← Your Next Dollar: Money Management for High Earners
Your Next Dollar: Money Management for High Earners
Can You Stop Saving and Still Retire Rich? (Coast FIRE for High Earners)
00:42:11
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- [00:00]
A
A lot of retirement advice you grew up hearing is either outdated, broken or built for someone earning a fraction of what you earn today. Work until 65, then flip the script and you can retire or save the same percentage every single month for 40 straight years or keep grinding and maxing out every single account and hoping the plan works. And most of this doesn't fit the reality. For a high earner. The fact of the matter is you make more money and so you have the ultimate lever that you can pull where you can front load your savings and investments and have the ability, ability to stop at a certain age and compounding takes over. That is Coast Fire and that is what we're going to be talking about today. So we're going to be covering what Coast Fire actually means and why it's different than regular fire. We're going to talk about the number that you actually need to hit and talk through some of the math behind this. And we're also going to give you some case studies to give you better examples so you can see how this works in real practice. We're also going to talk through why many high earners blow through their Coast Fire number and may not even know it. Some of you listening right now may actually be Coast Fire and you have no idea that you're Coast Fire. Plus how to front load your investing, where to put those dollars, and some deeper conversations around Coast Fire. So Ryan, I love this topic and I think this is going to be really eye opening for a lot of people.
- [01:24]
B
This is one of my favorite, if not my most favorite topics so I'm excited to dive in today.
- [01:28]
A
So first I want to get into kind of what Coast Fire is for folks who don't know what it is. So essentially Coast Fire is the point where you've invested enough of your money early enough where you can just stop contributing and compound interest kind of takes over. So for a lot of people, Ryan, they feel as though this may sound too good to be true. So why is this, you know, so important for people to think about this and potentially start investing early so they can achieve this?
- [01:52]
B
This is a really important concept to think about in graphs because there's a chance that you might be forced into Coast Fire. So what do I mean by that? So it's not uncommon as we're building out financial plans for clients that when someone is single and a high earner and has excess savings capacity that if they are really aggressive but about saving, investing and letting compounding do its work, they will have a critical mass in time for A couple big expenses to collide. That is getting married, starting a family, buying a home. If that's in your future and you're a young high earner, you should listen to this episode and you should really take notes because you're going to want to have that Coast Fire number. You're going to want to have that critical mass established because you might find. Find yourself in a position where the free cash flow is not as much as it is right now. But if you're at the Coast Fire number, doesn't really matter as much because it puts less pressure on saving for the future.
- [03:02]
A
In the last episode, I even talked about this. In my 20s, I was really frugal, and I accidentally actually reached Coast Fire without even noticing it or knowing I was doing this because I was frugal in investing some of my extra dollars. But when I got to my 30s, I got married, I had kids, and all these expenses started to balloon. And for those of you out there that have gone through this, your 30s can be a timeframe where it's the mess, the middle. And so this is something where I think a lot of people can get a lot of value out of this. It really is about your 20s and 30s and even your early 40s. If you buckle down and you front load some of your savings and investing, you can really get to a point in time where you don't have to work as hard anymore and can even take your foot completely off the gas. So it's not about kind of working less today. It's about being able to live more and spend more of your dollars on the things that you actually enjoy or on the lifestyle and that you actually want. So, Ryan, if someone is thinking about Coast Fire and they're saying, okay, that sounds great, I would love to front load some of my savings and investments. I make really good money right now. I want to make sure that I have the option at least to do this. How would they calculate this number?
- [04:01]
B
So. So there's going to be a lot here. But the good news is there are calculators and everything that you can use. So if it's not jiving right away, just, again, there are tools you can use. So. So first off, you're going to want to figure out, like, what is your target retirement number? And a general rule of thumb is take what your expenses are at a good cruising altitude. So what do I mean by that? I don't mean the most frugal version of Andrew. I mean the version of Andrew that says, I could spend like this the Rest of my life and live a pretty good life. Okay, so take that expense number and multiply that by 25. General rule of thumb, that's going to be your retirement number. So after you have that retirement number, you take your current age, let's say you're 30 years old, and then you take your retirement age, let's say it's 55 years old. Just making that up. Okay? So now you have your years to coast. So that's a 25 year time period. Okay. Now you need to have a rate of return that you're assuming none of us know what the market's going to do. You know, do you use a 8%, 10%, 12%? I would say let's err on the side of being reasonably conservative. And let's take 7%. Okay, so what asset base do you need today in order to have 7% compounding get you to the point where you're going to reach your retirement number, which in this example is 2.5 million.
