Coast FIRE is becoming more popular as a Financial Independence strategy all the time. It is a very powerful concept. Our own approach to FIRE is based around Coast FI principles and has allowed us to claim our freedom back and semi-retire in 2020. We are now coasting to Financial Independence while enjoying more freedom and balance in our lives. In this article, I’ll share the ins and outs of this strategy. I’ll also show you how you can calculate your Coast FI number and share our free Coast FIRE calculator.
I first published this article all the way back in 2019, so it’s definitely time for an update. I’ve learned so much over the last two years. It’s a (very) long article, but I wanted to create a resource that I can point people to that will answer most of the questions I get in my inbox regularly.
What is Coast FI?
Coast FI is the point at which you have saved enough to get to Financial Independence by the time you reach the traditional retirement age through compound interest alone. Once you reach this point you don’t have to make any further contributions to your retirement portfolio. without having to make any further contributions to your portfolio. You could stop saving altogether, and as long as you don’t touch your investments, your portfolio will generate enough income in retirement – thanks to the magic of compound interest.
To me, Coast FI really is THE most important milestone on the path to Financial Independence. Once you get there, you don’t have to save another dollar and you will still be ok later on. From that point on you only need to earn enough to cover your monthly expenses. How powerful is that?
Here is a visual illustration of Early Retirement (“traditional” FIRE) vs Coast FIRE:
A typical Early Retirement plan (standard FIRE) usually consists of two phases: 1. Your full-time career and 2. Early Retirement. Coast FIRE is a 3-phase approach: 1. Your full-time career, 2. Semi-Retirement, 3. Full Retirement (Financial Independence).
Just think about how many people in their 50s and 60s worry about not having enough money in retirement. Once you get to Coast FIRE, that is one thing you don’t ever have to be concerned about anymore. That’s why this financial milestone is so important – not just for people who want to retire early, but for anyone who wants to retire at all.
Is Coast FI the Right Strategy for You?
We will all pass the Coast FI at some stage on our path to FIRE. For some, it’s just a milestone (like the first 100k for example). For others, it is the first potential “exit point” from the 9 to 5 grind. While you cannot stop working altogether when you reach Coast FI, you can semi-retire and make significant changes to improve your quality of life and create more balance.
So what are some reasons to consider using Coast FIRE as an exit from the rat race?
- You simply don’t like your job and want to make a change without risking your financial future.
- You want to work less and live more as soon as possible.
- You have children and want to prioritise spending time with them while they are young.
- You want to start your own business.
- You don’t want to retire completely for a long time, but want more time for hobbies and projects sooner rather than later.
Different people have different goals. The FIRE movement is very diverse. That’s why it is important to consider all the different types of Financial Independence when you make a plan for your (financial) future. I believe that everyone should at least consider Coast FI as an option. It is a great choice for anyone who, for whatever reason, wants to or needs to stop working full-time.
It is also possible to use these principles to create your own semi-retirement plan and reach FIRE at your target retirement age (e.g. 50) instead of your traditional retirement age (e.g. 67) This is exactly what Mr. Flamingo and I have done. We wanted to leave the rat race as soon as possible, but we ALSO wanted to reach FIRE long before our traditional retirement age. Tweaking Coast FI principles to create our own approach – Flamingo FI – has allowed us to do just that. More on this in the Advanced Coast FIRE Strategies section below.
How to Calculate your Coast FI number
Calculating your Coast FI number is a bit more complicated than figuring out your regular FIRE number where you simply multiply your annual living expenses by 25. The reason for this is that your current age is the most important factor for this financial independence approach. The younger you are, the lower your Coast FI number.
The Coast FIRE Formula
Note: If you are not a math person you can go straight to the next paragraph and use the calculator to figure out your Coast FI number!
This is the formula to calculate your Coast FI number:
Coast FI number = FI number * (1 + Interest Rate) ^ -Number of Years to Retirement
Here is an example:
John is 45 now and wants to retire at 65 – 20 years from now. His FI number (25x annual retirement expenses) is $1,000,000. He thinks his investments will grow by 7% after inflation per year.
John’s Coast FI number = $1,000,000 * (1 + 0.07) ^ -20 = $258,419
So John could stop saving straight away, get a part-time job in a café (this is why Coast FI is mistakenly called Barista FIRE sometimes) and still enjoy a comfortable retirement and live off the passive income from his investments once he turns 60.
One thing to remember about your Coast FI number is that it is not static, it is a moving target. This is because your Coast FI number will be higher the closer you get to retirement.
The Coast FIRE Calculator
If the Coast FIRE formula above makes your head spin, you are not alone. The easiest way to calculate your Coast FI number is to use our free calculator.
Use this simple calculator if you just want to quickly calculate your current Coast FI number for both your traditional and target retirement age.
To download the calculator you can enter your details in the form below:
(Note: If you were looking for our Semi-Retirement Calculator, you can find it here. The Coast FI and Semi-Retirement Calculators focus on slightly different things, so we recommend downloading both depending on your circumstances. We also have a Barista FIRE calculator (scroll down to the form in the article).)
Whether you use our calculator or the formula above to calculate your Coast FI number manually, you will have to make some assumptions. It makes sense to keep the assumptions you use for these calculations a bit more conservative so that you don’t run into problems later on.
While we used to see really high inflation rates regularly 30-40 years ago, central banks around the world have decided that 2-3% are a good target and were successful in keeping inflation below 3% for a long period of time. Yes, inflation is currently a little out of control and has many in the personal finance space worried. However, in our opinion, there is no reason to believe the rates won’t go back down to the long-term average sooner or later. That’s why we use 2-3% for our calculations, but you might see things differently and use a different number.
