Do you wish you could live in the moment and enjoy your money without jeopardizing your future? If so, Coast FIRE may be the solution for you.
Rather than sacrificing your precious time and penny-pinching for years and years on end, this strategy helps you “coast” to the retirement of your dreams.
Plus, Coast FIRE offers you the freedom to do what you love. Instead of slaving away for a paycheck, you can enjoy a more balanced lifestyle and take chances you couldn’t with other retirement strategies.
So, if you have been looking for a way to reach a comfortable retirement without all the financial pain, now may be the time for Coast FIRE. Let’s dive into how this approach works, why it is so popular, and how you can take advantage of it.
What Is The Coast FIRE Strategy?
Coast FIRE is a subset of the broader “FIRE” movement, which stands for Financial Independence Retire Early.
With traditional FIRE, the goal is to build an investment portfolio that provides enough passive income to cover all your living expenses during retirement. And to accomplish this, most FIRE followers live frugally, saving anywhere from 25% to 75% of their income until they reach their FIRE number.
Coast FIRE, on the other hand, doesn’t worry about hitting that FIRE number today. Instead, Coast FIRE-ers project their net worth out over time.
Based on an expected rate of return, they can determine when their current investments are sufficient to eventually grow into their FIRE number. This tells them when they no longer need to save for retirement — and when they can “coast”.
In other words, you have reached Coast FIRE when you no longer have to save for retirement. You have enough invested to eventually support all of your living expenses, even if you don’t make any further contributions.
This approach relies on the power of compounding. And it creates the freedom and flexibility to pursue a stress-free job or increase your spending, knowing that your retirement is taken care of (in time).
However, it requires a more patient approach to financial independence. By becoming more relaxed about your saving, you may delay reaching FIRE by a few years.
But if you love your Coast FIRE lifestyle, that extra time is a small price to pay for the improvement in your day-to-day happiness.
How To Calculate Your Coast FIRE Number
Sold on the benefits of Coast FIRE? These simple steps will show you when you have enough investable assets to downshift into Coast FIRE, without risking your retirement.
Determine Your Traditional FIRE Number
Before you can calculate your Coast FIRE number, start with your traditional FIRE number. This will tell you how much money you need for retirement based on your anticipated living expenses.
First, decide the kind of lifestyle you want to live during retirement. What will your days look like? Consider using your current budget as a starting point and then adjusting for changes to health care costs, commuting expenses, and your mortgage.
Once you know your projected annual expenses, divide this number by four percent. This will give you your retirement number according to the famous 4% rule. (This guideline suggests that you can safely withdraw 4% per year from your portfolio without risking it going to zero.)
For example, let’s say that you anticipate that your annual living expenses will be $50,000 in retirement. Based on the 4% rule, you would need to save $1.25 million by retirement. And if this $1.25 million is invested appropriately, you should be able to withdraw $50,000 per year from your portfolio for at least 30 years.
However, some financial experts are starting to question whether the 4% rule is sustainable in the long term and recommend using 3.5% as an alternative. So if you want to be more conservative, divide your anticipated living expenses by 3% or 3.5% instead (or multiply them by ~30) when calculating your retirement number.
Apply The Coast FIRE Formula
Now that you know your retirement number, you can calculate your Coast FIRE number. Again, this is the amount of money you will need to have invested so that your account will reach your retirement number (at an age you are comfortable with) without any additional contributions.
The formula is:
C = R / (1+n)^t
C represents your Coast FIRE number
R equals your traditional FIRE number (from step one)
n equals your assumed real rate of return (net of inflation)
t equals the time remaining until retirement
As you can see, we need to make two assumptions to calculate your Coast FIRE number: the rate of return (n) and the time until retirement (t).
As for t, you can subtract your desired retirement age from your current age.
And for n, let’s base our estimate on historical returns. Over the past 50 years (1973-2023), the S&P 500 has returned about 10.4% per year. And during the same stretch, inflation has averaged 3.92% (about 4%).
This means that the average real rate of return was approximately 6.4% — so let’s use 6% to be safe. Ultimately, this will help us calculate a Coast FIRE number based on today’s dollars. So your future buying power will be equivalent to today’s.
Coast FIRE Example
Now for a real-world example:
My friend Rich is 30 years old and plans to retire at 65 (t=35). He’s comfortable assuming 10% for the return rate and 4% for inflation (n = .06). He plans on needing $40,000 in today’s dollars for living expenses when he retires (R = $40,000 * 25).
How much does he need to have saved for Coast FIRE?
When we plug those figures into the formula…
[($40,000×25) / (1+.06) ^ 35]
We see that if Rich wants to downshift to Coast FIRE, he needs to have $130,208 invested right now.
However, the question most folks ask isn’t if they can Coast FIRE today… but how long until they can Coast FIRE. Is it possible in 5 years? 10 years?
To continue with Rich’s example, five years from now, when he is 35 (and t=30), he will need to have $174,000 to Coast FIRE until retirement. And if that is still out of reach, he would need an investable net worth of $233,000 to Coast FIRE at age 40 (when t=25).
Key Lesson: Start Young
The Coast FIRE formula makes one thing abundantly clear: time is the exponential factor.
The earlier you start, the easier it is to reach your goal.
Does that mean you can’t Coast FIRE if you’re older? Not at all — you will just need to save more money.
Remember that to Coast FIRE, Rich needs:
- $130,000 at age 30,
- $233,000 at age 40,
- or $417,000 at age 50.
The Rule of 72
If you don’t have a calculator on hand, there is a simpler way to calculate Coast FIRE. Just use the rule of 72.
This handy trick shows you how long it takes for a value to double based on a given interest rate. Simply divide 72 by the rate, and you get the number of years it will take to double.