- [05:31]
A
And that's perfect because I think when we look at this, we're saying, hey, you can front load as much of your dollars as you possibly can, especially if you are in your 20s or 30s, and maybe you don't have as many responsibilities yet you have some of that extra income and maybe you're a, a dink couple and you have dual income, no kids, or you have other things going on right now where you can take some of those extra dollars, front load them as early as you possibly can, and then you can figure out exactly how Ryan just calculated this. You know, how long do I have in order for this money to compound to get me across the finish line? When can I stop, when can I stop investing so much or being so aggressive? And I've come across so many different people who are just really, really aggressive early on and they get to their late 30s or their early 40s and they come to me and say, Andrew, I'm just, I'm just tired of, you know, always grinding and saving some of my extra dollars. When can I enjoy life? And Coast Fire allows you to have the opportunity to run the math to see if you have that available. Now. I know one question that's going to come up, Ryan, is, well, where do I invest these dollars? How do I think about investing these dollars moving forward?
- [06:32]
B
Yeah, I mean, you're going to want to be invested in a stock portfolio because you really need stocks to be that engine of growth, to be able to compound at the rate of return that you need in order again, to Reach that to reach that retirement number. So a diversified stock portfolio. One caveat though is when I say stocks, it's a diversified stock portfolio. The biggest mistake that I see people make is that they say they're invested in stocks, but they buy like one or two stocks as a. This is going to be my rocket ship. Okay, yes, it might be, but it might work the other way as well. Where those stocks that you think are going to be the rocket ship are actually down 50, 60%. So you want to be invested for growth, but at the same time you don't want to be overly greedy. And the good news is like you don't have to be overly greedy. If you have a diversified portfolio, sure there'll be really good years and some bad years, but over a 10, 20, 25, 30 year period, the odds are strongly in your favor that you will have a successful outcome.
- [07:34]
A
Exactly. And if for those of you out there that are wondering, okay, well, should I, you know, take this money and put it into a Roth IRA or a 401K or an HSA or where should I put these dollars moving forward? We have something called Next Dollar Blueprint. Now if you haven't heard that episode, we will link it up down below in the show notes. We have a full episode kind of diving deeper into that. But we also have a free download that you can check out down below in the show notes as well. So you can see the order to consider when you are thinking about this for your specific situation. And so that is an area where we think through. Okay, if I am going to retire at 55, maybe I want to consider something like a taxable brokerage account and contributing some of those dollars there because I have more flexibility, I can access this money if I do want to retire at 55 and my coast buy number is, is in my 50s. Or if it's in your 60s, those traditional retirement accounts may be something to consider as well. Is there any other considerations that you have when it comes to account type Ryan on this.
- [08:25]
B
If your desired retirement date is earlier than the typical retirement date. So in other words, if you want to reach financial independence in your early 50s, where traditional retirement is in the 60s, you're going to want to have a sizable taxable brokerage accounts. So while I'm huge fans of the retirement accounts and we want to be able to maximize as much as possible, and if you want to reach financial independence sooner, you really do have to focus on having a sizable taxable investment portfolio.
- [08:54]
A
Exactly. And that's the key for most people so again, check out the your next dollar blueprint down below. And that'll have a ton of information of some of the stuff that we talked about in past episodes, for sure. So, Ryan, I want to give you three examples here. We'll talk through these three examples to show people how attainable this actually is. Because people may say, okay, well, this sounds interesting to me. It sounds great in theory, but what is an example of this so I can understand, you know, how this actually works and what this looks like. So I'm going to give an examp example of someone who is 35 years old, someone is 40 years old, and someone who is 45 years old. So let's start with someone who wants to achieve Coast 5 by the age of 35. So if they have $100,000 in annual expenses and they want to continue to spend that $100,000 per year, then they would need $2.5 million. How do we figure that out? Just as a review, again, we multiply that by 25, just like Ryan talked about earlier in this episode. So they want $2.5 million by the age of 65, or once they can hit that age where they get Medicare and all those different things, then we're going to estimate a 7% rate of return for each and every single one of those. Now, obviously, the caveat here is we don't know what the future returns are going to be, but we're just trying to use a conservative rate of return for this example. So in this example, they want to make sure that they hit $2.5 million so they can continue to spend that $100,000 per year. They would only need $328,000 by the time they hit age 3:35. Ryan, do you have any tips for anybody in their 30s, maybe, who wants to do this and hit Coastfi in their 30s? Is there any tips you want to give someone who's maybe interested in that?
