A millionaire who retired at 34 made over $7,000 in passive income in one month from stocks and bonds. He explains how he built a $2.9 million account that pays his expenses while it continues to grow.

• Sam Dogen walked away from his 9-to-5 job because he was burnt out.
• For 13 years, he invested at least 50% of his salary to grow his retirement portfolio.
• Now, he’s able to withdraw 2% from his brokerage account and reinvest the remainder.

Sam Dogen, a 34-year-old executive director at Credit Suisse, retired in 2012 after becoming exhausted from working long hours.

He was no stranger to exhaustion. He began his career at Goldman Sachs in 1999 as a financial analyst for international equities. He’d arrive at work at 5:30 a.m. and work until 7:00 or 9:00 p.m. on some days. That experience convinced him that he couldn’t stay in investment banking for the long haul, prompting him to start saving for early retirement at the start of his career.

Dogen told Insider that throughout his 13-year career, he invested at least half of his salary in retirement, regardless of how much he earned. He recalled earning $40,000 at the start of his career, not including a $10,000 bonus in his first year. This meant he had to live on a very tight budget, especially since he lived in New York City. He and his roommate shared a studio apartment and paid about $800 per month. His company paid for his meals if he stayed past 7:00 p.m., which he did every night. By 2012, his salary had risen to $250,000, and he was able to save up to 75% of it for retirement.

He was able to negotiate a severance package that paid for at least five years of living expenses, which prompted him to leave that year.

“My severance package included a six-figure severance check because I had worked at my firm, Credit Suisse, for 11 years,” Dogen explained. “It also included receiving all of my deferred stock and cash compensation, which I planned to invest over the next three to five years.” He told Insider that his severance package was worth more than $400,000 and that his net worth when he retired in 2012 was around $3 million.

He is still unemployed and a stay-at-home father at the age of 46. He goes by the online alias Financial Samurai, which is a personal finance blog and podcast. In 2022, he released the book “Buy This, Not That: How to Spend Your Way to Wealth and Freedom,” which covers topics ranging from debt repayment to passive income generation to investing.

He now has a portfolio of stocks and bonds worth nearly $4.4 million. According to statements obtained by Insider, this includes $2.9 million in a regular brokerage account. The latter allows him to access his retirement income before the age of 59 and a half and avoid a 10% penalty.

According to his brokerage statement, the brokerage portion of his portfolio generated $7,307 in passive income from dividends and bond interest in August. The majority of his stock exposure in that account comes from the iShares Core S&P 500 ETF (IVV), in which he has about $1 million invested. The ETF has a 1.48% effective yield. He has a smaller investment of approximately $110,000 in the Fidelity MSCI Information Technology Index ETF (FTEC). The rest of his brokerage portfolio is made up of fixed-income securities, such as long-term and short-term Treasury bonds.

Dogen reinvested his dividends and yields for the first ten years after retiring, allowing his portfolio to grow. He survived on the cash flow generated by his real-estate investments and revenue generated by his website. He began withdrawing some of his yields when he turned 45.

While real estate and his online content business continue to provide the majority of his income, Dogen believes that a stock-and-bond portfolio can allow someone to retire early. Still, he warns that it will be more difficult because you will need to save more money and constantly monitor which securities you own and how they meet your financial needs. You must also be prepared to deal with the volatility of the stock market, he added.

According to YCharts, the average dividend yield for stocks in the S&P 500 in June was 1.54%. This roughly translates to a $1 million investment in the index to earn $15,400. If bonds yield 5%, the same amount invested could generate $50,000 per year. However, he noted that high-yielding bonds are a recent phenomenon that may not last forever.

Portfolio Enhancement

According to Dogen, the first step in creating the right retirement portfolio is determining your risk tolerance and how much money you need to save for retirement.

He has decided that his risk tolerance is low to medium because he has passive income from other sources but is still withdrawing from his brokerage account. He wants to be exposed to stocks but avoids excessive volatility. This way, he avoids withdrawing cash when the market is down. As a result, bonds and a fixed-income fund comprise approximately 58% of his brokerage portfolio.

In terms of how he determined the amount of money to set aside, one method is to apply the 4% rule, which states that you can safely withdraw 4% of your overall portfolio while allowing the remainder to grow. Dogen told Insider that he sticks to a more conservative rate of 2% withdrawal and reinvestment.

According to him, the inverse of the 4% rule is to multiply your expenses by 25 to determine the value of your stocks and bonds portfolio before you can retire.

For example, if your annual expenses are $60,000, multiply by 25 to get 1,500,000. As a result, you’d need at least $1.5 million in stocks and bonds. Dogen estimates that he will need at least $200,000 in income to support his wife and two children in San Francisco, a relatively expensive city.

You must also determine the types of securities and the ratios of each that will yield the appropriate amount of cash while remaining within your risk tolerance, he said.

Treasury bonds provide the majority of risk-free returns, which is good news right now because their current yields are higher than the historical average, he noted. The yield on a one-month Treasury bill was 5.38% as of Friday. Dogen stated that he is allocating a larger portion of his portfolio to short-term Treasuries with maturities ranging from three months to two years.

“Theoretically, I should be happy to invest the majority of my portfolio in Treasury bonds because I’m a retiree, and I’ve won the game,” Dogen explained. “I don’t need to take any more chances.” I’m content with what I have. As interest rates rise, so do risk-free rates. Bond allocation should increase, and vice versa, because stocks are riskier than bonds.”

He has a small amount, or slightly less than $10,000, invested in certificates of deposit, which yield 4.75% — a relatively attractive rate at the time of deposit.

He is not picking and choosing different companies for his stock exposure. Even after working in investment banking for over 13 years, he does not consider himself knowledgeable enough to make long-term bets that outperform the S&P 500. As a result, he only allocates 1% of his brokerage portfolio to a few individual tech stocks. Because he lives in San Francisco, a tech-heavy city, most of the conversations around him revolve around technology companies, and he admits he is concerned about missing out on growth in that sector.

His remaining equity exposure is in IVV. One advantage is the ETF’s low expense ratio of 0.03%.

Finally, if you want to retire early and have worked for a company for at least three years, Dogen recommends negotiating a severance package if you are laid off.