The way I’ve thought about financial independence and the FIRE movement (financial independence, retire early) has evolved quite a bit over the years.
When I first started on this path, I thought about financial independence in a pretty rigid way. Financial independence meant saving 25 times your annual expenses, at which point you’d be able to quit your job and do anything you wanted. Hitting that magic number required you to have a stable job and a high savings rate.
But as I’ve gained more life experience, the way I’ve thought about financial independence has changed – and especially so since I quit my job. These days, financial independence strikes me as a fluid concept, much more flexible compared to the rigid view of FIRE I once had.
This change in how I’m viewing financial independence and the FIRE movement isn’t unique to me. Thanks to the excellent work of various writers who have been able to articulate alternative versions or sub-genres of FIRE, we can now count numerous types of FIRE. Beyond Traditional FIRE, we also have Fat FIRE, Lean FIRE, Coast FIRE, Barista FIRE, Slow FIRE, and perhaps other types of FIRE that have yet to be fully articulated. All of these brands of FIRE come with their own unique take as to what financial independence really means and the path you need to follow to get there.
A few years ago, I wrote a post about Barista FIRE, which was a path towards financial independence that I found very appealing. The big takeaway it showed me was that financial independence was much more within reach than most people thought.
This idea that financial independence is much closer than we think lies at the heart of many of these alternative versions of FIRE. In reality, FIRE has never been about ceasing to work completely. It’s really more a form of risk management – what can you do to pursue what you really want to do with the least amount of risk possible. Someone following traditional FIRE would tell you to eliminate all risk completely. Save up enough so that you never have to earn another dollar, then go do what you want to do.
A brand of FIRE that everyone pursuing financial independence will have to hit at some point is Coast FIRE. Coast FIRE is defined as when you have enough money saved up that, without any additional contributions, the growth on that initial nest egg will be enough to fully support your lifestyle at traditional retirement age. This is possible because of the power of time and compound interest.
You can think of Coast FIRE as a sort of tipping point. Once you’ve hit this mark, you can do almost anything you want. There’s a lot of power in that. And it’s a reason why you want to think about Coast FIRE no matter which brand of financial independence you are pursuing.
What Is Coast FIRE: The Concept Behind It
Coast FIRE works by taking advantage of time, a large amount of money, and compound interest. The basic idea is that if you’re saving money, at some point, you’ll build up a large enough nest egg that even if you save nothing ever again, that nest egg will grow to a large enough number to make you financially independent.
This works because of compound interest. For example, if we had $100,000 saved up right now and had 30 years to let it grow, that money would grow to over $761,000, even if we didn’t add another dime to our savings (we assume a 7% rate of return).
If we doubled that to $200,000 saved up right now with 30 years to let it grow, that money would grow to over $1.5 million, all without adding another penny to it.
There’s a lot of power in that realization because it means if we can save up a big enough nest egg early on in life, we’ve essentially put ourselves in a situation where we almost can’t fail to become financially independent.
How To Calculate Your Coast FIRE Number
To determine what your Coast FIRE number is, you’ll need to use a simple compound interest formula, which many of us likely learned in school long ago and then promptly forgot when we became adults.
The compound interest formula we’ll need to use here is:
- Coast FIRE Number = FIRE Number / (1 + Rate of Return)^(Time)
Let’s look at each of these variables in turn:
- Coast FIRE Number. This is the amount we’ll need to have saved in order to be at Coast FIRE.
- FIRE Number. This is the amount you need in order to cover your expenses under the 4% Rule (so whatever this number is times 4% equals your yearly expenses).
- Rate of Return. This is our expected rate of return minus inflation. There’s a bit of disagreement as to what this number really means. The oft-cited number most people seem to use for return is a 7% rate of return, which technically already takes into account inflation. If you want to be more conservative, however, you could take that 7% rate of return and subtract 2% inflation, which seems to be about what most experts expect inflation to be. That would leave us with a 5% rate of return. In my view, a 7% rate of return is reasonable. A 5% rate of return is likely safer and more conservative. A Dave Ramsey 12% rate of return is probably unrealistic. Personally, I tend to use a 7% rate of return in my calculations, but the number you use is really up to you to decide because none of us can actually know what the rate of return will look like over the next 30 years.
