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Episode 113: A Strategy To Do What You Want, Sooner, On Your Way To Financial Independence

Aug 30, 2021

This Episode

Solo Episode

You Will Learn

  • What is Coast Fire Retirement?

Resources & Links

This week, I want to discuss a new optional path that could be taken for future financial freedom. This is an option that I recently learned about called coast fire retirement.


Justin (00:00):
This is episode one 13 BPM success.


Justin (00:00):
Really happy to be speaking with you today. Today. What I want to do is expand your mind to understand one of the many options that exist for you in moving towards financial economic freedom. One of the challenges that hiring professionals of all types face, especially here in America and especially in this age is a, what I would call a tyranny of options. There’s you can very much choose your own adventure and basically any path that you choose, you can find a way to make it work. And the biggest constraints that we face, they’re not, they’re not real constraints. They’re more just FOMO related, fear of missing out. And one of the things I want to do today is just present you with a potential option that I learned about recently, a potential path towards financial independence that I learned from a fellow financial advisor, shout out to Terry Anderson CFP down in Texas, who works with associate attorneys in the same way that I work with anesthesia and pain docs.


Justin (01:01):
And he pointed out this idea, which is called coast fire, C O S T fire. And one of the things that I, you know, the, so the fire community, there is a community it’s a weird little underworld of people, especially on the internet who talk about how they started. They found a way to like start throwing their paper towels in the washing machine and never having to buy another roll of paper towels again, in order to retire at the age of 24 or whatever. There’s plenty of ridiculous stories out there about people who have financially reached financial independence or retired early F I R E. That’s where that acronym comes from.


Justin (02:02):
There’s a lot about the fire


Justin (02:02):
Mindset and the fire approach and the fire community that is a little bit extreme at times, and kind of wonky and weird, but there are certainly things to be learned from people who take a non-traditional approach and who also harness some of the powerful concepts of personal finance and of lifestyle to be able to live a life that is the most them it’s, it’s the, the life that they want to live. And really that’s the thrust of today’s episode is how do we take the principles that exist in the financial realm to build a life that is truly fully yours and one with which you will be the most happy. So having said that, I want to talk about this idea of coast fire and see if it might something that someone in this audience should consider, because this is one of the many choose your own adventure options of wealth building and of career progress and saving and spending, et cetera. And here’s the premise coast. Fire divides your career into a couple of different E-box. The first would be probably, you know, for a physician when you finished training for the first, we’ll call it 15 years. And you know, actually we’ll, we’ll call it 14. So you finished at age 32 after residency, maybe a fellowship or two, and then you have this period of time at the beginning where your mission


Justin (03:03):
Is to save as much as you reasonably and comfortably can.


Justin (03:03):
That’s the first stage. The second stage is the time between when you stop saving and the time that you fully retire, or the time that you read financial independence for our purposes, which we’ll call aged 65 and then there’s retirement, which is what it is. So what I want to do is describe each of these three epochs to you and present this approach as an option for people who are interested in building wealth and lifestyle design and writing your own story. And really that’s something that I’m super passionate about is autonomy. Giving power to individuals, to write their own story and live a life that is unconstrained by the conventions of society and the pressures of employment and things like that. So you can hopefully pursue happiness and meaning. So in this beginning, epoch the very beginning, the first 14 years, if we say, for example, you know, say you’re making as an anesthesiologist $380,000, and just pick a number of which about $20,000 per month lands in your checking account. This is the net pay to use a 20 K a month, 240 K a year that we can do whatever where we want to with


Justin (04:04):
That money.


Justin (05:05):
The way that this could potentially work is saving $10,000 per month, or contributing it towards wealth building activities in some kind of way. So 10,000 a month, that’s $120,000 per year. What I would recommend if you’re wanting to do this, you would automate this. You would set up an automatic contribution of $10,000 per month into to keep it simple. We’ll say a taxable investment account. So this is an investment account that has no tax constraints. There’s no limits on when you can put money in, when you can take money out, how much you can put in or take out it’s, you can move money wherever you want to. Whenever you want to, the trade-off is that there is no tax advantage to doing that. You you incur tax whenever you realize gains, whenever you buy a security, that security goes up, you sell it whenever that happens, there’s gains that are taxable, but you would set up an account like that.


Justin (05:05):
You would automate this contribution of 10,000 a month, and you will let that run. And you would live on the other $10,000 a month that you’re making that’s going to cover your mortgage. That’s going to cover all your bills and utilities and your childcare expenses and your car payment and all that stuff. If you can do that. And if you can live comfortably on that amount of money, what this means is that you’ve automated a wealth building mechanism that you can let run in the background. And essentially what you’re doing is you’re rolling a wealth building snowball it’s getting bigger and bigger and bigger and bigger, and it’s gaining momentum. It’s becoming more and more difficult to stop


Justin (06:06):
That’s happening automatically. Really,


Justin (06:06):
If you can set your expenses and save the rest, this can be a really easy way to build wealth. And then you do that for a period of time. In, in my example, I say, let’s start this at age 32, let’s go till age 45. We’re going to save 120 grand a year, which is $10,000 per month. This is the first epoch of the coast fire journey during which time over those 14 years, if you do that every year, you’re going to save a total of 1.6, $8 million until the year that you’re 45. So just over a million and a half of diligently saving automatically in ways that hopefully you don’t even really feel because it’s happening in the background. Now, one of the things that’s also happening is you’re experiencing the benefit the magic of compound interest. Now it’s impossible to say what’s going to happen in the next 13 or 14 years, but we can use long-term averages just to, for illustrative purposes.


