What Is Coast FIRE?

Coast FIRE is a variation of the FIRE (Financial Independence, Retire Early) movement, which advocates saving intensively and retiring early. Similarly, Coast FIRE involves front-loading your retirement savings, but with the goal of stopping saving at a certain point and letting your investments grow until they are enough to fully fund your retirement at the traditional retirement age of 65 or so.

The Coast FIRE formula is based on two concepts: First, that you have a savings/investment goal that—thanks to compound interest and time—will be sufficient to fund your expenses during retirement. And second, that you will contribute enough in your early working years to reach your goal and then work only to cover current living expenses, freeing you to work less or spend more on college funds, travel, a passion, or whatever you wish until you retire.

By front-loading your savings and letting compound interest and investment growth build wealth, you can essentially “coast” into retirement, giving you more discretion regarding how you spend your money and time during those final working years. People who follow the Coast FIRE method generally expect to stop saving in their 30s, 40s, or 50s and stop working in their 60s.

Pros and cons of Coast FIRE

Before you choose to pursue Coast FIRE, consider the potential advantages and disadvantages. Keep in mind that, like all variations of the FIRE movement, Coast FIRE is a numbers game. If you can’t make the numbers work—including required savings, investment returns, or time horizon—you won’t be able to generate enough income to live comfortably in retirement.

Here are some pros and cons of Coast FIRE:

Pros

• Saving incentive. When you set up your coast FIRE plan, you establish a benchmark that encourages front-loading your retirement savings. This “the sooner the better” approach helps you set and maintain savings goals.
• Efficiency. It encourages you to cut spending and invest more. Most people can save more than they think, and Coast FIRE helps them do that efficiently.
• Freedom. After you reach your goal with Coast FIRE, you have the freedom to make life choices without the pressure of saving for retirement.
• Security. You can remain engaged in the workforce for health insurance and other benefits while working fewer hours or taking an easier job.
• Flexibility. If you don’t achieve Coast FIRE on schedule, you can continue to save and adjust your plan until you do or until you achieve regular FIRE.

Cons

• Sacrifice. If you are not in a position to save and invest a significant portion of your income (up to 50%) early in your career, Coast FIRE probably isn’t for you.
• Debt restrictions. Coast FIRE may be impossible to achieve if you have a significant amount of debt.
• Risk. There is risk involved with Coast FIRE. Unexpected healthcare costs or market underperformance are just a couple of the factors that could leave you short of funds.
• Requires patience. Coast FIRE requires patience since it involves waiting for funds to grow. The psychological impact of this can be frustrating and stressful.
• Age restrictions. You need to start Coast FIRE at a relatively young age in most cases, which means this system is typically not for someone in their 40s or 50s unless they already have significant savings..

Who is Coast FIRE for?

As with all FIRE variants, Coast FIRE is for those with the financial discipline to live frugally— sometimes VERY frugally—while saving and investing the amount needed to eventually generate sufficient retirement income.

Since time (and the power of compound interest) are critical to Coast FIRE, this system works best for young people in their 20s or 30s with plenty of time to reach their goal.

Coast FIRE is more realistic for those with higher salaries and the ability to save a large percentage of their income while still meeting basic expenses.

Coast FIRE vs. FIRE

FIRE requires saving as much as possible, as fast as possible, until the amount you have is sufficient to generate full retirement income. At that point you stop working and live off your chosen withdrawal rate (typically 4%). Proponents of FIRE claim to be able to reach that number as early as age 30 by saving and investing at least 50% of their income.

Coast FIRE takes a slower route to retirement and requires less intensive saving and investment than FIRE. Your goal is to save the amount necessary to generate full retirement (FIRE) over time. While you’re waiting for your savings to accumulate you must continue to work but only to pay current living expenses.

In theory this means you could take a lower-paying (easier) job, work at something you are passionate about that doesn’t pay as well as your old job, or keep your old job and take more expensive vacations, buy a bigger boat, and so forth.

How much to save to get to Coast FIRE

Before you attempt to calculate your Coast FIRE amount, you need to know how much annual income you will need when you retire. The best way to do that is to use a retirement calculator like the one found at Smart Asset.

The Smart Asset calculator lets you plug in different data points, including your current location, salary, anticipated Social Security election age, and so forth, to come up with your needed retirement nest egg (aka, your FIRE number). Using that number, you can calculate your Coast FIRE number using the formula below.

FIRE is often defined as savings and investments totaling 25 times your anticipated annual expenses in retirement. Coast FIRE is an amount that will grow to FIRE within an acceptable time frame—for example, 20 years.

How to calculate Coast FIRE

The formula for Coast FIRE is A / (1+r)t where:

A = the amount you need to save to be financially independent (FIRE)

r = your annual rate of return after inflation

t = the number of years investments have to compound

Example: Let’s say you are 25 years old and determine that once you stop working at the age of 65 you will need $75,000 a year from your retirement account for living expenses. Your expected rate of return is 6% and you hope to reach Coast FIRE by the time you are 45 (20 years). Here’s how the formula works for you:

A = $75,000 x 25 = $1,875,000 / (1+0.06)20 = $584,634 = Coast FIRE amount. You have 20 years to accumulate that amount. (Remember: Your savings will be helped by compound interest during this time.)

So, how much per month must you save over 20 years to accomplish Coast FIRE? A savings goal calculator, such as this one found at Investor.gov, provides the answer.

Starting at the age of 25, using a savings/investment goal of $584,634, 20 years to grow, and an expected interest rate of 6%, with annual compounding, you will reach Coast FIRE at the age of 45 by saving $1,325 per month.

At that point you can stop saving for retirement if you wish. With 6% growth your nest egg will increase from $584,634 to $1.875 million by age 65, providing you with $75,000 a year in retirement income (using a 4% per year withdrawal rate).