- [10:22]
B
Yes. So first off, I love how you laid that out because again, the important point is we're not trying to get to two and a half million dollars in your 30s. You need far less that. So we're talking about that $300,000 number. So when you break it down that way, it becomes way more achievable. But let me just go through one case study here, and I think this is an important one because I think a lot of people are faced with a. A couple that I work with who they're in their early 30s and, you know, we're talking about their, their future goals and you know, they're, they want to buy a home, they want to start a family fairly soon. And we were able to map out their cash flows. Now the key is today there they have two incomes and they have a one bedroom, tiny apartment in New York City that is very affordable. Okay, so this is the example of the couple that is going to be forced into Coast Fire because based on the type of home they want to buy, you know, again, based on, you know, being dual income and you know, needing to pay for childcare, et cetera, you know, we're kind of looking down the barrel of they're not going to have a lot of excess cash flow in the next five to six years. So this is where the Coast Fire comes into it and this is where kind of Coast Fire becomes mandatory in that we have this five to six year window to reach Coast Fire. What's the single easiest decision that they can make to reach Coast Fire? Don't move, stay in your one bedroom, one bathroom apartment, pay the, the, the cheaper rent, and just bank your dual incomes. The biggest mistake I see people make is when they upgrade their living expenses. And the single biggest way to upgrade your living expense is to increase your housing costs.
- [12:04]
A
By far, that is one of the areas where we've seen it time and time again, where people just overspend and they overextend themselves on housing. So if you can keep that baseline number the same and you can figure out a way to kind of front load this, I think it's a very powerful lesson. So that's a great example. I'm going to give you two more in the 40s, Ryan, because this is where it starts to flip a little bit and people can realize, okay, well, if I wait till my 40s, I need a little bit more by the age of 40 and then a little bit more by the age of 45. So a 40 year old who wants to spend $150,000 per year in expenses. So again, that is a great retirement. Spending $150,000 per year, depending on where you live in your situation, would need $3.75 million if they wanted to retire at age 65. And this is with the 7% of estimated return. And so their Coast Fire number by the age of 40 is $691,000. So again, for high earners, if you've been earning a good income for a while, then you may be able to hit this number by the age of 40 and be able to spend $150,000 in retirement and take your foot off the gas. And again, with each of these examples, this is you stopping your investments. This is completely stopping at that age during that time frame where you're not investing anything else. And so this is just a really cool example. By the age of 40, what you can do. Now let's look at 45. So a 45 year old who wants to spend $200,000 in expenses would need about 5 million by the age of 65 with a 7% rate of return. And their coast fire number is roughly 1.29 million. So again, if you've been making good money in your 30s and in your early 40s and you get to age 45 and you have $1.29 million invested, you potentially have hit your coast fire number. If you get that 7% rate of return.
- [13:45]
B
What we articulate to people is it's all about trade offs. So again, if you want to reach coast fire sooner, that means you might be able to achieve certain milestones sooner. If you're extending out your coast fire number, that means, yes, you have more time to save, but that might also mean you extend out some of those bigger ticket purchases before you start to coast. You know, for somebody who's in their late 30s who maybe hasn't started yet, it's 100% reasonable to say someone who's in the late 30s who can reach Coast Fire. You know, if you're 38, maybe it's be hard by 40, but 45, certainly very achievable. But it's the same math then. It's the same, okay, you have seven year window to reach coast fire. It comes down to what you need to be saving and investing on an annual basis.
- [14:33]
A
For those of you listening, you know, you can kind of see right now that the math comes down to you. It comes down to how much you can contribute. This isn't something where early on your contributions are going to be the majority of, you know, your returns. When you are investing these dollars, especially if you're doing this in a small window. And also I don't want you to get stressed if you don't hit your coast fire number. Maybe you wanted to try to achieve it at 35. I have seen people get stressed out or they've gotten down on themselves because they didn't hit it at that number and they hit it at 37 two years later. That is a. Okay. And it is something where for many people out there, I don't want you to, you know, beat yourself up. If you haven't hit it at the exact time that you wanted it because again, coast fire is so cool in the way that you can just make micro adjustments over time based on what's happening in life. My life, for example, the goalpost always is moving. It is something that shifts all the time. And I think for many people out there, you just got to understand, you don't want to just stress out about this number if you don't hit it perfectly every single time. In reality, when people are hearing this, this is actually tailor made for high earners because high earners have the income to be able to do this, to front load some of this stuff so that they can take their foot off the gas. And so because you have the ability to front load this, you know, if you're 35 or 40 or 45 and have this window of opportunity, this is something I think is really cool for a lot of high earners. So one big question that we have, Ryan, is when you see people trying to achieve coast fire, is this something where you tell them, hey, you just completely stop saving or is there a plan that you have in place where maybe they save a little bit of money going forward so they get comfortable doing something like this?
