Introduction to Coast FIRE. An Achievable Path Financial Independence

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Alex Frank

A conceptual, realistic wide image of a family symbolizing financial independence. The family, consisting of two adults and two children

Coast FIRE (Financial Independence, Retire Early) is a unique and increasingly popular variant of the broader FIRE movement. It offers a different approach to financial independence and retirement, focusing on achieving a balance between early savings and continued employment. This detailed look into Coast FIRE will cover its concept, history, methodology, advantages, and criticisms.

History and Evolution of Coast FIRE

While the broader FIRE movement originated from the principles outlined in the 1992 book “Your Money or Your Life“, Coast FIRE is a more recent development. It evolved as a subset of the FIRE movement in the late 2000s and early 2010s, as individuals sought more flexible approaches to financial independence. The rise of personal finance blogs and online communities played a significant role in popularizing and shaping the Coast FIRE concept.

What is Coast FIRE?

Coast FIRE involves saving and investing aggressively in the early years of one’s career to the point where you no longer need to actively save for retirement. Once this milestone is reached, you can ‘coast’ through the rest of your working years, relying on the power of compound interest to grow your early savings into a sufficient retirement fund. This approach allows individuals to reduce financial stress and potentially pursue lower-paying jobs or careers they are more passionate about, without the pressure of saving for retirement.

Methodology of Coast FIRE

  1. Early Aggressive Savings: Initially, individuals focus on aggressive savings and investments to build a substantial retirement fund as early as possible in their careers.
  2. Calculating the Coast Number: This is the amount of money you need to have saved by a certain age, which will grow to an amount that can comfortably support retirement at a traditional age. This calculation considers factors like expected return on investment and desired retirement age.
  3. Transition to Coasting: Once the coast number is reached, individuals can choose to stop actively saving for retirement. They continue working but only need to earn enough to cover current living expenses.

Calculating Coast FIRE

Here’s a brief summary of how to calculate Coast FIRE:

  1. Determine Retirement Expenses: Estimate your annual expenses during retirement.
  2. Calculate Retirement Savings Goal: Use a rule (like the 4% rule) to determine the total amount you need saved to cover these expenses indefinitely.
  3. Calculate Initial Savings Needed: Determine the amount of savings needed now that, when invested, will grow to your retirement savings goal by your planned retirement age. This is typically done using a compound interest formula.
  4. Save and Invest: Accumulate the initial savings amount as quickly as possible and then invest it.
  5. Coast to Retirement: Once you reach the initial savings goal, you no longer need to aggressively save for retirement. Your investments should grow over time to meet your retirement needs, allowing you to ‘coast’ until retirement.

Calculating your Coast FIRE path requires numerous, potentially complex calculations. And in reality, you’ll want to vary your inputs in order to explore potential paths to Financial Independence. In our experience it’s best to use a spreadsheet or online calculator to do this modeling.

Coast FIRE Calculator with Chart
Being able to visualise your Coast FIRE model is incredibly valuable

Advantages of Coast FIRE

  1. Reduced Financial Pressure: Once the “coast number” is achieved, individuals can work with less financial stress, knowing their retirement is already secured.
  2. Career Flexibility: Coast FIRE allows for career changes or pursuing passions that might pay less, as the pressure to save for retirement is alleviated.
  3. Balance Between Saving and Living: It offers a more balanced approach, allowing individuals to enjoy their present life while still planning for the future.
  4. Early Financial Discipline: The initial aggressive saving phase encourages strong financial habits early in life.

Criticisms of Coast FIRE

  1. Dependence on Future Employment: There’s a risk if future employment is disrupted, as the plan relies on the ability to continue earning an income.
  2. Market Risks: The strategy is heavily dependent on the performance of investments, and poor market conditions could affect the growth of the retirement fund.
  3. Underestimation of Future Needs: Individuals might underestimate their financial needs in later life, especially with increasing life expectancies and healthcare costs.
  4. Lifestyle Inflation Risk: There’s a possibility of increasing lifestyle expenses over time, which could make the coast number insufficient for a comfortable retirement.

Other Approaches to FIRE

Here’s a summary of the other main types within the FIRE (Financial Independence, Retire Early) movement:

  1. Traditional FIRE: This is the standard approach to achieving financial independence and early retirement. It typically involves saving and investing aggressively, often 50-70% of income, to retire much earlier than the traditional age. The goal is to accumulate enough assets to safely withdraw 3-4% annually, ideally living off this income without depleting the principal.
  2. Lean FIRE: This version of FIRE focuses on extreme frugality and minimalism. Individuals pursuing Lean FIRE aim to retire early with a smaller nest egg by significantly reducing their living expenses. This often means living on less than the average person both before and after retirement, with a focus on simplicity and essential spending only.
  3. Fat FIRE: Opposite to Lean FIRE, Fat FIRE individuals aim for a more luxurious retirement lifestyle. This requires a larger savings goal and potentially a higher withdrawal rate. People aiming for Fat FIRE might save for a longer period or have higher incomes, allowing for a more comfortable and opulent retirement.
  4. Barista FIRE: This approach involves retiring from full-time work but continuing to work part-time, often in low-stress or enjoyable jobs. The idea is to cover some living expenses with part-time income, reducing the amount withdrawn from savings. This can be a more flexible approach, allowing for social interaction and continued income without the demands of full-time work.

Each type of FIRE has its own strategies and goals, tailored to individual preferences, incomes, and desired lifestyles. The common thread is the focus on financial independence and the option of early retirement.

Conclusion

Coast FIRE offers an appealing alternative within the FIRE movement, providing a balanced approach to financial independence and retirement planning. It emphasizes the importance of early financial discipline while allowing for career and lifestyle flexibility in later years. However, like any financial strategy, it comes with its own set of risks and challenges. Individuals interested in Coast FIRE should carefully consider these factors and plan accordingly to ensure a secure and fulfilling financial future.

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