- Time. This is the amount of time we have to let our money grow.
At the moment, my yearly expenses tend to be around $50,000 per year, which means I’ll likely need $1.25 million to be fully financially independent. I’m in my early 30s, so if I retired in 30 years, I’d still end up retiring in my early 60s, which is still earlier than most people retire. Assuming a 7% annual rate of return, my Coast FIRE formula would look like this:
- $1,250,000 / (1 + 0.07)^(30) = $164,208.89
This means I’d need $164,208 to have enough money where I could theoretically stop saving and still reach financial independence by traditional retirement age.
Using a 5% rate of return means my Coast FIRE formula looks like this:
- $1,250,000 / (1 + 0.05)^(30) = $289,221.81
You can see that the rate of return changes what I need to be Coast FIRE by a fairly large amount – over $120,000 in this case. Luckily, thanks to making a good income for a while, I’m actually sitting beyond that number, which puts me at officially Coast FIRE as I write this, no matter which rate of return I use.
Coast FIRE As A Tipping Point
Coast FIRE is a point that everyone pursuing financial independence will eventually hit. I myself accidentally hit Coast FIRE a few years ago without really realizing it.
But what makes Coast FIRE different from other forms of FIRE is that it’s not really an end goal in itself. Or at least, I wouldn’t recommend you think of it that way.
Instead, think of it as a tipping point – a sort of risk mitigation strategy that you can give to yourself. Once you hit Coast FIRE, you remove a lot of financial pressure off your back. You still need to earn money, but knowing that no matter what happens, you’re probably going to be good in the future, has a lot of power.
It doesn’t mean that you need to quit your job and make exactly enough to cover your expenses and never save another dime again. But what it does mean is that you can take risks. The point of FIRE has never been to stop working. It’s really about giving yourself the option to pursue things you want without the financial fear behind you. I think of Coast FIRE as perfect for someone like me, who’s trying to do things a little differently and generate my own income as a solopreneuer or entrepreneur type.
City Frugal wrote a post recently that explains this exact sentiment. And he had a great quote that’s worth thinking about:
Coast FI doesn’t mean you should take a lower-paying job or switch to part-time work. It just means you can, if you find something you like better.
The Goal – Hit Your Coast FIRE Number, Then Create Your Own FIRE
If you’re thinking about FIRE, there’s probably a reason for it. And most likely, it has to do with the fact that you’re dissatisfied at your job. I know that’s exactly how I first stumbled into the financial independence movement.
But disliking your job doesn’t mean that you dislike work. I think that’s an important thing to remember. Most of us aren’t trying to stop working completely. We’re just trying to stop doing work that we don’t enjoy, but are forced to do because we’re unable to do anything else or – and this is important – we’re too afraid to try anything else.
Coast FIRE works as a tipping point – that fail-safe point where once you get there, a lot of that fear can go away. If you enjoy what you do, you can keep doing it. If not, you can consider trying something else. You might even consider taking some risks that you might not have been comfortable taking before.
That’s exactly what I did when I quit my job last year. I spent 5 years working as an attorney, paying off debt and saving as much of my income as I could. During that time, I kept trying to make my legal jobs work for me, but ultimately never could figure out a way to feel satisfied with that work. But with enough money stashed away, I knew that I could take a chance to try to do something else that might bring me more satisfaction.
My journey towards FIRE now is more along the lines of Create Your Own FIRE – that is figure out what you want to do, then figure out how that thing can support your life. But the best way to get to that point is to reach Coast FIRE first. So that’s the first step – get to Coast FIRE as fast as you can, then take a step back and look at your life and what you want from it.
Take a look at the Coast FIRE formula and figure out what you’ll need to hit that point. For most people, saving around $150,000 to $200,000 early in life will be the ideal goal. If you give yourself a 30-year time horizon and have that much saved up, you’ve essentially put yourself in as good a situation as you can be.