- [15:58]
B
People almost never stop. You know, they reach the coast fire number and we show them the math and they say, all right, let me just be a little bit more comfortable, right? Or, you know, they're, they're in a really good savings cadence and they don't, they don't want to stop drop. I've seen instances where again, it's the, at 35, we want to buy that, you know, $1.2 million home. And then 35 comes around, they're like, yeah, we're good in our apartment for the next year or so and let's bank away a little bit more. I would say that the vast majority of the people continue along this journey and we certainly encourage that. But I've seen a number of instances where people are like, I've hit that number. Like, I'm, I'm, I'm good. Like, we're going to make that big purchase or we're going to, you know, we're going to start living a life a little bit more and not worry as much about savings.
- [16:43]
A
And this is also the demographic high earners that are, you know, the folks who really can either over save, you know, they can become subject to over saving or they just have all this extra money that they saved in their retirement account. They don't really spend enough down because they've saved so much over time and so have you Seen clients across the board where they are, you know, either over savers where they just have too much in their accounts, or is it more? So you've seen under accumulators, which is the bigger problem that you've seen with some of your clients who are higher earners?
- [17:10]
B
You know, it's a really good question. I mean, of course we've seen both. I would say that the bigger concern is for people again who are under saving, but kind of to your point, the people who over save you can miss out on a lot of life. I've also seen it like a big kind of coast fire desire for people is to change jobs and you have a job that is less demanding. I've seen it happen numerous times where someone says I want to reach this number and then I want to transition into again something that's less demanding. But they have a really hard time making that transition. But we always have to remind people of like hey, look like your kids are young, they're not going to be young forever. Like this is the opportunity that you've been saving for to again have more of your time, have less stress. And for some people that's really hard.
- [17:59]
A
The opportunity cost of waiting, especially if you have kids or you have a family and you want to spend more time with your kids and have the ability to go on those vacations and go on those trips or just do the fun things and have the experiences, is one of those things that you will regret for the rest of your life if you don't take advantage of it now. So coast fire is perfect for something like that because you're front loading the savings and then you have the ability to spend extra dollars towards some of those experiences so that you can have those memories for your life. And so that's why I love it as one of the most productive channels for people who really are interested in maximizing some of that life value when it comes to having a family as well. The other thing is lifestyle creep. So some people, especially high earners, maybe they want to have a little more lifestyle creep in their life. I don't have a problem with lifestyle cre. I think some lifestyle creep is actually good, you know, if you're going to get to a point in time where you want to buy the nicer house or you want to buy the nicer car because you've been working really hard for all of these different years. Coast fire also allows you to do stuff like that, especially if you want to take your foot off the gas a little bit.
- [18:54]
B
Yeah, absolutely. And you have to remind yourself of the reason I was living in a studio apartment at 31 eating rice and beans is so I don't have to in my late 30s or early 40s. And that's okay. It's a part of my job that I underestimated in terms of helping people actually spend their money. There's an art to it, and it sounds like it would be easy, but it's actually can be very difficult when you have, you know, 10, 15 years of aggressive saving.
- [19:23]
A
And I know you've told me this in the past, Ryan, where you. Some. For some clients, you even like when they have, you know, things like RMDs, because it forces them to actually kind of draw down some of their retirement accounts and actually spend those dollars. And so for people who have that issue, I think it's really interesting to see that.
- [19:37]
B
Absolutely. I was talking to someone recently who's a super saver. It's really hard for them to spend money. They have the bulk of their retirement money in traditional IRAs and 401ks that they're ultimately pay RMDs for. And we're chatting about Roth conversions. And I was saying, like, actually it's kind of a nice forcing function that at 73, you actually have to take this money. Now, you don't actually technically need to spend it, you just need to take it out of the ira.
- [19:59]
A
But.
- [20:00]
B
But he'll. He'll spend at that time. And he actually said, that's a really good point. You know, as much as we want to be as tax efficient as possible, like, again, you have to live your life. So it's actually providing a nice forcing function for some clients.
