Calculating Coast FIRE – Here’s How to See How Close You Are!

Have you reached Coast FIRE?

Learn how to calculate your Coast FIRE number and discover how close you are to this crucial milestone on your path to financial freedom. 

What is Coast FIRE?

Coast FIRE is both a type of financial independence (for those who enjoy their jobs and don’t want to quit) and a vital stepping- stone to true freedom. 

You have achieved Coast FIRE if the money you currently have in your 401K or traditional retirement account will grow to your target by the time you reach retirement age, assuming an average rate of growth year over year. You’re “coasting” to retirement because you no longer have to contribute to your retirement account to achieve your goal. 

For example, let’s say you want to have a million dollars at age 65 to fund your retirement. At age 40, your “coast fire” number isn’t a million dollars; it’s approximately $230,000 because assuming 6% growth compounded monthly for 25 years, $230,000 will grow to a little over a million dollars. 

Calculating Coast FIRE

We used a million dollars in the above example because it’s an easy, round number. Many of us won’t need that much, but with the soaring cost of living, some of us might need much more. 

The first step to calculating Coast FIRE is defining how much money you will need in retirement. 

That’s your Coast FIRE number, the amount you want in your retirement account the day you hit 65 (or whatever age you plan to retire). 

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How to Find Your Coast FIRE Number

Finding your number is the most complex part of calculating Coast FIRE. The younger you are, the more challenging it is, as longer timeframes leave more room for changes. 

However, these guidelines should give everyone a good idea of the number they need to strive for:

• Determine Your Retirement Goals
• Calculate How Much Money You Will Need Per Year
• Consider Inflation
• Account for Changing Needs as You Age
• Estimate Your Life Span
• Determine Your Income Sources
• Calculate Your Coast FIRE number

Determine Your Retirement Goals

Your retirement goals have drastic impacts on your Coast FIRE number.  Everyone has different desires for a fulfilling retirement. Some want to travel the world, while others dream of staying close to home to help care for grandchildren. 

Considering your goals during the planning process will help you develop an accurate picture of your financial needs. 

Calculate How Much Money You Will Need Per Year

It’s easier to calculate a Coast FIRE number with an annual budget, so the next step is to determine how much money you will need to live on each year during retirement. 

It differs for everyone. Some will have spent 30 years paying off a mortgage and won’t have to worry about housing costs outside of taxes and utilities in retirement, while others will need to rent. 

Consider how much money you spend on living now. Calculate your annual expenditures, including housing, insurance, taxes, medical care, utilities, food, and entertainment. Then, add in extra money to fund your retirement goals, like traveling, golfing, or spoiling the grandkids. 

In 2022, we estimated that Americans’ average cost of living hovers around $56,000 per year, excluding childcare, taxes, healthcare, and life insurance. We’ll round that up to $60,000 to include extra money for hobbies, travel, and other little pleasures, using that as a baseline for our calculations. 

However, that number is not your number. Yours may be far less if you live in a low-cost area or far more in expensive cities. 

Consider Inflation

Your cost of living today will not be the same as it will be in 10 or 20 years. 

Inflation will eat away at your budget. The average inflation rate over the past 30 years is about 3.1%, but as we’ve seen in the 2020s, some years will have explosive inflation. 

You must account for this hidden cost when calculating your Coast FIRE number. A simple inflation calculator shows that $60,000 per year will balloon to $130,000 by 2050, assuming a 3.1% annual inflation rate. 

Does that mean you will spend $130,000 annually in retirement if you spend $60,000 now? 

Maybe, maybe not. 

Inflation doesn’t always impact the same areas of life each year. In some years, we may see deflation in housing costs, paired with inflating food costs. If you own a home, your mortgage payment should remain consistent, and you’ll only have to worry about changing tax rates (and many states have programs to protect seniors from rapid property tax increases). If you have a paid off mortgage in retirement or rent controlled apartment, you won’t have to worry as much about inflating housing costs. 

The problem is it’s impossible to predict the future. We don’t know what the cost of living will be in 20 years. However, we can assume prices will rise, so when calculating your Coast FIRE number, it’s best to leave a solid buffer for inflation. 

