The financial independence/retired early (FIRE) movement allows you to live the life you want without worrying about money. Though the traditional movement required a high income and frugal living, proponents of the lifestyle developed a wide range of options, allowing nearly everyone to pursue the version of financial freedom that works for them.
Coast FIRE lets you “coast” to financial independence, serving as a crucial milestone on your journey to freedom.
What is Coast FIRE?
Coast FIRE means you no longer have to save for a secure traditional retirement, as you can safely assume your investments will grow to what you need by the time you reach retirement age.
You’re “coasting” to a traditional retirement because you don’t have to scrimp and save; you can sit back and let your money work for you.
I’m at Coast FIRE because even 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 rate). That and my other retirement income (pension, social security, etc.) will provide me with a happy (though not rich) retirement.
Coast FIRE as the Goal
For many, Coast FIRE is the goal. They drop the “Retired Early” part of the acronym because they love their jobs and want to work.
Coast FI allows them to keep working the jobs they love while enjoying life to the fullest because they don’t have to stress about retirement.
For people who thrive in fast-paced environments and gain meaning from their work, Coast FI offers security, the lifestyle they love, and the freedom to find a different job should they no longer enjoy what they’re doing.
Coast FI as a Milestone
Many Coast FIRE seekers consider it a milestone rather than the end goal. Reaching Coast FIRE is a colossal achievement, but they don’t stop there.
Once you achieve Coast FIRE, you can redirect some of your retirement savings into traditional brokerage and savings accounts, which can help you quit your job before you reach full retirement age.
It also provides a giant motivational boost. You know you can achieve true financial independence because you can already fund your life in retirement. It might only take another few years to achieve your goal of quitting early.
The best benefit is the massive stress relief you feel knowing you never have to worry about money when you’re too old to work. You can stop worrying about retirement. It’s funded and taken care of. Unburdening yourself with worry allows you to focus on what matters now.
Coast Fire Vs. Barista Fire
Some FIRE movement experts use Coast FIRE and Barista FIRE interchangeably, but they’re not the same.
Barista FIRE is a step closer to true financial independence. With Coast FIRE, you have to continue to work your high-paying or stressful job to pay your living expenses, but with Barista FIRE, you can work an easy, stress-free job or reduce your hours.
What is Barista FIRE?
Barista FIRE means you have enough money in savings, investments, etc., to pay most of your bills, but not enough to pay for everything you might want – like that random game or dinners out – you know, the spice of life type stuff. You need a job to pay for these little things.
Since you only need pocket money (or benefits or the social fun of working), you can take a part-time job that offers what you need. The term “Barista FIRE” comes from folks who quit their jobs to work as baristas at trendy little coffee shops for a few hours per week.
How Does Coast FIRE Work?
Coast FIRE works due to the magic of compound interest. The money you have invested now will make you even more as it grows.
Suppose you invested $10,000 when you were 20 with a 5% interest rate compounded monthly. Even if you don’t contribute one more penny, you’ll have nearly $150,000 by age 60.
In this simple example, we didn’t even contribute any extra money. If you contributed only $5,000 per year, you’d have over $800,000 in forty years!
Someone who starts investing with their first job and stays the course can easily reach Coast FIRE in their forties.
How Is Coast Fire Calculated?
Everyone has a different Coast FIRE number based on their expenses and life goals.
To calculate yours, first, you must determine how much money you will need in retirement. Consider your annual expenses, inflation, and any fun you might want in your golden years. Account for housing, transportation, taxes, medical bills, and travel or hobby expenses.
Add it all up to find your estimated annual income needs.
The next step is figuring out how to achieve that number.
Examine your potential income sources in retirement, including a 401 (k), social security, pension, annuity, side hustle income, inheritance, or whatever will be available to you.
Next, calculate whether your current investments will be enough. If you fall short, determine how much more you need to save.
Check out my case study on Coast FIRE to see my real numbers and how I determined whether I was at Coast Fire or not. I calculated my Coast FIRE number step by step using my favorite web resources. I also turned the article into a YouTube video you can check out if you don’t want to read the whole thing.
Make sure you smash that subscribe button if you liked the video so I can make even more!
Coast FIRE’s Glaring Problem
Coast FIRE has one massive drawback: all the unknowns.
When calculating our Coast FIRE number, we must make many assumptions, and if we’re wrong about any of them, we may have to adjust our retirement plan.
Unfortunately, we can’t know what the future will hold. We don’t know whether interest rates will soar or plummet, whether a market crash will wipe out gains, or how inflation will impact our nest eggs.
When determining your Coast FIRE number, consider these crucial assumptions.