- [20:10]
A
And here's the thing, with a lot of high earners, they are wired to kind of optimize. They're wired to accumulate. The reason why they got to their position or their, you know, their job or the business that they're running or whatever else is because they're usually high performers. And so when we kind of think about some of this, a lot of times when you are trying to achieve Coast Fire, it can be difficult to kind of get over the hump of actually doing this. I remember running the numbers the first time, and when I ran the numbers, I just wanted to see, you know, where they kind of landed. And I realized I was Coast Phi. And I said to myself, well, if I actually wanted to do this right now, could I actually stop saving and investing? Could I actually get my psychology over this entire concept to be able to stop saving and investing and so that is, I think, a struggle for a lot of high earners out there, especially if the goal post is always moving. For me specifically, that is my biggest struggle is my goalpost is, has moved many different times over based on life stages. So is there any tips that you have for high earners to think about maybe the psychology behind this if they do want to be able to spend more of their dollars on things they actually enjoy and less just stuffing it in retirement accounts when they've already achieved the goal and they're willing to work the next, you know, 15, 20, 25 years to allow this money to compound
- [21:18]
B
the biggest pushback that we get from people who've reached coast Fire is yeah, but what if some of these assumptions are wrong or, you know, like I still have this fear of running out of money. And I remind people of this quote from John D. Rockefeller, you know, at one point the wealthiest human being on the planet and someone asked them, Mr. Rockefeller, how much is enough? You know what his answer was? Just a little bit more. So I'm here to tell you that it's never going to feel like enough. So you do have to trust the process. I think a healthy amount of skepticism or a healthy amount of fear is important. But having too much is where it can be detrimental, where again, you're depriving yourself of certain goals or luxuries or time that you can have, but you're not willing to actually realize it because of an irrational fear. So I think that's where again, a big part of our job is reminding people that they've reached it. And by the way, the financial models assume that we're going to see bear markets, that we're going to see market corrections. It does not assume that we just have a straight upward trajectory with markets. So that's another important point that we oftentimes remind people of is that when we're experiencing volatility in the markets, I always take them back to the model is accounting for this.
- [22:39]
A
Exactly. And I think that's one thing people need to note is when we look at some of, you know, some of the rates of returns or some of the ways that we're looking at this, it is because, you know, some years you're going to have bear markets, some years you're going to have bull markets. We know that's the norma normal ebb and flow of the market. And so going forward, you just want to make sure you factor that into your plan.
- [22:55]
B
And by the way, if we assumed a straight 7% every single year consistently, those Fire numbers would actually be lower. So the, the reason that we have that 25 times your expenses is to factor in and to have that buffer for stock market volatility and uncertainty.
- [23:12]
A
Exactly. It gives you that opportunity for that buffer. So you can, you can protect, which is what most people want overall. And then the other thing that people can do is if they really struggle with the psychology here is you can do a couple of things like Semi Coast Phi, where maybe you are slowing down your investments. You can reduce them by 20% or 30%, see how that feels for a couple of years, maybe 40% and see how your portfolio is growing. Then you can run the numbers again and kind of figure out what works best for you.
- [23:37]
B
I think the important thing is this doesn't happen by accident. Right? So you need a plan. You need. And it's funny because, you know, we talk about, you know, coast fire or Semi coast fire and it's one of those where it's like, these are guidelines, right? Like you don't have to follow it to the letter of the law. Again like that, you reach that coast fire number. That doesn't mean you have to stop. So I would say a lot of people are kind of in that Semi coast fire space. But I would say just like throw out the names for a second. It really comes back to being very intentional and seeing and using money as a resource to live your best, most intentional life. But you're not gonna be able to do unless you have a framework, unless you have a plan in place. So that's why I love the names like Coast Fire or Semi Coast Fire. Because again, you can put a name or a label around the strategy that works the best for you.
- [24:30]
A
Exactly. Allows you to kind of build out this plan and use money as a tool to kind of get what you want out of life. If you want to spend more time, you know, with your bucket list travel, or you want to have those family experiences, or if you want to have career flexibility and have the ability to potentially even take a lower paying job that is less stressful. This allows you to do things like that. So there are really cool things that CoastFi provides for people who want to use money as a tool. Things like generosity or buying back your time so that you can spend, you know, a little less time working and a little more time doing some things that you love. Is there any other cool things that you've seen clients do, Ryan, where they've kind of achieved Coast Phi or they, they've tried to achieve this goal and then they had A little more flexibility in their life.
- [25:08]
B
One interesting note here is that. But I've seen people actually do better in their current job. So I can't tell you how many times I've seen someone say, my job is so stressful, I hate it. I have panic attacks in the middle of the night. I can't wait to leave. And again, we do the planning, we come up with the kind of coast fire number, and then they reach it. And this kind of weird phenomenon happens is once you reach it and you know that you actually could take a lower paying job, that you don't need this income. I've seen it happen many times over where people actually start processing stress better because you know that you're not dependent on this high paying job anymore. The weird thing is when you're not dependent on it, it can actually fuel actually a healthier relationship with that job because you know that if you needed to leave, you can because you've reached this number. So I would say that's the. That's the really interesting unintended consequence of reaching coast fire is people actually liking their current job better than before when they weren't at the coast fire number because they felt more dependent on it.
- [26:16]
A
That's a great point because then you're making decisions based on your career, not based on, you know, stress or anxiety, but you're thinking more so about kind of what is the best option for kind of what you're doing day in and day out. So I love that because I think that's really what we all ultimately want. We want to have the ability to have that flexibility and to be able to get to a point in time to use money as a tool to reduce that stress and anxiety in our own life.
- [26:39]
B
It's not complete f you money, but it's semi fu money. And that's really important.
