Do you like the idea of early retirement, but you don’t want to have to save every penny? Do you seek financial independence, but you don’t want to permanently leave the workforce? Then Coast FIRE might just be right for you.
FIRE, which is short for “Financial Independence, Retire Early” was a movement created for those that wanted to escape the Rat Race and live life on their own terms. Unfortunately many versions of the FIRE movement either require high income, extremely low spending, or some mixture of both. More importantly, once you reach FIRE there is an expectation that you will no longer work. While this might be okay for some people, it can lead others into an existential crisis.
This is where Coast FIRE comes in. Unlike the traditional FIRE movement which tries to get you to retirement as soon as possible, Coast FIRE focuses on saving up enough for your future retirement then coasting until you get there. This subtle difference means that you don’t have to penny pinch for decades and you can work on something you enjoy in the meantime. This strategy is not only less stressful than traditional FIRE, but it also provides more flexibility.
In this post, I will cover all aspects of Coast FIRE including: what it is, how it works, how to calculate your own Coast FIRE number, along with its benefits and risks. By the time you finish this article, you will have a better understanding of whether this strategy is right for you.
So, if you’re ready to discover how you can have more freedom at work while still securing your financial future, then read on.
What is Coast FIRE?
Coast FIRE, which stands for “Coast Financial Independence, Retire Early,” is an innovative approach to retirement that is somewhere between traditional retirement strategies and more extreme FIRE methods. The idea is to front-load your retirement savings early in your career and then allow those investments to grow without needing additional contributions.
This concept is very similar to a post I wrote back in 2021 called Go Big, Then Stop. That post emphasized the importance of saving and investing early, but it more or less describes the core tenet of Coast FIRE.
The purpose of Coast FIRE is to save aggressively in your early working years until your portfolio reaches a point where its expected growth would meet your future retirement needs. This is called hitting your Coast FIRE number. Once you hit this number, you can then reduce or even eliminate how much you save each month. At this point, the only thing you need to worry about is covering your current expenses.
This is different from traditional FIRE which requires that your assets support your current and future lifestyle indefinitely. Because of this, traditional FIRE often relies on extreme saving to retire early (sometimes in your 30s or 40s). And once you reach FIRE, you are then expected to leave the workforce.
With Coast FIRE, you don’t get to leave the workforce, but you do get the freedom to:
- Shift to part-time work
- Pursue a lower-paying, but more fulfilling, career
- Take extended breaks from work
Coast FIRE is not about completely stopping work at a young age, but, rather, achieving a level of financial security that allows for more flexibility and less stress before traditional retirement. This approach appeals to those who want more financial freedom and work-life balance without the sometimes extreme measures associated with other FIRE strategies.
Now that we have an idea of what Coast FIRE is, let’s look at how it works in practice.
How Coast FIRE Works
Coast FIRE works by taking advantage of compound interest and deliberate planning. In this case, we plan to hit a certain goal early on which allows us to fund our future retirement. It can be helpful to think about this goal as its own bag of money. When you pursue Coast FIRE, your goal is to fill up this bag enough so that it grows on its own to fund your future retirement.
Once that bag hits the target amount, you no longer need to add more to it. The future growth and compounding will take care of itself. In doing so, you are granted the freedom to take a step back from work, save less, or do whatever you want. This is when you have officially reached Coast FIRE.
The only requirement in Coast FIRE is that you can support your current lifestyle without touching that first bag of money you set aside. If you can do that, then you are all good. Let’s go through an example of how this would work in practice.
Imagine you are 25 years old and you want to hit Coast FIRE at 35. You also know that you will retire at 65 years old and you will need $2.5M in retirement. Let’s assume this $2.5M will support $100,000 in annual spending during your golden years.
The question is: how much money will you need at 35 to have $2.5M at 65?
Assuming your money grows at 4% per year after inflation, the answer is $770,797. If you have that much at 35, then, with 4% annual growth, you will have $2.5M at age 65. I will show you how I solved for $770,797 in the next section.
The point is that you can find your Coast FIRE number at any age. Want to hit Coast FIRE at 30 instead of 35? Using the same assumptions as above, you would need $633,539 instead of $770,797. What if you waited until age 40? Then you would need $937,792. All of these numbers are on the same glide path to $2.5M at 65. You can see this more clearly in the chart below:
This chart shows the amount of money you would need to reach Coast FIRE from ages 20-65. Once you have this amount at a given age, then you can leave that money alone (i.e. invested on auto-pilot) and “reunite” with it when you reach retirement. At that point, your portfolio should be worth $2.5M.
