Beating the System!

When discussing some of my goals with a confident the other day I was accused of trying to beat the system.

I was told it was impossible and I should just give up.  I should accept debt and accept servitude. I should understand that i’ll always have to pay for the lifestyle I want and consequently will always have to work.  I’ll never get the ‘easy life’ that I aspire to.  That got me thinking.  Am I really trying to ‘beat the system’?  

What is the system anyway?  A system is an interconnected path that leads to an outcome.   That’s an obvious and overly academic description.  When it comes to this discussion “the system” means everything you need to do in life.   Beating the system, really means short-cutting to an end goal of your choosing.  You want to get to the end without having to go through all the steps.  I want a debt free lifestyle with enough income to allow me to do what I want without having to work a traditional job. The closest analogy to my preferred outcome is retirement even though I enjoy and aspire to always continue working.  In my case my preferred work life would be based around achieving personal goals.  I want to get there as quickly as possible, aka, as it was described to me, I want to beat the system.  

Why am I trying to beat the system?  I’ve written at length about how difficult life is for the working professional class because of a confluence of different macro trends.  Today’s societal and economic systems don’t work for the working professional.  It’s not a single thing.   It’s everything from the economic downturns starting in the late 1990’s and early 2000’s to the transition from the industrial age to the information age.  In addition to that there is the competitive pressures from formerly third world countries who now hold positions of ascendance in world economies.  It’s these things together that made the system exponentially tougher for the current professional worker.   So what does beating the system look like?  You have to really define the system to beat it, right?  So let’s look at some of the systems we have to deal with.

Their is the education system.   You go to school, you learn a bunch, and then you exit the system and get a great job.  That’s the theory and how it used to work.  Unfortunately to work the system properly focus needs to begin in High School when kids are too busy trying to hook up than think about their future.  They have to get great grades to get into a highly competitive university.  Many of the ones who do this come out with tens of thousands in debt, and only a few who chose their degrees wisely fall into a high demand and highly compensated full time job.   Most have the debt and then realize the four year degree in communications didn’t quite pan out the way they intended it to.  Their options are a lower quality of life or permanent servitude to extreme levels of debt with the student loan servicing, credit cards, car payments, etc.  For those that chose wisely, the system almost works.  For those that didn’t, they work their tail off though all manner of corporate and organizational machinations to get a good income.  

How would you beat the education system?  Since student loans are not bankruptable, you could choose a field where your student loans are forgiven, i.e. getting a teaching degree and working for a few years in some super high need area.   I remember when I was younger, I had a friend who wanted to go to med school.  Her parents brought up the idea of going into the military and having Uncle Sam pick up the tab.  I didn’t think it was a good option at the time as I didn’t like the idea that one day she could be shot at in the line of duty.  Looking back at it now, when you consider the average student loan debt for a Doc is about 200K, the idea doesn’t seem too crazy to me anymore.  The problem with both of these options is that it’s not really beating the system, they are really more working the system.  Beating the system means getting a high dollar job without the expensive degrees, or possibly getting out of the student loan debt after you have acquired it without the sacrifice.  As I said earlier, since student loans are an IOU to the government there are practically zero ways to get out of them.  Since there isn’t a way to beat the system, most people give into the system and just go into other types of debt to get the lifestyle they want.  

Retirement – This is a tough system to beat. Right now retirement mostly means 401K and that means the burden of wealth generation is nearly completely on the individual. If an individual who got a standard 401K wants something like a pension plan they have to buy annuities that go up with the cost of inflation.  Since these are direct products sold to people they are comically expensive.   My focus on a job that includes a pension can be seen as trying to ‘beat the system’ in that they are very rare.  I’ve written about the need for all the different types of savings for a strong retirement and why you have to have a retirement that is more robust than most financial planners will recommend.  If you have low expectations in your quality of life you can absolutely ‘beat the system’ using the more open ended federal disability program.  Huge numbers of people are doing it which means that some day that hole will eventually get plugged although I think there is some time left.  Remember, it took decades for welfare to become limited.  Under the current federal disability program you can get an income for life and free medical.  That being said, unless part of your quality of life is built upon someone else’s largess, poverty level income is not that pleasant of an existence.     