- [26:46]
A
And especially if you pair this within an emergency fund, you are unstoppable when it comes to some of that stuff. Which is. Which is a really cool way to think about this. Now this sounds amazing, Ryan, so far. And a lot of people may be saying, okay, well, I want to calculate my number. I'm going to run the numbers on some of this stuff. But. But what are some ways that people can actually screw this up? Obviously there's always upsides to doing stuff like this, but are there things that they can screw up their plan? Because the last thing most people want to do is they want to get to, you know, 55 or 60 and all of a sudden realize, oh, shoot, I don't have enough money, I didn't save enough money to have this in place. So is there anything that people can do to really screw this plan up?
- [27:18]
B
Oh, absolutely. So a couple things. Number one is kind of the extremes with investing. So number one is not investing. And we've talked about this in previous episodes where I've seen people who consistently fund Roth IRA accounts and never invest it, or people that hit the savings rate, but everything goes into a savings account or high yield savings accounts. So the one extreme is again, people hitting the savings number and they're doing all the right things in terms of the savings vehicles, but they're just not pulling the trigger to invest this extreme, number one, because again, a huge part of the math here is having the benefit of, of long term compound annual growth. So that's extreme one. Extreme two is the other side, though, as I mentioned this before, of people saying, oh yeah, like, of course I need the growth, so I'm going to invest in XYZ supercharged growth stock and call it a day. And guess what? That actually might get me there even faster. Well, again, just because something has been a supercharged growth stock does not mean it's going to continue along that trajectory. And I can tell you there are a number of stocks who back in 1999 were top 10 or top 20 stocks that are at the same level that they were back in 1999. So you have to be really careful about chasing the hot dot. So it goes back to what I was saying before, that you need to be invested, but you need to be invested in a diversified portfolio and let that diversification and compounding do its job. So that's the biggest mistake I see people make.
- [28:47]
A
And another big one, I think is for folks out there who are maybe have a fragile income. So maybe you have an income that is really high right now, but it is high risk of, you know, either getting moved or you, you can get fired or you just feel as though, you know, AI can replace you. There's so many different factors that are there. But if you do have that fragile income, Ryan, what do you say to those people? Should they even be, you know, attempting coastfi or should this be something where they kind of go the traditional path for a longer period of time until they feel as though they're in a role that allows their income to be more solidified?
- [29:16]
B
If you feel like your current roles are on shaky ground, that it would actually Support getting to CoastFi sooner, so you actually might want to take this opportunity to be more aggressive with your savings to get in front of potential disruption. So you know, just let's think of a fact pattern here. Let's say you're 30 years old and you're saying, God, I've got this like super high paying job right now, but I am super vulnerable where I am like, okay, maybe you have two years left in that job. Like, let's be hyper aggressive for the next two years. Let's get as much possible. And then let's say at 32 that disruption happens and now you're in a lower paying job. But now we can kind of chart out that path then from 32 to 40 to get you that coast fire number. So it doesn't necessarily have to be a linear journey. We can break this up into chunks. So I would say if, again, if someone feels like they're slightly insecure about the job, I would actually argue that we should get more aggressive about reaching it sooner.
- [30:15]
A
That's a great point because for, for most of you out there, it's an additional protection that you can put into your financial plan that just allows you to have more options in place.
- [30:24]
B
Another big mistake I see people make with this coast fire number is taking their most frugal self and applying 25 times to that number. So I see again someone in their 30s saying, hey, like I, you know, eat rice and beans, I live in a studio or efficiency apartment, I drive a, you know, 2002 Toyota. Like, you know, I don't need to spend more than $50,000 a year. It's like, okay, that's you at your most frugal self in your early 30s. So I think that you shouldn't apply that 25 times multiple to your most frugal self expenses. You should do it at a, what is the cruising altitude that I'm going to reach to provide a life that I and my future partner and kids actually want to live.
- [31:10]
A
It's that number that you really actually know is going to be the number that, that you want to live off of. And for reality, for me specifically, I'll always just add an extra percentage on top of that sometimes. So I'll use, you know, 5, 10, 15, whatever kind of fits your lifestyle. Because in reality, if your priorities are going to change in the future, which is one thing you have to combat against. If those goal posts continue to move, you want to have a plan in place to kind of think about that as well. And so let's say, for example, you figure out your coast phi number is you want to have $2 million, say saved and invested and all of a sudden you realized, okay, well, $2 million, you know, multiplied by 25, that's $80,000 per year that you can spend. And then all of a sudden you realize, well, my lifestyle has changed, it's shifted. I've had kids or just things have happened over time, and now I want to spend $120,000 per year. Well, those priorities changing can also be a big mistake that you can make. So, you know, having it as your bare minimum should not be the goal. It should be something where you are living the lifestyle that you actually want to live with you and your family.