Of course, I’m not the first or only person to write about Coast FIRE. For some additional insights into this concept, be sure to check out the posts below. They’re definitely worth reading (and I’m sure there are many more that I missed, so feel free to drop them in the comments):
freddy smidlap says
i can say we’re probably doing coast fire in our house but i called it being on the glidepath. essentially we went down to 1.5 jobs in 2017 and sometimes just my job in that time span. with us being in our 50’s the glidepath was slightly different as we raised the cash in our asset allocation in anticipation of pulling the plug. we did stop contributing to ira’s and taxable brokerage since then and i have to say it’s been fun to enjoy our full paychecks for a few years. like you mention it only works well if you have built up enough ahead of time. even though we likely have enough to retire pretty well i work because it’s not horrible and i like a few nice things that continuing to work affords.
Financial Panther says
That’s the beauty of hitting this point, right? You can enjoy your full paycheck and it really removes a lot of the pressure you have to keep earning more.
Is there a guide of where to invest the money you’re saving to earn that 7% return? One that doesn’t require a huge start amount? Like $10,000 to start?
Financial Panther says
I base that 7% return on general long-term stock investment returns via low-cost index funds. Here’s a post that might help: How To Start Investing: Simple Investing Strategies And Tools Anyone Can Use
long time ago i was thinking same, but now that im older im glad i didnt quit my job. my corporate job provided high income and i pulled through 15 years. looking back, if i would have left my job after 7-8 years, i wouldn’t be where i am today financially. in the end, it is worth it to stick it out and collect the cash. the older you will appreciate it.
Financial Panther says
If you enjoyed what you were doing, then that’s great! Sounds like you’re on the Fat FIRE track!
BRIAN ANDERSON says
hi—so you save $150,000 to $200,000 early in life – then let it compound for 30 years.
but you still need yearly expenses of 50,000. so you still have to work every year to get the 50,000
am i missing something ?
Financial Panther says
You’ve got it.
The basic idea isn’t that you can stop working at the Coast FIRE point. But what you have done is put yourself in a position where, even if you don’t save money again, you’ll more likely than not have enough to cover your life when you’re at retirement age in 30 years. That takes a lot of the pressure off to keep earning a huge income. And it puts you in a position where you can be a lot more flexible with the type of work you do since, in theory, you can skip saving and still know you’re going to be fine.
I still save money, but the fact that I know that if I cut back a bit I’ll still be fine gives me a lot of comfort.
This is good. You can figure out your coast FIRE target and then see what you want to do next.
When I FIRE, I aimed for 25x. That was fine because I already worked for 16 years and had time to accumulate.
In your case, 5 years was pretty short. This is a more realistic goal assuming you’ll keep working after a career change. I probably could have retired from my engineering career 5 years earlier than I did.
Although, I do like the margin of safety 25x provided.
Financial Panther says
Yeah, I hit that point due to the fact that I had a high income. But the flexibility it gives me is key. Without it, I might have been much more scared about making a move and trying something else.
T Seay Gant says
I’ve been laid off 4 times in my life, thus it was hard to maintain an income consistently. However, I totally have hit my Coast FIRE with the use of starting my 401k at a young age and rolling it over to my IRA where I invested it. Now, I’m able to do part time work, and enjoy myself without giving away my time 45-55 hours a week. I agree with you if you enjoy your full time job, then congrats! I did not, and don’t miss the money due to creating my OWN FIRE. Great post!
Financial Panther says
Thanks! That’s great you hit your number even while you were dealing with an inconsistent income. It has to give you a lot of comfort knowing that you’re in a good position no matter what happens.
Mrs. FCB says
We hit Coast FIRE without really realizing it. It has felt so freeing. Instead of being desperate for both of our paychecks, we’re now a lot more focused on whether those jobs are satisfying and fit the life we want right now. We decided that my husband’s job is going to be “primary,” and mine is “bonus,” because I could quit working entirely and we’d still hit FIRE in a few years. I actually ended up liking my job better when I saw it as just icing on the cake rather than something I need. Characterizing it as a “tipping point” is spot on.
Financial Panther says
It’s like the ultimate backup plan you’ve got going on! Already at Coast FIRE. Able to live on one income and treat the second income as bonus money basically makes you unstoppable.