Tips to get to Coast FIRE

Coast FIRE relies on a frugal lifestyle, accelerated savings, and wise investments. To achieve this requires major sacrifices and concentration on cutting costs during your early working years. Here are some things you can do to increase your chances of achieving Coast FIRE on time.

Move to an area with a lower cost of living

If location is flexible, relocating to an area with a lower cost of living can create real saving opportunities. Among states, for example, Mississippi has the lowest cost of living in the U.S. Hawaii has the highest.

Numbeo, a crowd-sourced cost of living index lets you compare for free the cost of living in several categories between two member cities to get an idea of how cost of living might impact your saving and investing opportunities.

If you don’t mind spending a little money, C2ER, by the Council for Community and Economic Research, publishes a cost-of-living comparison tool that is widely considered the best and most up to date. It lets you compare two participating cities for about $8.

Contribute less to your kid's education fund (for now)

According to WiserAdvisor, the answer to the question, “Should I save for retirement or my child’s education” is simple. Retirement always takes priority. Reasons include the fact that your child has time on their side—you don’t. Once you reach Coast FIRE, you can shift priorities and save more for their college. Meanwhile, you will have had an opportunity to find out how likely your young basketball star or ballerina is to receive scholarships as well as what their true educational interests are, i.e., attending Harvard vs. local community college.

Boost your income

For some people, reaching Coast FIRE would be impossible without extra income. Part-time jobs or side hustles can be excellent sources of additional savings to help you reach Coast FIRE on time or even ahead of schedule. Some of the best part-time jobs include barista, food delivery driver, even dog sitter. You can also work more hours at your regular job, start a business that you might want to continue in retirement, or use the time to learn more about investing, including some of the riskier options such as buying stocks on margin, a tactic recommended by some experts to achieve Coast FIRE sooner.

Know where your retirement funds are

It’s easier to track savings and investments when they are all in the same place. With options such as IRAs, 401(k)s, and taxable investment accounts, that isn’t always possible. At the very least you need to know where your investment and savings funds are and make tracking them part of your financial preparedness routine.

RELATED: Best Roth IRA Accounts

Invest intelligently

Ultimately, success with a Coast FIRE strategy depends on the performance of your investments over time. Some types of investments tend to be more successful than others.

Index funds. The S&P 500, Dow Jones, and other diversified and consistently well-performing funds are a must for any Coast FIRE portfolio. Utilizing tools like TradeStation can help you track these funds and identify promising investment opportunities.

Real estate. Historically, real estate has proven to be a way to consistently multiply investment dollars. Unfortunately, in most cases this takes a lot of money upfront. If you have the resources, however, real estate is a proven way to increase wealth. Fortunately, with the rise of digital platforms such as Realty Mogul, investing in real estate has become more accessible to a wider range of individuals.

REITs. Another related type of investment is the real estate investment trust (REIT), made up of companies that own real estate projects. Similar to index funds, REITs offer exposure to a wide variety of investment options.

Bonds. Bonds are essentially loans to the issuer. Bonds can be purchased from the federal and state governments and from private companies. Bonds can be more reliable than stocks or other securities because they have an interest rate tied to them.

Margin accounts. A “margin account” is a type of brokerage account in which the broker-dealer lends you cash to purchase stocks using the stocks as collateral. Trading on margin can increase your purchasing power but exposes you to potentially large losses. Trading on margin can help you reach Coast FIRE much faster than you would with traditional investing methods, but it must be done with great caution and only by experienced investors.

Seek professional advice when setting your Coast FIRE number

Working with a qualified financial adviser can help you avoid miscalculations as you prepare for retirement. Finding a financial adviser doesn’t have to be difficult.

Looking for a financial advisor for your retirement investing strategy? Empower will help you find and compare top vetted financial advisors in your area.

What to consider to determine if Coast FIRE is right for you

If you believe you have the discipline and will power to live a “lean” lifestyle and make financial sacrifices for 20 or more years, Coast FIRE might be for you. Additionally, you must be willing and able to remain debt-free (or close to it) for the duration. (Taking on debt to purchase a home doesn’t necessarily count since you are likely to eventually sell the home for a profit.)

You must also be willing to monitor your savings and investments to make sure they are providing the return you need to reach Coast FIRE on time. “Set it and forget it” could result in a nasty surprise when you arrive at what was supposed to be your Coast FIRE date only to discover you are short on necessary funds.

Frequently asked questions (FAQs)

How do I determine my Coast FIRE number?

Your Coast FIRE number is the amount of money required to grow and reach your predetermined nest egg for retirement over a set number of years. The formula for Coast FIRE is:
A / (1+r)t where:

A = the amount you need to save to be financially independent (FIRE)

r = your annual rate of return after inflation

t = the number of years investments have to compound

How is Coast FIRE different from Barista FIRE?

Barista FIRE requires you to save diligently until you are able to stop saving and take a less stressful, less time-consuming job to supplement withdrawals from your retirement fund. Barista FIRE is a form of semi-retirement since you continue to work but also withdraw funds from your savings.

RELATED: Best High Yield Savings Accounts

With Coast FIRE you also stop saving but do not withdraw funds from your retirement account while you continue working until the age of retirement. At that point you no longer need to work at all and can live off your retirement funds completely.

How is Coast FIRE different from Lean FIRE?

Lean FIRE could also be called Easy FIRE. With Lean FIRE you save rigorously as with FIRE or Coast FIRE—but only enough to live a comfortable, but not lavish lifestyle in early retirement.

Coast FIRE’s aim is for eventual full retirement but not early and by no means lavish. While the difference may seem subtle, time of retirement and lifestyle are quite different.