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“Can you write an article about Coast FIRE?”
When I first read this in my inbox, I thought Coast FIRE had something to do with moving to the west coast, sitting on a beach, and sipping Mai Tai’s.
But after some research, it turns out Coast FIRE means “coasting to FIRE,” so basically the idea that if you save enough in your 20s or 30s, you can theoretically stop investing and let time and the stock market slowly reach FI for you.
For example, instead of saving 50% of your income to reach FI in 10-15 years at any age, you save $130,103.22 by age 30, stop investing, and leave it to grow to 1 million by age 65, like this…
|age||Starting||Contributions||ROI (6%)||End of the Year Total|
(note: in this scenario, we’re assuming a 6% return, after adjusting for inflation.)
Now, if you’re like me, you might be wondering how Coast FIRE differs from plain old vanilla “regular retirement”? Well, it’s similar in that both aim for retirement at 65. The difference is regular retirement requires you to invest a fixed amount every year throughout your working life. Coast FIRE requires you to reach a threshold portfolio size as early as possible, then hit the brakes and let time do the work for you. So, in other words, you are front-loading your savings when you’re young.
Sounds great right? I mean, what could be more appealing than the lazy way to FI?
I can see why this would be appealing to many people. But does it make sense?
Let’s look at some pros and cons of this idea:
1. It’s More Attainable
I’ve heard 50-70% power saving to FI path described as a “death march”. This is because some people don’t like the idea of killing yourself by working 60-80 hours weeks for 10-15 years, as a trade-off for freedom for the remaining 40-50 years.
If you have a job you hate, just toughing it out for 5 years seems impossible, never mind for the next 10-15.
In that sense, Coast FIRE seems more attainable since you only have to get to $100-200K in your 20s or 30s, take your foot of the gas, get a lower paying job that only covers your expenses, and then work this less stressful job until 65.
Or for those with lower salaries, this is a much more attainable goal, because it’s easier to fathom saving $100K-200K than $500K-$1M.
Coast FIRE seems less scary and more attainable than saving 50% of your salary and reaching full FIRE in your 30s or 40s.
2. You Can Be More Aggressive with Your Allocation
Because you’re letting time and the magic of compounding do the work for you, you’re looking at an investment horizon of 30+ years instead of 10-15. Since you’re not planning to withdraw from your portfolio at all, you can theoretically dial up your risk all the way to 90% or even 100% equities and not have to worry about selling during a bear market.
3. Age Is an Unfair Advantage
If you’re young and in your 20s or early thirties (damn you and your stupid youthful glow!), then you have a huge advantage over those who learned about this investing stuff later on in life. Because time is on your side, you have a long-ass 30+ year runway to get the stock market to do the heavy lifting for you.
Older people who don’t have a time machine won’t have your advantage and will have to save way more to reach the same finish line—$1M by age 65.
Pat yourself on the back and go buy yourself some avocado toast or watch a TikTok video, you win just by being young!
1. FI # is Not Calculated Based on Your Savings Rate
I always found the idea of aiming for $1 million by age 65 arbitrary. If you don’t know what your spending rate is, then how do you know that will be enough to cover your expenses at 65?
Let’s say you net $60,000/year starting at age 26. With a savings rate of 54%, you amass a portfolio size of $130,000 by 30. At this point, your savings rate drops to 0%, you spend the entire $60,000 of earnings every year and coast until 65 to end up with a $1 Million portfolio. But by then, you’d have to go from spending $60,000/year down to $40,000/year at 65 in order live off the $1 million. You’d be short $20,000/year unless you can immediately rein in your spending, which after decades at that level of spending, I’m not sure you can.
Since the Coast FIRE formula isn’t using your spending level to calculate your FI number, you’re pretty much guessing how much you need by 65.
2. You Can’t Re-Adjust
Unlike normal FIRE where you can calculate your success rate each year and adjust your spending and investment allocation accordingly, Coast FIRE is a fire-and-forget system, where you assume your spending level 30 years in the without ever experiencing what’s it’s like to live on it. And if you find out when you get there that you did your math wrong, it’s much harder to correct.
Think of it this way. We like to think of Financial Independence as a suit of armour. Once you reach FI, you’re invincible to job loss. As a result, I can finally take the risky path of becoming an author because even if I earn nothing from my passion, my suit of armor protects me against any loss of income (and trust me, when it comes to arts, there are plenty of expected losses).
Since full FI might be too much of a lofty goal for some, they become partial FI instead, building a portfolio big enough to support half of their expenses, and having their passion projects cover the other half. That’s like having a partial armor. You might have the helmet to protect you, but your arms and legs are still exposed.
Coast FIRE is like hiring a blacksmith to build the armor slowly over 30 years without ever trying on the finished product. So, in that sense, it’s quite risky because you have no idea if the armor will even fit.
Here’s another way to look at it. FIRE is a missile. You can change course each year to make sure you reach the target at the end. Coast FIRE is a bullet, you only get one chance to fire (pun intended) the gun, but once the bullet is out of the chamber, there’s no course correcting. You better be sure when you reach 65 that the FI number you predicted 30 years ago is correct.
3. Age Is an Unfair Advantage
In the advantages above, I said that being young is a huge advantage for Coast FIRE. But the flip side to this is that if you don’t have time on your side, Coast FIRE doesn’t work.
What if you are in a field that takes a while to get going like medicine? You might not even get out of school by 35. When you finally have a good salary, pay off your massive student loans, and build a decent-sized portfolio, you’ll already be 45! Then your portfolio only has 20 years to compound in the markets. If you started with $200,000 at 45, you’ll only end up with $641,427.09 at 65. You’re better off power saving towards full FI if you’re older because you no longer have the advantage of time in the market to help you out.
4. You’re Still Someone’s Bitch for 30+ years.
Since you’re not withdrawing from your portfolio for 30+ years, you’ll have to rely on a steady paycheck during that time. Layoffs, health issues, and basically anything can happen. Without the portfolio’s passive income to cover at least part of your expenses, you’ll be as much a sitting duck as everyone else because you still need your job right up until the point your retire.
As you can see, Coast FIRE can be very appealing to those with lower salaries, itching to switch jobs, or are young enough for me to hate them.
Given the pros and cons, would I recommend Coast FIRE?
Coast FIRE, to me is a psychological payoff rather than a logical one. It’s way better than not saving towards retirement at all. Plus, it’s more attainable for those with lower salaries. But it has as many pitfalls and risks. And most importantly, Coast FIRE can be dangerous if it’s used as an excuse to sit back and relax and spend everything you make just because you reached your “threshold Coast FIRE portfolio number.” Remember, you can always get laid off from work, and without basing your retirement number on your actual spending, you don’t know if this “FI armor” will fit in 30 years without ever trying it on.
If you’re still curious and want to calculate your Coast FIRE number, here’s the formula you can use to calculate the starting portfolio size (P) you need at age A to eventually have a million by 65, assuming a 6% rate of return:
If you generalize this formula, you can plug in your own variables where I is the expected investment return, R is your target retirement age, and A is your current age like so:
For example, if you’re currently 35 years old, and you want to find out the portfolio size needed for Coast FIRE with a 6% real return, to have $1M by age 65:
Here’s a graph of different ages and portfolio sizes needed to reach $1M by 65:
As you can see, the older you are when you start Coast FIRE, the less time you have in the markets to get to Coast FIRE, so the bigger the staring portfolio you need.
To find out how big your portfolio needs to be for Coast FIRE, look for your age in the table below:
What do you think? Is Coast FIRE for you?
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