strategies. Next up…The Portfolio Income Strategy!

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