I’ve been on the FIRE path since 2017, but I read a post about Coast FI in March, right around the time things were falling apart with the pandemic. It made me feel better knowing I could stop contributing to my retirement/investments temporarily and still make it to retirement because I had already hit that Coast FI number. Additionally, when things got stressful at my job in addition to management not taking COVID seriously, it allowed me to take a new job with a significant pay cut that I enjoy much more.
This FIRE lifestyle gives you options and certain levels of freedom, which is all you can ask for in a time where nothing is guaranteed.
Financial Panther says
It’s all about flexibility. We’ve all got plenty of stuff to worry about. Having at least some degree of flexibility and ability to make moves really makes things so much better.
I don’t really understand this post. Your description of Coast FIRE is neither FI nor RE. You have to keep working. All the extra money at an early age does is give you the peace of mind to switch jobs (presumably to a job that pays less but is more fulfilling)? The 30 year time frame (or however many years) makes this choice almost as risky as not having the lump sum. How do you think someone who executed a Coast FIRE strategy on 1/1/2020 feels now if s/he downshifted to being a waiter or Uber driver (for example)? Over the long-term, too many factors can come into play that forces one to eat into that lump sum that they are counting on compounding for 30 years.
The risk of a global pandemic for example can apply to “real” FIRErs or regular retirees but if they followed the traditional financial planning advice and definition of retired, they held some cash to ride out a bear market or had an independent revenue stream such as a pension or Social Security. Coast FIRE adherents cannot do that because they are counting on their current salary to cover living expenses and their savings to compound for decades and cover their retirement expenses. If either of these are compromised, their plan falls apart.
If you hate your job, you should change jobs regardless of whether you have a large savings balance. However, changing jobs contingent on a belief that your savings can remain untouched for decades seems unrealistic and even reckless.
You wrote “Most of us aren’t trying to stop working completely. We’re just trying to stop doing work that we don’t enjoy…” Really? That’s news to me. I think you being myopic and naïve. If it is a job, then there is by definition something unenjoyable about it. Otherwise, you wouldn’t have to be paid to do it. You would do it for free (such as volunteering) or spend money to do it (such as a hobby). Even if you believe in the mythical perfect job, at some point your mortality becomes discernible and you hopefully recognize that there are other things in life you would prefer doing. The age at which this discovery is made can vary greatly.
Financial Panther says
Fair points Dan. I won’t try to change your mind.
I will disagree that work is by definition paid because something is unenjoyable about it. Lebron plays basketball and gets paid for it. The money he makes is part of it, but it’s not the money that’s making him play basketball. He’s not hurting for money, he’s playing ball and getting paid for it cuz he wants to.
I suspect that Lebron James enjoys private, non-televised pickup games more than NBA regular season games. His job is not just playing basketball but all the attendant scrutiny that comes with it. Lebron James has given interviews where he discussed the unenjoyable parts of playing in the NBA. He faced backlash when he left Cleveland both times. He had a feud with Kyrie Irving which sounded a lot like a run-of-the-mill office rivalry. Lebron felt stress from the expectations to win championships every year in Miami after his drawn out Decision. Earlier in his career, he chafed at being called a superstar who couldn’t win a championship.
That’s not to say Lebron’s job (or any job) isn’t satisfying or enjoyable but your example bolsters my assertion. I wrote “If it is a job, then there is by definition something unenjoyable about it. Otherwise, you wouldn’t have to be paid to do it.” Lebron may not be motivated by his salary but then why didn’t he sign for the league minimum? Because of his wealth, James truly is FI and could retire immediately without financial concern for his future. In his case, he likely works because the negative parts of his job are manageable but he signed a contract that likely obligates to do things he does not enjoy and would not otherwise do. I guess to be accurate I should have wrote “Otherwise, you wouldn’t have to be paid or agree to contractual obligations (including salary) to do it.”
You’re missing the point of this post and giving guys named Dan a bad name. He prefaced the post with the different types of FIRE and mentioned this isn’t true FIRE but allowed you to stop contributing to your nest egg and do something different. Quit trolling or change your name
Deborah Bryan says
I’m coast fire and I love my job. But, I will love my freedom even more once I get it.