Coast Financial Independence
There are many types of F.I.R.E. (Financial Independence. Retire Early.), but one I find most intriguing is Coast Financial Independence (Coast F.I.). This is one I wish I learned about when I was much younger, and it is one I’m passionate about encouraging everyone just to look into. Especially all my young people.
Please take time to look into what Coast F.I. may or may not be able to do for you, and pass along any information to our younger generations. This may very well give them the tools they need to set themselves up differently in life.
Coast F.I. is part of the F.I.R.E. (Financial Independence. Retire Early.) movement, and the idea is to find ways to live frugally and invest aggressively to achieve financial independence (F.I.) earlier in life so you can have more options including the option to retire early (R.E.).
Achieving F.I. or financial independence doesn’t necessarily mean you have to retire, but it will give you more options and freedoms in life. You may not have to work a full-time job or stay in a position you dislike because you are stuck financially. You may have the option to scale back to part-time or work in a position you enjoy, even if it pays less. F.I.R.E. gives you the freedom of choice as it is no longer necessary for you to exchange your time for money to survive.
Coast F.I. is one of the more popular versions of F.I.R.E. because it can be less intense than full F.I.R.E. while still helping you achieve the freedoms you desire.
The goal of Coast F.I. is not to retire early, but to secure enough in your retirement accounts earlier in life so that if you stop investing, your retirement portfolio should continue to grow to be what you need at retirement age.
This means you can now coast and enjoy life.
Example: Instead of needing to reach $1 million by age 30 (as may be needed for full F.I.R.E.), you may only need to reach $200,000 by age 30 as that should still grow to be $1 million by the time you are 65.
(*I know with current inflation rates, we may need more than $1 million for retirement, but this is an example and should give you a good starting point.)
Benefits of Coast F.I.R.E.
More Freedom
Reaching your Coast F.I. number is equivalent to eliminating an expense from your life permanently. This means you no longer have to worry about investing since you already have your designated Coast F.I. amount invested. You can then choose to keep investing for a bigger retirement or have more spending money or freedom for your life now. The choice is yours.
Example: If your budget is 50/30/20 (50% expenses, 30% investing, 20% savings) you will no longer need to put 30% into investing giving you more money for other things.
More Flexibility
Reaching your Coast F.I. number could mean you no longer have to work full-time, stay in a high-stress position, or work a job you dislike simply for the money.
Work part-time: Working part-time hours may be enough as you will only need to cover your current expenses since you no longer need to worry about investing. This will give you more of your time back.
Work with less stress: You may have the option to take a lesser-stress position even if it pays less since you only need to cover your current daily expenses. This can give you more of your health back.
Work a job you simply enjoy: You may have the option to work at a job not for the money, but in a position you are passionate about or that you find interesting or fun. This can give you more fulfillment in life.
More Security
It’s not a matter of IF, but WHEN unexpected circumstances arise. Imagine if you no longer had to worry about investing because you’ve reached your Coast F.I. number and know your retirement should still grow to a comfortable amount for you by your retirement age, even if you don’t invest anymore. This could give you a more freeing feeling. When something arises, you have the option to lower, pause, or stop your retirement contributions (if you haven’t already) allowing you to put more focus on the here and now.
Less Sacrifice than full F.I.R.E.
Going full F.I.R.E. can be intense as the goal is to hit your full desired retirement amount ($1 to $2 million) as early as possible. Most aim to be retired by age 30 or 40. That means you sacrifice a lot of time early in life to reach that amount by your 30s or 40s. The goal with Coast F.I. is not to retire early, but to secure your retirement funds early giving you more freedom with your daily living. Again, instead of reaching $1 million by age 30, you may only need to reach $200,000 by age 30 to reach your retirement goal of $1 million by age 65. The earlier you begin, the fewer sacrifices you will have to make to hit your goals.
How to Calculate Your Coast F.I. Number
To calculate your Coast F.I. number, you must first find your F.I. (Financial Independence) number. This is the dollar amount you believe should keep you comfortable during retirement.
F.I. Number Equation
(Expected annual expenses) x (Expected years in retirement) = Your F.I. #
Example: If your expected annual expenses are $40,000 per year, and you plan to be retired for 25 years, then
$40,000 x 25 = $1,000,000
This means your retirement goal is to hit $1,000,000 by the time you fully retire as you believe this should last you at least 25 years.
Now let’s find your Coast F.I. number using the equation below. (Note: There are lots of online calculators to help with this as well.)
Coast F.I.R.E. equation
F.I. # / (1+Expected Growth Rate)^(# of years until retirement) = Coast F.I. #
Example: If your F.I. # = $1 million and your Expected Growth Rate = 5%, and you have 25 years till retirement, then:
$1,000,000 / (1.05)^25 = $295,334
This means by age 40, you will only need $295,334 in retirement accounts with approximately 5% expected growth to reach your F.I. number ($1 million) 25 years from now when you turn 65.
*Please Note: This is a rough estimate, giving you a good starting goal. More could factor into this number. When nearing your projected Coast F.I. goal, please be sure to discuss your retirement plan with a professional before pumping the brakes on investing. A professional should be able to stress test your retirement plan to ensure it will be sufficient for your needs. If you quit your job too early, it may be harder to get back into your previous profession. Be sure you know what you are retiring to before you retire. Measure twice, cut once!
Check out F.I.R.E. Community for more information about F.I.R.E.
Check out Make A Plan for more information about financial plans.
Let us know your thoughts. Could Coast F.I. be for you?
