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A few weeks ago, I wrote a blog post on Coast Fire – defining what it is and what some major assumptions are. But I didn’t dive into calculating coast fire or making a plan for when you finally reach it. That’s what this post is for! I will 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 calculate your own Coast Fire number and maybe even 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!
Calculating Coast Fire
When you’re calculating Coast Fire, you have to consider all of the different income sources you will have in retirement. I’m lucky enough to have three: a pension, a 401K, and (hopefully) some sort of social security. If you’ve read my guest post on Government Worker FI on why I’m taking a deferred retirement, you’d know that my goal is to get a pension of at least 1K per month (which I achieved just this past month – woot!). Obviously, 1K isn’t enough to live any non-poverty life, so my retirement account will supply the majority of my income. The pension and whatever social security I might get by that time will supplement it.
To figure out how to calculate your coast fire number, you will need to figure out how much you will need in retirement and figure out what your sources of income in retirement will be.
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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 a 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. I’ll need to pay for rent or a mortgage in a modest home, food and insurance, and all the normal life expenses (which cost about $45000 per year right now). I’ll also need a bit of money for some hobbies.
Considering all my expenses, estimated costs, and a buffer for the unknown (inflation!), 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 Expect from Social Security and Pension
I already did all the calculations for these two 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 safe (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 calculating 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 will 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.
I’ve Reached Coast Fire – Now What?
Technically, the math works. I’ve finished calculating coast fire and determined that most likely, my money will grow to what I need for a secure retirement. I’ve also put enough years into my job to get the 1K pension I want and get the social security that I’m estimating. I’m officially at Coast Fire! So now what?
Do you remember all the assumptions and unknowns we talked about when calculating coast fire? Like the 6.5% annual return? Do I really trust that I’ll get an average return of 6.5%? Nope! There are way too many variables at play here. Way too many things can change over the course of thirty years. I’d rather keep investing for another year or two to ensure that I’ll have enough money in retirement. When planning so far into the future, I would rather be over-prepared than under-prepared.
That also gives me time to increase my pension and estimated social security earnings. Having a little padding in all three stools never hurt anyone.
Some people want to quit their jobs once they’ve reached Coast Fire. But the main concern with that is affording life between now and traditional retirement. Barista Fire could be a good option, but continuing your day job is also a valid choice. I think it will take me 2-3 more years to get to the point where I can quit and pursue my passions, and that’s ok! It’s ok for Coast Fire just to be a milestone.
Have you Reached Coast Fire?
What’s your Coast Fire number? Can you use these calculators to figure it out? You might be there and not even know it!
Melanie launched Partners in Fire in 2017 to document her quest for financial independence with a mix of finance, fun, and solving the world’s problems. She’s self educated in personal finance and passionate about fighting systematic problems that prevent others from achieving their own financial goals. She also loves travel, anthropology, gaming and her cats.