We will add a buffer of $40,000 to our Coast FIRE number to account for inflation, so we will need approximately $100,000 annually in retirement. 

Account for Changing Needs as You Age

The older you get, the less likely you’ll want to embark on crazy adventures. You may spend $10-20,000 annually traveling your first few years of retirement, but you may prefer to settle down for a quieter lifestyle as you age. 

However, our aging bodies will require more medical care. A 2024 Fidelity study found that an individual retiring at age 65 will spend approximately $165,000 throughout retirement on medical costs. 

Estimate Your Life Span

It’s a morbid thought, considering when you will die. However, it’s much better to consider the uncomfortable reality of your passing than to run out of money in retirement. 

According to the Social Security Life Expectancy Actuary tables, a man who reaches age 65 can expect to live another 17 years, while a woman can expect to live 20 more years. 

Of course, these are averages, and your actual lifestyle will depend greatly on various other factors, such as lifestyle, overall health, and random chance. 

It’s better to overestimate than underestimate to ensure we don’t run out of money, so let’s assume the money needs to last for 25 years. 

Determine Your Income Sources

You may look at the numbers hopelessly, thinking they’re impossible to achieve. $100,000 per year for 25 years—that’s 2.5 million dollars! When you add in the cost of healthcare, you will need closer to 2.7 million!

But it’s not as much as you think. 

Your Coast FIRE number only includes the money YOU must save, not your income from other sources. Most Americans will have something to help ease the burden. 

Social Security

You are eligible for social security benefits if you’ve worked legally in the United States for at least 40 quarters (10 years total) unless you work in an exempted profession (which will have its benefits plan). 

Due to the prevalence of single-worker households, you may also be eligible based on your spouse’s work history. 

Someone who is 40 years old today and earns about $60,000 per year can expect to earn approximately $1938 monthly in social security benefits when they turn 65 (in today’s dollars). However, if they put off taking social security for just two years, their monthly benefit would increase to $2258. 

You can use the Social Security quick calculator to estimate your retirement earnings or log into your SS account to get a more accurate picture. 

Pension

Most Americans aren’t lucky enough to have a pension, but those who do must include the annuity in their Coast FIRE number. 

Use your employee benefit plan to calculate how much money you can expect from your pension. 

Because most Americans don’t have a pension, we will use a small monthly annuity in our Coast FIRE calculations, assuming our average worker will receive $500 monthly. 

Additional Income Sources

Many of us may have additional income sources in retirement, whether through want or need. We may spend the first few years of “retirement” focused on our side hustles or working for fun at a bookstore. 

We may have royalty income, an inheritance, investment gains from non-retirement brokerage accounts, or money from downsizing a house. 

Considering these bonus income sources in your Coast FIRE number is crucial. 

Because everyone’s situation differs, we aren’t including additional income in our Coast FIRE number. However, the $500 we included in the pension can account for some of it for those who don’t receive pension payments. 

Spouses Income

Our calculations are based on a single individual. If you’re married, you should also include their expected retirement earnings. 

Calculate Your Coast FIRE Number

Now it’s time to combine it and calculate your Coast FIRE number. 

Total Amount Needed: 2.7 million dollars

The amount received in social security benefits: $581,400 (1938 monthly benefit x 12 months per year x 25 years)

The amount received in pension and other income is $150,000 (500 monthly benefit x 12 months per year x 25 years). 

Coast FIRE amount: 1.96 million (nearly a million less than you thought!)

But wait – there’s more!

Continued Investment Growth

Although it seems like you need 1.96 million dollars, the reality is that you will likely need much less. 

Your invested money will continue to grow after you reach age 65. 

With a smart withdrawal rate, some people can live off their investment gains alone, without even touching the principle. 

Withdrawal Rate vs. Investment Growth

Next, you need to determine how much money you will withdraw each year and compare that to how much you will continue earning in investment gains. 

How Much You Need Per Year in Retirement

Let’s divide our 2.7 million dollar figure by 25 to see how much money you need (on average) each year: $108,000.

You’ll receive 23,256 in social security benefits and 6,000 in pension and other income, meaning you’ll only need $78,744 annually. 

Investment Growth Rate

Your remaining balance will earn interest even as you withdraw money each month. 