- [32:02]
B
Think about a financial plan as a roadmap. And you're going on a road trip, and you have your starting destination, you have your ending destination. You put in ways, you look at the map and you say, okay, let's go. That doesn't mean that that has to be your final destination. You might change your destinations midway through and have to recalibrate. So it's really important to note too, that where you are right now, like something is going to change. There's likely going to have to be a recalibration. So I think that's also an important point too, is that on this journey, you have to be nimble and you have to know where you are today might not be where you are five years from now in terms of the lifestyle you want to live.
- [32:44]
A
And you always have the option to go back and start investing again and start to contribute to your account so that you can kind of be flexible and move on the fly. Which is very important to note, by the way.
- [32:53]
B
I've seen that the other way too, by the way. I've seen it where someone says, my goals are, I want a $3 million house. I have three kids, all of them are going to be in private school. And then a couple years goes by and they're like, actually, I don't need a $3 million house and public school is just fine. And actually like, let's change our fire number. So it happens both ways.
- [33:11]
A
And it comes back to, this is why we really think that, you know, a lot of people should be tracking that retirement number on a yearly basis because things are going to adjust every single year. And so when you start to look at that retirement number, you can make those micro adjustments. So it's not just one big, you know, fell swoop that you have to go through every five years. So in reality, this is one thing where if you track that Coastify number on a yearly basis, you can make those micro adjustments and it's not as big of a deal because you have that time for that money to compound. And I think that's really, really important. Now, some ways to solidify this, Ryan, I think, is if we want to combat against some of those mistakes that are coming up is a having a conservative rate of return. Obviously, if you're using like a 12% rate of return when you're thinking about some of this stuff, you're probably not in the range where you need to be based on, you know, historic market returns. Now, again, we don't know what the market's going to do in the future, so we want to be conservative, especially when we're planning out for retirement, but also just building that buffer into the number like we talked about. You know, if you want to have 5% or 10%, that can really help you combat against making mistakes and then continuing to invest. So being, you know, semi coast phi is the other option where maybe you want to contribute more to your 401k or get that 401k match or continue investing over time, that allows you to kind of combat against, you know, any of the mistakes that you can make during this planet. If it makes you feel better and if it reduces your stress and anxiety around this plan, I think that's also a great reason to continue to invest. Are there any other things that you would say help solidify the plan when it comes to coastfi, or is it kind of just making sure, hey, you look at your numbers every single year, you can adjust on the fly and we will, we'll go from there.
- [34:40]
B
I think it goes back to making sure you're on top of it. It's not a set and forget it. It requires attention, it requires focus, it requires recalibration, and it requires you just to be very nimble. And I would also say too enjoy the process.
- [34:54]
A
I know people who kind of try to hit their coastify number. They have fun doing this they love going through because it's like a goal that they're going after that they can achieve. And I think that's a really cool way to look at. I gamify some of this stuff and it's a way for me to kind of have fun going through this process. Now, there are some cons to coastfi as well. There's a couple of cons I think that some people just need to consider as they think through this. And one is it locks you into traditional retirement age. So if you are planning on retiring at 55 or 60 and all of a sudden you know you get 10 or 15 years down the line and you decide, actually, I want to retire way earlier when. Well, it does reduce the optionality for that, and I think most people need to note that. But it also can tempt you to inflate your lifestyle as well. So this is something where many people, you know, decide, okay, I am going to stop saving and investing, and they inflate their lifestyle to a certain percentage. Well, if it over inflates or if you start to overspend, for example, let's say you wanted to buy the nicer house. Well, then all of a sudden your baseline expenses may begin to creep up above what your coastfi number is going to be covering. So those are a couple of cons that I think most people need to think through. But also it gives you just less flexibility if life changes later on down the line. Are there any other cons that you've seen with clients or that you see, Ryan, that are important to note here?
- [36:03]
B
I mean, I love those examples. And, you know, the last point you made just reminds me of a situation where, you know, there's a couple that wanted to reach financial independence by 45, but as they're kind of creeping up into the late 30s, they're saying like, hey, we kind of want to upgrade things about our life. We want to upgrade our living situation. We want to travel more, we want to do more luxury travel. And, you know, we put it all through the model and it basically takes their financial independence from 45 all the way to mid-50s. And it's one of those things that's not up to me to say what is right or what is wrong. But that's an example of somebody that was on the fire train that then decided to do more of the coast fire. But to your point, if you make that decision in your mid to late 30s and then you reach 43 and say, okay, actually no, I do want fire at 45. You got off the train, Right. You're on a completely different journey now. So it's really important to keep that in mind. So again, the decisions you're making today do have downstream consequences. What that oftentimes means is that you're basically saying, hey, I'm doing a reconciliation where I'm like, I need to live some of my life today and I'm willing to make that trade off of working longer.