Now that we’ve looked at how Coast FIRE works, let’s look at how you can calculate your own Coast FIRE number.
How to Calculate Your Coast FIRE Number
To calculate your Coast FIRE number you must first calculate how much money you will need to retire. And to do that, we must first figure out your expected spending in retirement. For example, if you expect to spend about $100,000 a year, then you would probably need about $2.5M to make it through retirement.
This $2.5M figure comes from the 4% Rule which is your annual retirement spending divided by 0.04 [$100,000/0.04 = $2.5M]. More simply, the 4% Rule can be thought of as the 25x Rule, which takes your annual retirement spending and multiplies it by 25. In this case $100,000*25 = $2.5M. Both rules get you to the same retirement number, so choose whichever is easier for you to remember.
Once you have your retirement number, you only need two additional pieces of information to get your Coast FIRE number:
- The number of years until you retire
- The expected rate of return on your investments
The first piece of information will be based on your age and when you want to retire. For example, if you are currently 35 and you want to retire at 65, then you have 30 years until retirement.
The second piece of information is an assumption we make based on market history. While the U.S. stock market has returned about 7% after inflation going back a century, I believe 7% is too high of a return assumption for a diversified portfolio. I prefer to use 4% (after inflation) which is a conservative long-term return that most diversified portfolios should be able to achieve.
Now that we have the amount we need to retire, our years to retirement, and our expected rate of return, calculating our Coast FIRE number is as simple as plugging it into a formula:
Coast FIRE Number = Future Retirement Savings/((1+ Rate of Return)^Years to Retirement)
Plugging in the values $2.5M, 4%, and 30 years to retirement we get:
Coast FIRE Number = $2.5M/(1.04^30)
And after solving:
Coast FIRE Number = $770,797
That’s it. If we were 35 years old, we would need to have $770,797 today and a 4% inflation-adjusted return for the next 30 years to get to $2.5M when we hit 65. You can re-arrange the formula above to prove that this is true:
Coast FIRE Number * ((1 + Rate of Return)^Years to Retirement) = Future Retirement Savings
Plugging in our values we get:
$770,797 * (1.04^30) = $2.5M
That’s basically saying, if I had $770,797 today and compounded it for 30 years at 4%, I’d have $2.5M at the end. The formula to solve your Coast FIRE number just does the math in reverse.
You can use that formula above to plug in your own numbers to calculate your own Coast FIRE number. For example, if I wanted to retire at 55 and expect to spend $120,000 per year, I would need $3M [$120k*25] to retire. I would need this money in about 20 years’ time as I am almost 35 right now. Using the formula, my Coast FIRE number today is:
Coast FIRE Number = $3M/(1.04^20) = $1,369,161
This means I need $1,369,161 today to be in Coast FIRE. If my current retirement savings are below $1,369,161, then I would need to save more to reach Coast FIRE. However, if they are above that number, then I technically can enter Coast FIRE now and stop saving additional money for retirement.
You can do the same thing with your Coast FIRE number. If you are above it, you can technically stop saving money and coast. If you are below it, then you’ll need to save more to hit Coast FIRE.
If you haven’t reached Coast FIRE and want to see how long it might take you to get there, I recommend Walletburst’s Coast FIRE calculator. This calculator uses how much money you are saving now to estimate when you will hit Coast FIRE based on many of the factors we have covered here.
Take some time to play around with their calculator and see how different assumptions (i.e. when you retire, how much you need in retirement, etc.) can affect your results.
Now that you know how much you will need to reach Coast FIRE, let’s explore the benefits and risks of using this strategy.
The Benefits of Coast FIRE
The primary benefits of Coast FIRE are:
- Cheaper than FIRE: The nice thing about reaching Coast FIRE and going into a semi-retirement is that it is far cheaper than reaching traditional FIRE. With traditional FIRE, you need to save up enough to support your lifestyle now and into the future. But with Coast FIRE you only need to have the money to support yourself in the future, when you aren’t working. This still requires you to work in the meantime, but you don’t need to save as much to get there.
- Lowered financial stress: Because Coast FIRE takes care of your retirement, you don’t have to worry as much about funding your golden years. While you aren’t financially independent, this is still far better than someone who requires a full-time job and lots of savings to safely reach retirement.
- More meaningful employment: When you hit Coast FIRE, you can worry less about money and pursue other goals that you find more meaningful. This could include doing part-time work and volunteering on the side or working in an industry full-time that pays less than you would normally want. Such a lifestyle would not be possible without Coast FIRE.