Assuming a 6% growth rate, you can safely withdraw 6% each year without even touching the principle. In this scenario, you’d need a little over 1.3 million dollars saved (6% x Principle = $78,744 per year) by the time you reach 65. 

But you want to touch the principle, don’t you? Unless you want to leave your kids a hefty inheritance, you likely want to draw down the principle to fund your life as you age. 

Using the withdrawal rate calculator from Financial Mentor, we see that you only need a little over a million dollars ($1,018,467.44) at age 65 to withdraw $78,744 per year over 25 years. 

One Final Wrench – Assumptions

Of course, nothing is ever that straightforward. 

We included many assumptions in our number, especially for the younger folks. 

Here are the most critical assumptions to keep in mind (outside inflation which we’ve already addressed). 

Investment Gains

Historically, investment gains average around 7% per year. However, anything can happen over 20 years. 

You may see wild investment gains nearing 15% some years, paired with negative growth in slump years. 

We mitigated this assumption a little by using 6% instead of 7%, but you can crunch your numbers with a more conservative estimate to play it safe. 

Social Security

Though those nearing retirement age today can likely depend on current social security estimates, younger generations may not have the same retirement security. 

The program faces insolvency, as the Social Security Administration recently reported that the fund can pay full benefits until 2033, at which point they will reduce benefits to 79%. 

If nothing changes, younger generations may not receive any benefits. 

Politics

Politics have a massive impact on finances. It affects the cost of living, healthcare, retirement age, social programs, and more. 

Some politicians may work to save social security and increase benefits, while others may try to defund the entire program. There may be a political movement to provide healthcare for all or one to defund Medicaid. 

We can’t know what the future will hold. 

How To Manage Assumptions

We can’t plan for the unknowable. The best we can do is give ourselves as much of a buffer as possible. I will add an extra 20% to the top of our retirement target goal to mitigate the unknowns. 

When our average American reaches age 65, they need $1,222,161 in their 401k to fund their retirement. 

What’s The Coast Fire Number?

Finally, we get to calculating Coast FIRE!

Your Coast FIRE number isn’t $1,222,161; it’s how much you need to save so that your money will grow to your target when you’re ready to retire. 

Our FIRE seeker is forty years old today, so they have 25 years until retirement. 

How much money would they need right now to confidently say they’ve reached Coast FIRE?

$285,000. 

$285,000 is our “Coast FIRE” number at age 40, assuming a 6% annual investment growth rate. 

Use this calculator to verify the numbers and play with different scenarios based on your current investment portfolio and age. 

How to Determine Your Coast FIRE Number

Your Coast FIRE number depends on your age and target retirement goal. Once you have your target, you can determine how far off you are with the simple calculator. 

Keep in mind that your Coast FIRE number will change with age. If you’re older than 40, you need more than $285,000 (but your investments should grow by the required amount once you hit your target!). 

How to Reach Your Coast FIRE Number

If you’re not at your desired Coast FIRE number today, don’t fear. Depending on your age, there’s a good chance it’s still achievable. 

Consider your current age and shortage. How long will it take you to make it up? If you’re $100,000 short and under 40, you can likely make it up in 5-10 years. 

The younger you are, the easier it will be, but it may still be possible for middle-aged workers, depending on when you plan to retire. 

Determine your Coast FIRE number at various ages between 40 and 60, and use the investment calculators, plus your income and savings rate, to determine what is possible. 

If it’s unachievable, you may need to delay retirement for a few years or rethink your life plan in retirement. 

I’ve Reached Coast Fire – Now What?

Reaching Coast FIRE is a crucial step on your journey to financial independence. If you want to retire early, now is the time to prioritize your non-retirement investments and savings. If you get a company match, you should still invest enough in your employee-sponsored retirement account to get the full match. It’s like doubling your investment gains right off the bat! In addition, it will help you build that much-needed buffer against whatever the future holds. 

If you don’t want to retire early, I recommend continuing to invest in your retirement accounts to mitigate the unexpected. It’s far better to have too much savings than not enough. However, you can lay off the gas and enjoy your life a little. 

You’ve reached a massive milestone – you should enjoy it!