There are so many freaking types of financial independence – it can get super confusing to keep them straight! Having so many options keeps the fire community inclusive, and gives tons of people the opportunity to pursue financial independence who may not be able to pursue the traditional path. One of those options is Coast Fire (or Coast FI, as it’s commonly called).
What is Coast Fire?
Coast Fire means you no longer have to save to have a financially independent traditional retirement. Generally, this means that you assume your investments will grow to a certain dollar amount by the time you reach retirement. It means you are coasting.
I’m at Coast Fire right now, because if I don’t put any more money into my retirement account, it will still grow enough over the next 30 years to give me $40,000 a year in retirement (assuming a 7% per year growth). That, along with my other retirement income (pension, social security, etc.) will be more than enough to give me a happy (though not rich) retirement.
I guess it kind of makes sense that people would take away the “retired early” part of the acronym. People who are pursuing Coast FI aren’t necessarily planning on retiring early, but they do want to ensure that they are financially independent when they retire. I think that’s a goal that most of us can get on board with.
Coast FI as a Milestone
For many people on the path to financial independence, coast fire isn’t the end goal. Instead, it’s a mile marker. Reaching Coast Fire is a huge achievement, but many people don’t stop there. Just knowing that your retirement is secure is an amazing relief, and it helps give people the motivation to keep going on this Fire path. It’s way easier to stick with a plan and a goal when you have milestones that you can celebrate along the way, and I think Coast FI is a major one.
Coast Fire Vs. Barista Fire
I’ve seen the terms coast fire and barista fire used interchangeably, but I don’t consider them to be the same thing. In my opinion, Barista Fire is a step closer to true financial independence. With Coast Fire, you have to continue to work your high paying job to pay your living expenses, but with barista fire, you can work an easy stress free job. I may be the only person ever to make that distinction, but that’s how I see it.
Coast Fire and Unknowns
One of the biggest limitations of Coast Fire (for younger folks) is all of the unknowns. I’m in my mid (ok, late) thirties – I won’t reach the traditional retirement age for another thirty years! Can you imagine what the world is going to look like in thirty years? Exactly, and neither can I. Here are some of the biggest unknowns in regards to Coast FI:
Most people who are talking about Coast FI are invested in the stock market, and we all know that doesn’t behave consistently. For example, I’m only Coast Fire if the market cooperates and grows that 7% per year on average. And unfortunately, you never know what will happen with the stock market. 7% is in line with historical returns, but that’s never a guarantee of future returns. Some years are better, but some years are much, much worse. And if you are unfortunate enough to retire right at a down turn year, your nest egg could really suffer. That might put your plans for financial independence at risk.
If your Coast Fire estimate includes rental properties or real estate wealth, you will have to be weary of the housing market as well. Everyone thought it would go up and up until it suddenly crashed in 2007. We’ve since learned that nothing goes up forever, and all markets are cyclical, but can you guess when and where the next housing crash will occur? Neither can I, so it’s definitely something to be aware of when determining your number.
Another dangerous unknown is inflation. If you are more than a few years from retirement, you probably need to be invested in the stock market. Cash is king, but if it’s not making you any money inflation is going to eat away at that buying power.
You also need to take this into consideration when developing your Coast Fire number. Forty thousand dollars per year might be more than enough for me to live frugally on today – but will it be enough in thirty years? Will it be enough at the end of my retirement fifty or sixty years from now? It’s impossible to know, but I’m guessing that it won’t be.
A final unknown – which could be either good or bad depending on how things go – is policy decisions that affect us and our financial security. What will the policy of the 2050s look like? Will social security still exist – and if so in its current form? How will tax law change? These are things that are constantly discussed at the policy level, and it’s almost impossible to know which way the tide will flow.
There are also so many new policy ideas being discussed this year – including universal basic income, universal healthcare, and free college tuition. How would these policies, if enacted, affect your journey to financial independence? How would policies that we haven’t even thought up yet affect it? Some policies might make it exponentially easier, while some may make it that much harder. It’s impossible to know.
So How do you Achieve Coast FI then?
I didn’t mean to scare you with the unknowns, or make you think it was silly to pursue Coast FI. It’s definitely not, and it’s still entirely achievable! If you are mortgage free and a few years from retirement, most of this won’t have a huge impact on you (and congratulations!). But, these things will have an impact on some of us, so how do you plan for and mitigate such big picture unknowns?
My answer is to add a little more money to your Coast FI pie. I’m technically Coast FI now – if I could access my nest egg at the same market conditions we are in now. I know that’s not possible, so to mitigate it I’m upping my Coast FI number. I’m continuing to save and invest in my retirement accounts even though the math is there for me to quit now. But the math doesn’t account for these unknowns, and a little bit of padding never hurt anyone, did it?
Coast FI and You
Have you thought about Coast FI? I’d love to hear about your coast FI number, and how you’ve accounted for the unknowns in your calculations!