- Enhanced flexibility: Pursuing Coast FIRE allows you to be flexible with what you do before retirement. You can work part-time or you can work full-time. You can push out your retirement or save more and retire sooner. Because you are still working, there are more levers you can pull in your financial life than with other FIRE methods. You have more options, and options are typically a good thing.
I like the idea of Coast FIRE because it has many of the benefits of FIRE without a lot of the associated costs. However, Coast FIRE isn’t as easy as it seems. There are many risks that you will need to be wary of if you go down this road. Let’s look at those now.
The Risks of Coast FIRE
While the purpose of Coast FIRE is to have more control over how we live our life, some things won’t always be in our control. These include:
- Poor market returns: While Coast FIRE works great when markets provide adequate long-term returns, it does terribly when they don’t. Since you are banking your retirement on the future return of markets, you better hope that the market delivers. While this is true for every investor, it’s especially true for those in Coast FIRE.
- While you can’t foolproof yourself against a bad market, the best way to fight back is to have lower return expectations. If you are expecting 6% inflation-adjusted returns and the market fails to deliver them, then you will be in trouble. But if you expect 3%-4% real returns, then you are far more likely to reach your goals. While nothing is guaranteed in this life, being conservative with your assumptions can go a long way.
- Losing your income: Given that Coast FIRE requires that you keep working to fund your current lifestyle, any loss of income could lead you into financial trouble. While you can always pull funds from your Coast FIRE retirement accounts to get by, this negates the purpose of Coast FIRE in the first place. Unlike other FIRE methods which don’t rely on employment income of some sort to survive, Coast FIRE does. Keep this in mind when pursuing this strategy.
- Major health issues: Much like poor market returns, having an adverse health event could ruin your financial plans. Not only can a major health issue prevent you from working, but it can be extremely expensive as well. While this is a risk for anyone, it’s even more so for those in Coast FIRE who may have taken a step back from a more lucrative career.
- Increased cost of health insurance: While taking a step back from a more demanding career sounds enticing, you are also likely to lose access to your employer-sponsored health insurance as well. If you get a new job that has this coverage, then you’re all good. But, if you decide to become a freelancer or work a job without such coverage, then you will need to cover your health insurance on your own. Unfortunately for those in the U.S., health care costs only seem to be increasing over time. Make sure to factor this in before you decide to do Coast FIRE.
- Underestimating retirement needs: Over time, things change. One of the biggest issues of Coast FIRE is that you have to estimate how much you will need to spend in retirement decades beforehand. Unfortunately, what you want and what you need might change by the time you get there. As a result, you may not have enough money to support your new lifestyle. While Coast FIRE works in theory, in practice it can be harder to implement if you find your spending creeping upward over time. While you should use inflation-adjusted returns to counteract general price increases, these won’t account for you desiring the finer things in life.
While you can’t control everything in your life, you will almost always have options. If you experience poor market returns, you can try to save more or retire later. If you underestimate your retirement needs, you can try being flexible with your retirement spending. In almost every situation, there is an option you can use to improve your life. This is especially true with the flexibility offered by Coast FIRE.
Now that we’ve examined the risks of Coast FIRE, let’s wrap things up by looking at whether this strategy is right for you.
Is Coast FIRE Right For You?
Coast FIRE is the Goldilocks solution to retirement planning. It’s not as relaxed as traditional retirement strategies, but not as aggressive as the FIRE alternatives. As a result, it offers the financial security and lifestyle flexibility that many find appealing. However, like any financial strategy, it won’t work for everyone.
Coast FIRE might be right for you if:
- You value work-life balance and want more freedom in your career.
- You’re willing to save aggressively in your early career years (see Go Big, Then Stop).
- You enjoy working and have the ability to cover your current expenses.
- You’re able to adapt to changing circumstances and market conditions.
On the other hand, Coast FIRE might not be suitable if:
- You’re seeking complete financial independence.
- You’re risk-averse and don’t want to rely on market returns for future spending needs.
- Your career field is unstable or prone to significant income fluctuations.
- You have high current expenses that require a high income.
Ultimately, the decision to pursue Coast FIRE depends on a host of factors including: your goals, risk tolerance, and lifestyle preferences. I can’t tell you whether it is right for you.
However, I will say that of all the FIRE strategies out there, this one makes the most sense to me. I love the idea of taking care of your future expenses and then shifting your career to pursue more meaningful employment. After all, what’s not to like about that?
Happy coasting and thank you for reading!
If you liked this post, consider signing up for my newsletter.
This is post 411. Any code I have related to this post can be found here with the same numbering: https://github.com/nmaggiulli/of-dollars-and-data