The ‘Kids system’ includes daycare costs, school expenses, after-care, braces, other healthcare, tutoring, larger homes and any one of a thousands of other expenses like saving for college so they aren’t burdened with student loans.  Raising children takes time, lots and lots and lots of time.   There is no way out of this short of walking away from your kids.  Sadly that’s something that is happening more and more.  Technically if you have a grandparent or parent who is willing to watch the younger ones the daycare costs can be avoided which is definitely a biggie.  Unfortunately there is no getting out of the rest of the child rearing stress and expenses.  I guess if you were tremendously wealthy you could have a nanny or you could do the real world version of a Hogwarts style boarding school. Being honest there really is no magic when it comes to kids.  It’s like student loans, it’s hard to beat the system when it comes to raising kids no matter where you are on the income scale.  

Housing – This is what really sparked our conversation and this article.   Right now the housing system includes private ownership based on thirty year mortgages and government subsidies via the mortgage interest deduction.  Although many people are proponents for keeping a mortgage around forever for the tax benefits, I can easily argue my way out of the deduction. Why give a bank $1000 in interest to save $250 in taxes?   Pay off the house, lose the deduction and your still $750 to the better.  Unfortunately even if you pay it off, there is always maintenance, property taxes, and utilities.  This was the argument against my desire for having no mortgage.  If trying to  ‘beat the system’ means paying off the mortgage, then no, of course you can’t do it completely because you’ll always have extra payments.  I’ve done the math, and to beat the system from a housing perspective, you’d need very roughly about 2.5x your home cost on average.   As an example, if a home is $100,000 the math follows.   Basic utilities on a small house average about $300/month or $3600 a year.  Taxes and insurance would be about $1000/year minimum.   Figure another $1500/year in maintenance and upkeep.  That’s a little over $500 a month just to keep the lights on for a small home or condo in a rural environment.  A homeowner would need to invest about $150,000 to realize an annual income of $6,000 on top of the original $100,000 to pay off the mortgage.  Can you beat the system, i.e. can you live for free?  Yes, but you will need much more than what it costs to pay off your house.  Maybe this is why when seniors ‘downsize’ by moving to a smaller home, it is considered a normal and preferred behavior.  If you sit back and think about it, shouldn’t most seniors have enough wealth in reserve to have the resources to assist with the home upkeep and maintenance as they get too old to do things themselves?  All this being said, I would argue that the first major step to ‘beating the system’ with housing is getting rid of that mortgage, even if it’s mostly about how it makes you feel verses actually not having to pay all the costs for keeping a roof over your head.  

Can you beat the system?  Am I trying to beat the system?  Now that I have explored it, I don’t think you can and I don’t think that I am.   I think you have to work within the system if you want anything close to an average life.  Yes you’ll always have to take on the load of any type of education that leads to a good wage, but you can always be on the lookout for the credential with the lowest investment and highest return.  Retirement won’t be the thing that you envisioned, but an early focus and careful planning may get you closer to your ideal than your peers are able to get.  This is assuming you don’t do a crazy left turn in retirement like becoming an expat or engage in some other severe change of lifestyle.  The kids do eventually leave the nest, and if not, at 18 you can make them if you have the testicular fortitude.  Finally there is housing.  There are several ways to try to ‘beat the system’ here but I can’t deny that it’s true, unless you save and invest an exorbitant amount of money over the cost of your home, you’ll always have to work to pay something.  The roof over your head will never be guaranteed.   

Like I said, I don’t think you can ‘beat the system’  but maybe that’s not the goal.  Maybe the goal should be ‘blunting the impact of the system’.  Maybe that’s what i’m doing.  I know life is tough. I also know that I could give up.  I could live a life of debt and accept that I won’t ever reach complete financial and lifestyle freedom.   If I did this I’ll always have student loans, I’ll always have a mortgage, and I will always have to work for someone until the day I physically can’t do it anymore.  I just can’t bring myself to give up and give in like that.   I know there aren’t any real easy answers, but I also know that some decisions may make life a little easier.  I’m hoping that one day when I pile these decisions on top of each other that they will allow me to blunt the impact of the system enough where I don’t even feel the stress of it anymore.  Hopefully I can get to the point where the great majority of my life is doing what I want and a minimal part is doing what I have to do.   I may never get there but I do have to say I believe that not giving into the system completely is the one way I feel like I’m able to beat the system, even if it’s just a little bit.  

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-Mike.    

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