Justin (07:07):
And, you know, if we take a long-term average of say seven and a half percent a year gross. So before any taxes, this is the growth that might happen on this money. And we’re doing that between age 32 and age 45. So you’re putting in 120 grand a year. That money is growing at 7.5%. What we have is, although you’ve only contributed 1.68 million after 14 years in that time has grown to almost 3 million. So 3 million bucks in this account at age 45, with your name on it, just by automating this $10,000 a month savings. So that’s great. We’re excited, 3 million bucks. If we use the 4% rule, which we’re going to unpack in a future episode, that 4% rule would indicate that 3 million gives us $120,000 of income essentially indefinitely. And we’ll talk more about the assumptions baked into that, but I think that’s a pretty reasonable expectation now, whether or not that, you know, 120 grand a year is going to buy you, what it used to buy you because of inflation is a


Justin (08:08):
Different question. Point is 120


Justin (08:08):
Grand can be thrown off by the $3 million every year. And furthermore, this 3 million is going to continue to grow. So the way that the fire journey is configured is you can now at age 45, turn over a new leaf, you can start a business and take zero pay potentially above and beyond your living expenses. You can take a different job. You can

Speaker 4 (09:17):
Start working or 0.2,


Justin (09:09):
Or you can travel Europe. And as long as here’s the trick, and here’s the point of this, if during this second epoch, after you have intentionally built wealth on the front end, if you can cover your living expenses between age 45 and 65, then this wealth building engine that you’ve so diligently constructed at the outset can continue to grow


Justin (09:09):
And you don’t need to save really any more ever.


Justin (09:09):
I can just continue to let that snowball roll. It’s rolling downhill. It’s automatic, it’s in the background compound interest is working for, and you can now do whatever you want. You can also consider using this opportunity in this


Justin (09:09):
Freedom to pursue some sort of,


Justin (10:10):
We’re doing surgeries in the developing country, developing countries, we’re doing doctors without borders. We’re doing, you know, we’re starting a local medical clinic and we’re only going to take enough pay to cover my family’s lifestyle in that time. You can be freed to do really anything. You can start giving away vast amounts of your time and still do some clinical


Justin (10:10):
Medicine just enough


Justin (10:10):
Again, to, to cover your living expenses. And what, what happens is that 3 million grows to four and to five and, and beyond so that even though you’ve saved zero additional dollars between age 45 and 65, the numbers get kind of silly high. And this is one of the challenges with running straight line projections is in the real world. This doesn’t happen. And this is where the more seasoned financial advisors are gonna wag their finger at me and say, Justin never do a straight line expected return projection because it shows you, you know, making a couple dollars and saving a couple dollars and ending with 12 million. And by the way, 12 million is exactly the number that I’m showing on my spreadsheet here at age 65, I’m not telling you you’re going to have 12 million at age 65, but this is one potential future. It’s almost certainly not your future.


Justin (11:11):
And it is illustrative of these concepts, where if you get that, build that velocity, see on the front end, you saved 10,000 a month. You get the age 45, you have an opportunity to, or rewrite your story. Maybe you have three kids and their age, you know, 10, seven, and five, and you want to take a year off and, you know, drive an RV around America and work one locum shift a week in different places to be able to do that, or, you know, whatever you can, world is your oyster. And again, you’re going to be facing the tyranny of options, not a scarcity of those options, but an abundance of and that is a two-edged sword, but being able to be in the driver’s seat to be able to have the autonomy to do that is an incredible


Justin (12:12):
Opportunity. So why


Justin (12:12):
Am I telling you all this? I want you to know that coast fire is an intentional way to think about structuring your life, where having a high savings rate on the front end opens up immense opportunity and options after you’ve done it for just over a decade. And the power of that compounding interest is really, it’s, it’s difficult to, it’s difficult to understand until you’ve walked into it. Having seen it work with many clients over many years, I, I have gleaned that yeah, it’s, it’s life altering. It’s powerful. And when you let it work for you, it is an immense asset. So it’s something to consider as you thinking about what do I want, what I want for my family, what I want for my career, if I am doing something right now, and I think, you know what, I don’t want to do this for forever.


Justin (12:12):
What do I need to do to get to a place where I have much more flexibility in the future, then building this kind of savings regimen into your life and simultaneously being cognizant of your lifestyle and living, you know, on call it 50 to 60% of your net income is something that can give you this type of flexibility. So check out the show notes. If you want to APM success slash one 13, that’s 1, 1, 3, and I’m going to post a couple additional resources about this track about the coast fire journey. And if you’re pursuing financial independence and you want to say, you know what? At age 65, I need X number of dollars to live. What do I need to do in the next 10 or 15 years so that I can stop saving for two decades and still make it work. This calculator can help you understand what those numbers mean. So hopefully this is interesting to you. We’d love any feedback that you have. If you’re thinking about this, or you have other concepts, other savings strategies that you’ve heard coworkers talking about or anything like that, and you want to either share them with me or have them explore it on the street would love some


Justin (14:14):
Feedback as always. Thank you for listening. If you liked what you heard this week, head on over to APM success.com, where you can find more content and free resources to help you build a successful career in anesthesia and pain management. If you want to leave a review in iTunes, that also really appreciate it. Thanks for using some of your valuable time to join me today on APM success.

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