Sam Doguen left a steady bank job at just 34 years old with an impressive net worth of $3 million, plus $80,000 a year in passive income.
But the former Goldman Sachs analyst, also known online as Financial Samurai, doesn’t necessarily approve. FIRE (Financial Independence, Early Retirement) Strategy in all its forms.
Do not miss it
“I think this Coast FIRE idea is very stupid,” Dogen said on CNBC. recent interviews.
“Basically, if you compound at 8% for 30 or 40 years, you can save enough money for retirement,” he says. “To me, that’s a delusional idea.”
How does Coast FIRE work?
As part of traditional events, movement of fireA saver plans to retire early when enough passive income comes in each year to cover expenses.
on the other hand, coast fire This strategy involves aggressively saving and investing until you reach a goal amount that will eventually be enough to support your golden years.
The idea is as follows save and invest early in life That way you can “coast” and worry only about basic living expenses. compound interest Your existing investment portfolio will ensure that your needs are covered during your golden years.
Your FIRE number is typically calculated by multiplying your estimated annual expenses by 25 (assuming you’ll spend 25 years in retirement). For example, if you think you need $40,000 a year to cover your retirement expenses, your savings goal would be $1 million.
read more: Isn’t there a landlord? no problem!explore Effortless real estate investment
However, Coast FIRE operates based on a few assumptions: the expected annual rate of return from your investment and the time it will take to grow your investment.
Number of FIRE / (1 + average annual return on investment) (number of years for investment to grow) = Number of Coast FIRE
So if you set your FIRE number at $1 million, expect an average annual return of 10% on your investments, and expect to retire in 25 years, you’ll save about $36,363 before you can coast out of your investments. is needed. More money towards your investments.
Why does Dogen not believe that it is possible to proceed “by coasting”?
Dogen says that if you can’t quit your job tomorrow and live off your savings and passive income, you’re not technically financially independent – which he did. Therefore, he believes this retirement strategy cannot be labeled “FIRE.”
But the stock market isn’t always stable, which also worries people who expect fixed returns on their investments. Another problem is that your spending in the future may be very different from what it is now.
When Dogen retired in 2012, he planned to spend $80,000 a year supporting a simple life on his grandfather’s mango farm in Hawaii. But that didn’t happen.
Dogen decided to stay in expensive San Francisco, where he and his wife had two children. He recently sold a significant amount of stocks and bonds and splurged on a new home in the Bay Area.
The move pushed his passive income back from about $380,000 a year to about $230,000 a year. what he claims is It is no longer enough to cover the living expenses of a family of four.
Starting in September, he expects his annual expenses to include $80,400 in tuition at a private Chinese immersion school, $68,400 in housing costs, and $26,400 in food expenses (including weekly dates). There is.
Now, Dogen says he or his wife (or both) need to re-enter the labor market and make a new plan to reach FIRE once again.
“I was happy living a very simple life, but life turned out differently,” Dogen told CNBC. “And it’s an irrational idea to think that people are planning for the next 20 years without any changes.”
What to read next
This article is for information only and should not be construed as advice. PROVIDED WITHOUT WARRANTY OF ANY KIND.