For example, at 4% inflation, your living costs will double in 18 years (72 / 4 = 18). And then they’ll double again in another 18 years. Or, to put it another way, what costs $1 today will cost ~$2 in 18 years and ~$4 in 36 years.
So if you need $40,000 (in today’s dollars) to cover your living expenses, 36 years from now you will need ~$160,000 per year. With the rule of 4%, this calls for a FIRE number of $4,000,000 ($160,000 x 25 = $4 million).
And because this is our inflation-adjusted FIRE number, we don’t need to also adjust the rate of return on our investments. We can simply use 10% — the average return of the S&P 500 since 1973.
Again, using the rule of 72, we know that a 10% return will double your investments every ~7 years. So over a 36-year window, we can expect ~5 doublings.
So if Rich still wants to retire in about 35 years, we can calculate his Coast FIRE number by working backward from his traditional (inflation-adjusted) FIRE number.
This means taking $4,000,000 and dividing it in half five times:
$4 million / 2 = $2 million
$2 million / 2 = $1 million
$1 million / 2 = $500,000
$500,000 / 2 = $250,000
$250,000 / 2 = $125,000
This result of $125,000 is pretty close to our precise calculation of $130,208! And for some people, this approach might seem easier (or just a bit simpler to do on the fly).
Coast FIRE: Pros and Cons
Like any retirement strategy, Coast FIRE has its pros and cons. To determine if it’s the right path for you, here are a few of the key factors to consider:
Pros
- The easiest path to financial independence. Let the magic of compounding do the heavy lifting. Once you have reached your target Coast FIRE number, it’s smooth sailing from there.
- It provides flexibility in your work. Since you only need to cover your living expenses while you coast, you can decide whether to stay at your present job, reduce your hours to part-time, or change careers to something that provides more meaning and less stress.
- It requires less sacrifice. Rather than living frugally for the next 15 years, you can Coast FIRE much sooner. This allows you to enjoy more of the benefits of your income today.
- You can still FIRE. If you can coast without giving up your high-earning potential, you can continue to move toward traditional FIRE or even Fat FIRE. And every dollar saved will bring you one step closer.
- Peace of mind. Nothing is more comforting than knowing that you will have a safe and secure retirement, even if you stop saving for it.
Cons
- You still have to work. Although you have more flexibility, you will still need income to cover your current living expenses until your assets reach your retirement number.
- It may not be an option for older investors. With less time until retirement, older investors may find that Coast FIRE is not achievable (or any more accessible) than other FIRE options.
- It’s easier for those with higher incomes. Low-wage earners may have a difficult time saving aggressively enough to catch their Coast FIRE numbers.
- There are many assumptions involved. A lot can change over twenty or thirty years. So Coast FIRE isn’t a set-it-and-forget-it path to retirement. Instead, you should regularly revisit your plan and your calculation. This will allow you to make any necessary adjustments ahead of time, and while you have as many options as possible.
What’s The Difference Between Coast FIRE vs Barista FIRE?
Coast FIRE is about leveraging the power of compounding. Once your assets reach a certain level, saving that extra dollar might not be as meaningful as it once was. That’s why some people choose to stop making any additional contributions, and instead pivot to enjoying the fruits of their labor.
But you don’t necessarily need to quit your job to enjoy life. You can skip on retirement savings and “coast” by working less and pursuing your passions instead.
Barista FIRE, on the other hand, is when you have enough in your retirement accounts to cover your basic expenses. However, you choose to work a part-time job to live more comfortably or keep certain benefits like healthcare.
So both Barista and Coast FIRE call for you to continue working. And because you’re partly covered for retirement, you can pick a job that you love — the pay becomes secondary.
But with Coast FIRE, working is necessary to pay your bills. And the idea is that eventually, you will retire fully. While with Barista FIRE, you choose to continue working to enjoy a better lifestyle. And you can keep this up as long as you want the added cushion in your budget.
Lastly, all types of FIRE pass through Coast FIRE.
So whether you’re considering Fat FIRE or Lean FIRE, you will reach Coast FIRE first. Once there, you can decide whether to press on and reach your goal as soon as possible, or slow down and “coast” to your destination.
Life After Coast FIRE
Once you reach Coast FIRE, your options open up. Rather than working long hours at a job you hate, you have the freedom to design your lifestyle and the remainder of your career.
Because you only need to cover your living expenses (without worrying about retirement), you can spend more freely.
For example, you could take a one-year sabbatical to travel and explore different cultures while picking up gig work along the way.
Or, if you love what you do, then there’s no reason to change jobs. But rather than focusing on saving as much as possible, you can spend on the things you love doing. That might mean eating out, attending concerts and sporting events, or taking more weekend trips with your family.
And if you’ve always wanted to start a nonprofit or own a business — now’s your chance! Find a laidback job and start building the skills you need to launch that new idea. Or, ditch the 9-to-5 grind completely and go all in on your growing side hustle.
That’s the beauty of Coast FIRE.
Rather than waiting for decades, you can enjoy your life today while knowing you have something to fall back on.
And, of course, you don’t need to take full advantage of the flexibility. You may find yourself relaxing a bit and still not spending your full paycheck. There’s nothing wrong with that! After all, this will only speed up your journey to full retirement and traditional FIRE.
Related reading: 13 Best FIRE Blogs For Financial Education And Inspiration
Final Thoughts
Coast FIRE might be the easiest way to reach financial independence.
So, what are you waiting for? Start by calculating your Coast FIRE number today, and putting the power of compounding to work.
Before long, you will have your retirement covered. And then you can pursue your passions, enjoy stress-free spending, and live the life that you’ve always wanted.
That’s living Coast FIRE.
