A few weeks ago, I wrote a blog post on Coast Fire – defining what it is and what some major assumptions are. But I left out an entire section on calculating your coast fire number and determining what to do when you get there. That’s what this post is for! I’m going to use my ballpark coast fire numbers as an example, because it’s always nice to see real life examples. I hope that seeing some actual numbers and assumptions will help you determine whether you’ve reached Coast Fire, and can help you on your journey to financial independence.
If you need a quick recap on what Coast Fire is, you can check out my post on it here. The basic point is that you don’t have to contribute to your retirement account anymore to achieve financial independence in retirement. Your money will grow to your goal by the time you retire (in theory). So let’s move on to reaching coast fire!
Reaching Coast Fire
When I say that I’ve reached Coast Fire, I’m only referring to the money in my retirement account. And, if you’ve read my guest post on Government Worker FI on why I’m taking a deferred retirement, you’d know that my retirement account is only one portion of my retirement plan. I will also have a pension and social security. Because I don’t plan to work until I reach my full retirement age, my retirement account will supply the majority of my income, while my pension and social security will supplement it. In order to figure out how much money you need to be at coast fire, you will need to figure out how much you will need in retirement, and how much you can expect from any other sources.
Defining How Much You Need in Retirement
Your retirement number is highly dependent on your expected lifestyle. If you plan to travel, live in a high cost of living area, or buy lots of things, you will need far more money than someone who wants to retire to the simple life in a low-cost area. I plan to get most of my traveling done before I reach my traditional retirement age and retire to that simple life. Therefore, I’ve estimated that I’ll need about sixty thousand dollars per year in retirement income. However, my number is not your number. You should look at the estimated expenses of the lifestyle you want in retirement to come up with your number.
How Much I’ll Expect from Other Sources
I already did all the calculations for my other sources on my guest post, so I won’t rehash those here (but seriously, it was a great post, and you should read it!). According to those calculations, I’ll make about $13580 per year from my pension, and $13860 per year from social security. That adds up to $27440.
How Much I Need When I Reach Retirement Age
Sixty thousand minus the $27440 that I’ll make from other sources leaves $32560. That’s how much I will need to withdraw per year to make my sixty-thousand-dollar target. So how much money will I need in my retirement account to safely withdraw that much?
I used this handy calculator which shows you how long your money will last to find out. I don’t expect to live until 95, so I’m assuming that using a thirty-year time frame will be fairly save (there are so many assumptions you have to make with this math – yet another reason to save a little longer).
The calculator showed that I would need about $850,000 in my retirement account to withdraw that $32500 per year for thirty years. This assumes that I will move my entire nest egg into a safer, low interest account for the bulk of that 30-year period (probably not the best move, but we do have to make assumptions when dealing with things so far into the future).
What’s my Coast Fire Number?
Finally, we get to figure out if I have reached coast fire. Will my current investment grow to $850000 over thirty years? You can use this calculator to find out (and play with different interest scenarios!).
According to the calculator, my small nest egg of approximately $130000 will grow to over $900000 over the course of the next 30 years, assuming 6.5% growth per year. Although the average is 7%, I prefer to be slightly conservative, because you never know what the market is going to do. If interest is just .5% less, I’ll be over fifty thousand dollars short!
If I wanted to shoot for a lean fire retirement (40K or less), I’d only need my investment to grow to $400,000. My current balance would only need to grow by 4% per year to reach that! As you can see, reaching coast fire greatly depends on how much money you will need in retirement.
So have I Reached Coast Fire?
Technically, the math works, right? But do I want to trust that I’ll get an average return of 6.5%? Nope! There are way too many variables – way too many things that can change over the course of thirty years. I’d rather keep investing for another year or two to make sure that I’ll have enough money in retirement. When planning so far into the future, I would rather be over prepared than under prepared.
And, on the plus side, I need to work another two years to get the pension and social security that I estimated in this post. Continuing to invest in my retirement account with a guaranteed return (in the form of a match) is a no brainer!
Have you Reached Coast Fire?
What’s your Coast Fire number? Can you use these calculators to figure it out? You might be there an not even know it!