This early retirement strategy is ‘delusional thinking,’ says multimillionaire who retired at 34

Sam Dogen is one of the pioneers of the FIRE movement — short for financial independence, retire early. When he began writing on his website, Financial Samurai, in 2009, Dogen, along with other financial influencers, carved out a definition for what it means to be financially independent.

“It’s having enough in investments and passive income to cover your basic living expenses,” Dogen says.

By the time he left his investment banking job in 2012 at age 34, Dogen had exactly that — $80,000 a year in passive income, plus a $3 million net worth. Over the years, he continued to save and invest to expand his portfolio and income streams to keep up with growing living expenses. In 2023, Dogen’s income from stocks, bonds and real estate, among other sources, was about $380,000.

Over that same span, the FIRE community has grown to include a wide array of definitions as people have found different paths to financial independence. But Dogen takes particular umbrage with one form of FIRE known as “Coast FIRE,” a state of financial independence in which retirement savers say they no longer have to invest based on projections of future portfolio growth.

“I think this Coast FIRE mentality is so stupid. Basically it’s saying, you save up enough so that if you let it compound at 8% for 30 or 40 years, you’ll have enough to retire,” he says. “To me, that is delusional thinking.”

If you’ve never heard of Coast FIRE, here’s how it works.

Like traditional FIRE adherents, those looking to achieve Coast FIRE have a number in mind — the total amount they’d need in their investing accounts that would allow them to cover their living expenses with withdrawals in perpetuity.

This is known as your FIRE number. It’s often calculated by multiplying your target income by 25, or more technically, by dividing by the 4% you plan to take out per year. If you think you can live on $40,000 a year, multiply by 25, and you need to save $1 million. Each year, you can safely take out $40,000 while continuing gains in your portfolio keep you from running out of money.

Under Dogen’s model, you haven’t achieved FIRE until you’ve saved the $1 million, built $40,000 in annual passive income, or some combination of the two.

But to reach Coast FIRE, you merely need to be on track to hit your FIRE number given certain market assumptions.

Returning to the previous example, say you’re 25 and want to retire by 50. If you have $175,000 in a Roth IRA and assume a 7% rate of return, you’re on track to be a millionaire by your 50^th birthday. No need to save another dime toward your investments, Coast FIRE adherents say.

You can instead use money you would have saved to fund your lifestyle. In other words, you can coast while still working and no longer investing.

Dogen has two big problems with those who label themselves Coast FIRE.

One is definitional. Unless you could quit your job tomorrow and cover your living expenses in perpetuity, you simply aren’t financially independent, Dogen says.

If you say that you are, “you’re simply bending the rules,” he says. “They’ve changed the rules to fit their lifestyle, versus trying to FIRE based on the original definition.”

The second gripe is more practical. If you’d made the determination that you can “coast” and deprioritize saving for retirement, you’re making two major assumptions. One is that your portfolio will deliver returns in line with historical averages during the time that you’re invested, which is no guarantee.

The other, much less guaranteed assumption, is that you know what your expenses will look like decades into the future. Dogen, who in 2012 planned to take his $80,000 a year and live a simple life on his grandfather’s mango farm in Hawai’i, knows firsthand how quickly things can change.

“We had a kid, and it was like, ‘Man, this kid is amazing,'” He says. “Then I realized, I still really like San Francisco. My friends are here, my network is here, I don’t want to leave. So I have to afford San Francisco housing.”

Another kid followed. As did the decision to enroll in a private school. And so on, and so on.

“I was happy to live a very simple life, but life turned out differently,” Dogen says. “And for people to think they have the next 20 years planned out with no changes, that’s irrational thinking.”

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