- [37:15]
A
Exactly. And this is again, why just thinking through this on a yearly basis, making sure you're reviewing your planet is really, really important. And doing this frequently. So three action steps for every single person listening is 1. Calculate your coast Fire number and let us know down in the comments below. Have you already hit it and you didn't even know that you actually hit coast 5? Would love to hear some of those. I think that's really fun to, to go through because I know a lot of people that I've talked about this concept to. All of a sudden they realize, oh my goodness, I'm actually coastfi right now and I didn't even realize it. So let us know down below in the comments. Comments I think that's really fun. Number two is identify one experience you've been postponing and put a date on it. Meaning once you hit coast five, what are some of the big things that you want to do if you do want to achieve this? And then have a conversation with your spouse, your partner or a trusted friend or a family member and dream big about this. Think through what do I want to do with my life? What are some of the options that I want to have available to me? And how can I use Coast Fire to utilize money as a tool to get what I want out of this life? I think that is such a, a, a great exercise to go through. And even if you want to hit coastify is just having an additional option, maybe you are just trying to achieve it so that you're going to continue to save and invest, but you want to achieve it so you have that additional option for more flexibility. That is another great reason to do this. So we're going to dive into a listener question next, so stay tuned. As a reminder, if you want to send us in a question, send us an email at podcast nerdwall@wealthpartners.com or you can leave a comment down below as well. Well, so the question is, can you bring light to a topic I want to know more about umbrella insurance. So what is it for? When should I get it, where should I get it, and how should I compare policies? I started thinking about this when I joined a nonprofit board and they offered a policy to their members. I also started thinking about this when it came to car insurance and whether or not someone could come after my assets if my insurance policy wasn't enough. Ryan, what do you think about this?
- [39:00]
B
Well, our attorneys will love the answer to this question. And it depends. I mean, when you think about umbrella insurance, it's effectively additional liability insurance on top of your existing insurance policies. So I love the example about the car insurance. You know, look, if you're a high earner and have a huge asset base, let's Say that the car insurance covers $300,000 of liability coverage. And you get in an accident and it's your fault, and the driver is an orthodontist and they break their arm and they can't work for a couple of months, and they say, okay, there's the damage of the car, the emotional damage I have. But then also, I'm not able to work for six months because of my broken arm. So you need to pay for the lost wages. You could easily find yourself in a situation where you're being sued for $500,000. If you have $300,000 in liability, you're on the hook for the additional 200,000. So the umbrella insurance comes into place when your existing policies kind of reach their full capacity. So who's it for? And it goes back to, if you have a high asset base, you own an expensive home, you have a lot of assets in your taxable brokerage account, you have, you know, RSUs at your company that have exploded in value, whatever it may be. Again, if you have that high asset base, you have to look at what do your current policies cover and do you need additional coverage.
- [40:31]
A
Another example of this is for. I had a friend in my neighborhood actually recently who just had a kid's birthday party, and they had a pool party at their house, and a bunch of kids were swimming and, you know, just having fun at the pool party. One of the kids fell and they broke their arm at their house. Well, the parents are now suing the parents that were having the birthday party because of this. And so if you don't have enough coverage in place, umbrella coverage can, you know, help you with certain situations just like this, especially if you have a lot of assets. So there's just many different situations that can come up. It's going to depend on your specific situation, but definitely something to look deeper into if you feel as though you have a lot of assets in place.
- [41:05]
B
After that story, I am never inviting people over to my house ever again.
- [41:09]
A
Exactly. I have a friend who is an attorney, and they just have everybody sign liability waivers now. I don't even know if that still holds up enough. But it's one of those areas where it's. It's just a wild, wild world out there now. It's. And I'm the same way. It's like, you know, I'm not going to have birthday parties at my house anymore. Anymore. After I heard that story, we're having them, you know, at the trampoline park or wherever else now.
- [41:25]
B
Exactly, exactly. You had to protect yourself.
- [41:27]
A
So thank you so much for listening to this episode of your next dollar. If you're getting value out of this episode, make sure you share this with a family member or friend. And don't forget to follow us on Spotify, Apple Podcasts, YouTube, or whatever your favorite podcast player is. Plus, if you are really getting value out of this episode, leave us a five star rating and review on Apple Podcasts or Spotify. It truly does help us spread this message.
- [41:49]
B
Message.
- [41:50]
A
And if you're looking to work with an advisor just like Ryan Nerdwall, Wealth Partners would love to have a conversation with you. We have the link down below so you can check that out and book a discovery call. Thank you so much for being here and we will see you on the next episode.