Market Fluctuations
Investing in the stock market is one of the top ways to achieve Coast FIRE; however, we never know what the market will do.
When I calculated my number, I assumed a 7% annual growth, as that’s the average over time. However, past returns never guarantee future results.
We may have a few years of runaway growth with returns well over 10%. But we may also see bad years when our portfolios decrease so much in value that we wonder if we can ever retire.
If your Coast FIRE number includes rental properties or real estate, you must keep tabs on the housing market. Everyone thought it would go up forever until it suddenly crashed in 2007. Will we see a similar crash on your journey to financial independence? Nobody knows.
To hedge your bets against market fluctuations, you should pad your Coast FIRE number and move to less risky securities like bonds and cash the closer you get to your retirement date.
Inflation
As we learned in 2020, rampant inflation destroys budgets. But even regular inflation can impact your buying power over the long term.
If you’re more than a few years away from retirement, you must invest in something that will outpace inflation. Interest on a savings account at a bank won’t cut it. Typically, the stock market beats inflation, making it the best investment vehicle for retirement.
You must also consider inflation when developing your Coast FIRE number. Perhaps you can live on forty thousand dollars today, but will that be enough in thirty years? Will it be enough to see you through a 20-30 year retirement?
Historically, the inflation rate has hovered around 3%, so add a 3% per year buffer to your Coast FIRE number so you have enough.
Policy
Government policy affects your money.
Some politicians have floated ideas about canceling Medicare and Social Security. Would your Coast FIRE number still work if you lost access to these programs in retirement?
Policy decisions also impact taxes, jobs, housing, and resources for the low-income or elderly. Some ideas will make you more secure in retirement, while others may destroy everything you’ve worked so hard to build.
We can’t know which way the tide will flow. The best we can do is vote for the policies that will ensure a secure retirement for the majority of people while saving extra money in case a politician decides to destroy the programs seniors rely on for financial security.
Achieving Coast FIRE Despite the Unknowns
Our entire lives are full of unknowns, but that doesn’t mean we should stop living. The journey to Coast FIRE (and any other type of financial independence) abounds with risk, but that doesn’t mean it’s not a worthy pursuit.
Coast FIRE is achievable despite the unknowns. Those pursuing it and other types of financial freedom must acknowledge the risks and make plans to mitigate them.
You could achieve this by adding a buffer to your Coast FIRE number. Continue to save and invest for a few years after you’ve reached your magic number as your “just in case” fund. Keep a year’s worth of living expenses in a savings account to help you get through bad years when the market collapses. Start a side hustle to cover any gaps in income.
The more you can do to ensure financial security in the future, the better off you will be, even if it’s smooth sailing all the way to retirement.
I have never heard of coast fire until this article. It is a very interesting concept. It does make me wonder if I have achieved coast fire, although it wouldn’t really matter if I had. The idea of achieving FI has pretty much became a chess game for me. That’s why I keep researching and keep learning new ways to invest and grow wealth.
I tell people all the time that I have been studying finance hardcore for over 5 years and have only begun to scratch the surface.
For me FI, isn’t about retiring early. It’s more about having the ability to work on the things that I want, not what I have to.
It seems to me in this scenario of coast fire that I would have to continue working that 9 to 5 job. While that may be great for a lot of people, it doesn’t seem like the strategy for me.
Thanks for sharing this article. It is a very interesting concept.
At historical inflation rates $40,000 will only be worth $16,500 in 30 years. If you need $40,000 in today’s buying power your FI target should be around $3 Million.
I think if I own my home outright, inflation won’t eat as much of my budget. But, you never know, so I’m working a bit longer to make sure I have more.
I feel like we are Coast Fi, but being based on a pension that funds in 8 years. I have a 457 and my wife has a 401k. We’re still going to continue to max them out for the next 8 years so we have a larger buffer. We’ll work part time park ranger jobs of some sorts as well most likely. (Plus who knows what health care will be.)
This is awesome! Great job!
What’s the point of Coast FIRE if you don’t change anything once you’ve reached that milestone? To continue working a 9-5 you don’t enjoy just so you can continue to spend seems pointless to me. If I did that I would probably continue to poor my salary into investments, and then there is never the satisfaction of pivoting my life. Why not just quit and find another job or interest that pays the bills?
There needs to be a hard reset at the milestone, especially if you dislike your high paying job. To continue on as usual, just with the acknowledgement that you can now spend your income on things other than retirement doesn’t sound to good.
Hard reset all the way.
I think it depends on what your overall goals are. I’m not changing anything, because full financial independence is my goal. Everyone is different though, so if your goal is a solid retirement and you want to work until then, by all means shift your spending and do more now!