The term coast FI or coast FIRE number has nothing to do with retirement on the Caribbean beach coast or any other favorite beach of yours.
If you have such a picture in your thoughts, ask them to hold on!
Then, what is coast fi?
It’s just one of the early stages of FIRE. To put it in simple words, we can call it a milestone achieved in the process of becoming FIRE.
Coast fi number actually means loading up enough investments at an early age so that you no longer need to do further contributions in your retirement account to achieve your traditional retirement or financial independence.
In other words, you are letting your investments to compound on an autopilot mode to support your retirement at the traditional retirement age.
This strategy of coast fire retirement helps you to move from high stressful job to low stressful one with less pay, shift 40 hours/ week work to a part-time job, etc. to cover your lifestyle expenses.
In the meantime, it gives you peace of mind about your retirement while you are working to cover your daily expenses alone. No more sacrifices or pulling yourself back from spending your paycheck!
How to use coast fire calculator?
Let’s use the coast fire calculator to find your number based on your age.
By following coast fire rule, if you could save $100,000 dollars by age 30 not touch it for next 30 years , then it would eventually grow to little over $1 million when you hit your retirement age by 60 at a rate of return 8 %.
Why 8% rate of return?
S&P 500 even in its worst period of about 35 years, gave an average return of 8 % per annum. So the worst rate of return is considered to calculate the coast fire.
This is a simple of example of a coast fire. Once you reach $100,000 in investments by age 30, you simply reach your financial independence over the next 30 years without any additional contributions in your retirement account.
Also, it is important to keep in mind that, you need to still work to cover your day-to-day expenses for those 30 years while you allow your investments to grow.
The advantage here is you only need to work to cover your expenses. You don’t need to save any of your income.
Related read: The Shockingly simple math behind early retirement
Why Coast fi is appealing?
Once you hit your coast fi number, it offers you the flexibility to move from a highly stressful job to a job with a lower stress one.
It offers you to spend your paycheck more freely than the time you were contributing to retirement.
Coast Fi can make you feel secure about your retirement nest egg. So it makes you live in the present and be more lively than worrying about your future.
It gives you a sense of freedom before you become one through financial independence. You can move from living in a Metro city like New York to a less populated city like Montana etc.
Compound Interest: The Core of Coast Fi
The reason this concept works is simply due to its dependence on compound interest. It’s a proof that numbers don’t lie!
You have given plenty of time to compound interest to work on your retirement. Assuming its a 30 years!
Compound interest is not a powerful one in the short term, (consider less than 10 years as the short term)however it’s a dynamite in the long term.
If you notice carefully in this image, it took nearly 17 years to hit $400,000 for a $100,000 investment.
But it just took 6 years for compound interest to earn those $400,000 in the final years ( from year 24 to year 30).
That’s the nature of compound interest. Its impacts grows bigger & bigger as you give time to it.
what kind of Life Coast Fi can offer you?
People after achieving their traditional financial independence, are wondering how can they use their time well spent. Because People will get bored after sipping coconut water and relaxing on beaches after 3 or 4 weeks.
To keep us engaged and occupied, we need purpose!
After achieving the Coast FI milestone, You know in the back of your mind your retirement is secure. Now you can take more risks and pursue your passions which fulfills your life.
- You can work in an NGO & teach kids
- You can take up part-time jobs in the industry you worked
- You can work in the latest gig economy Uber, amazon, doordash etc.
- You can be a licensed tour guide in your state.
- You can also be an instructor for paragliding, scuba diving, etc. (Based on your interest)
Coast Fi retirement unlocks so many doors in your life that you never imagined.
How to use the Coastfire calculator?
To know more about how to use the Coastfire calculator. Please click the link
Who should pursue Coast fi?
- Less responsibility:
People who carry fewer responsibilities can aim for Coast fi retirement. What do I mean by Fewer responsibilities?
Your parents are independent to manage their finances, No heavy mortgage payment on you, If you prefer to stay single , even if you are married you keep your expenses to the very minimal to maintain your family.
Such people can Jump for Coast Fi to live a more relaxed pace life.
Usually, people who purses minimalism needs less pay to maintain their life as they consume less resources and spaces. If you are a fan of minimalism and you are confident to managing your expenses by working in job with less pay or moving to a remote location to cut down expenses.
Such folks can their leap!
Who should not pursue Coast fi?
Can’t live in Lean paycheck:
If you find yourself in a situation where you can’t maintain your current lifestyle expenses by working in a Job with less hours and stress. You should probably consider Joining the same industry or Job once again.
Normally, when you work for less hours you pay tends to shrink unless your hourly rate is high. So its better to continue your 9 to 5 work.
Crave for early financial independence:
Some folks prefer to achieve their traditional financial freedom by continuing their day job with an increase in their savings percentage as their pay rises. Once these people reach their retirement portfolio target number they completely move out of the workforce permanently.
Such people doesn’t need to wait till their 60 years for retirement , they can retire in their late 30’s and early 40’s too.
Benefits of coast fi
First of all, you don’t need to stuck with the job you hate or nod your head to the annoying boss for the next 30 or 40 years.
Anyone can achieve their coast fire number in 4 to 8 years , depending on their savings rate.
It helps people to achieve work life balance quickly than you imagine rather than waiting for a decade or two until they enough to be completely financially independent.
It helps you leave the job you hate as quick as possible and still you would be able to retire one day with a comfortable amount in your nest egg.
All you need to earn income to cover your expenses on the road to become financially independent.
Disadvantages of coast fi
You need to still work:
Unlike the traditional FIRE, In the Coast FI stage, you can’t quit your work and let your investment portfolio to take care of you & your expenses. You are required to still do the work to support yourself and your family.
- Future is unpredictable.
When you are coasting , the paycheck expectation of Job is just to cover your monthly expenses. What if there is some emergency Medical expenses? You are left with no option either to break your nestegg or borrow money to meet the emergency unless you have a emergency fund.
Its doesn’t hurt to weigh the pros and cons before making a decision. At last, Our life doesn’t move in a linear fashion right. Don’t you agree with me?
Different types of Fire
As the fire movement becomes widely popular among people and new branches of fire is emerging from the Fire tree.
Few of the branches of FIRE are below:
Achieving your FIRE number is always exciting! Whether its Coast FIRE or be it FAT FIRE, once thing for sure is you are on the path of becoming financial freedom.
At last, don’t forget to enjoy your journey. Because only you can enjoy it.
Though there so many stages of FIRE are there today, but the fundamentals remain the same no matter which stage of FIRE you are.
Fundamental = Earn, Save and Invest!
Coast Fi is milestone where can you can test the waters knowing that your retirement is secure. At last, you can always jump back to the workforce whenever you want. At last, it doesn’t hurt to try Coast FI.
Thank you for reading!