Expected Investment Return
It is impossible to predict the investment returns we’ll achieve over the next 30+ years. The share market has returned an average of just over 11% since 1950 (this is based on the S&P 500 and may or may not be different for other stock markets around the world). You can check this data for different historical timeframes yourself here. After inflation (see above), average real returns were around 7.5-8% per annum. If we only look at the last 40 years the returns are actually a bit higher. Similarly, it is not possible to predict the future returns of other asset classes like property.
This means that for Coast FI, it is reasonable to be quite conservative when making assumptions about future investment returns. Many people in the personal finance community feel comfortable using 7% inflation-adjusted returns We feel comfortable using 7% inflation-adjusted returns (so 9-10% returns minus 2-3% inflation over the long run) for our own calculations and projections). Others use 5% or even 3% to be on the safe side.
Safe Withdrawal Rate (SWR)
Most people in the FIRE community use the popular 4% safe withdrawal rate for their return assumptions. Depending on how conservative you are, you could of course use a lower or higher SWR. If you are over 65, most retirement advisors actually recommend using 5%.
Bill Bengen, the creator of the 4% rule actually changed it a while ago and raised it to 4.5%. Keep in mind that his calculations are based on a 30-year retirement only, so we are more comfortable sticking with the “traditional” 4% rule. Others in the community prefer to use an even lower number (3%-3.5%).
I found this episode of the Choose FI podcast about flexible spending rules in retirement and safe withdrawal rates really helpful.
Since you’ve already made assumptions about inflation rates you can use your annual expenses in today’s dollars for your calculations. This doesn’t mean you should use your current expenses. Chances are, your life will look quite different when you actually get to the retirement part of your Coast FI plan. Spend some time thinking about what your life will be like when you retire, where you will live, what you will be doing, etc. – and how much this will cost. Depending on where in the world you live there are some pretty good resources that can give you an idea of general living expenses for retirees. For Australians, the ASFA Retirement Standard is a great place to start.
Run The Numbers!
Now that you have made all the necessary assumptions you are ready to calculate your Coast FI number and age. As mentioned above you can either use our calculator or the Coast FI formula for this.
A word of caution: When I originally published this article in 2019 there were not many articles (or calculators) about this topic. There are now many different resources and also tools/calculators out there. I often get emails from readers who are confused because they get 10 different results from 10 different calculators. It is always a good idea to check the actual math behind some of these tools and also what kind of assumptions are pre-set. Just because someone has a calculator on their website doesn’t mean that they understand it (or even that they build it themselves…). Don’t just blindly trust a random tool from the internet to tell you when you can retire!
Coast FI vs Barista FIRE
Coast FI and Barista FIRE are the same thing, right? Wrong! This is a common misconception. I actually thought these were just different terms for the same concept for a long time myself.
While both Coast FI and Barista FI use semi-retirement strategies, there is one big difference.
Coast FIRE will lead you to Financial Independence eventually. In contrast, with Barista FI, you most likely will never be able to fully retire. The reason is that with Barista FI, you draw some passive income from your investments and cover the shortfall you need for your ongoing expenses by working (part-time). This means that your investments will most likely never grow into the nest egg you would need to retire completely.
Since I realised this I have stopped considering Barista FI a real alternative to FIRE. It really isn’t a type of Financial Independence but more of a perpetual semi-retirement strategy. That doesn’t mean it isn’t a valid choice for many people, it’s just important to know that you will have to make alternative plans for old age with this type of strategy.
Coast FI vs Flamingo FI
I often get asked what the difference between Coast FI and Flamingo FI is. Flamingo FI could be described as a variation of Coast FI. With Flamingo FI, you will reach FIRE after 10 years (if your investments generate inflation-adjusted returns of 7%). For most people, this will be a lot sooner than if they go the Coast FI route.
Both Coast FI and Flamingo FI are milestones on the way to full FIRE. At the same time, both are potential exits on the road to FIRE that you can take if you can’t or don’t want to soldier on in a full-time career until you hit your magic number. Exiting at either Coast FI or Flamingo FI is like getting off the highway and taking a leafy country road to get to your destination at a slower, more relaxed pace.
In the case of Coast FI, you stay on the country road until you reach the standard retirement age. In the case of Flamingo FI, you should get to your destination after about 10 years. The alternative is to stay on the highway and race to FIRE – it’s all up to you. What I want to stress is that there are many roads that lead to FIRE, and everyone should make a conscious decision about which road is the right one for them and their family.
We would like to reach FIRE (and be able to stop working completely if that’s what we feel like doing) before the traditional retirement age. That’s why Flamingo FI is a better exit strategy for us. We are now officially semi-retired and loving it. Everyone is different though and Coast FI certainly is a great option for many people.
Coast FIRE vs Lean FIRE and Fat FIRE
A common misconception is that Coast FIRE is a type of Financial Independence like Lean FIRE and Fat FIRE. I often receive questions from people like “Should I aim for Coast FI or is Fat FI better?”. As you’ve probably figured out by now these concepts are not mutually exclusive.
Lean FI is Financial Independence on a small (lean) budget. Fat FI is the complete opposite – Financial Independence on a generous budget that allows for plenty of luxuries and travel.
Coast FIRE, on the other hand, is just a method to get to Financial Independence – Lean, Fat or anything in between. So you could coast to Fat FI just like you would to regular FIRE. It just means that your FIRE number will be pretty big and it will take a long time to get there.
Remember, Lean FI, regular FIRE and Fat FI are destinations. Coast FIRE is a strategy you can use to get there.
Advanced Coast FIRE Strategies
Above I’ve described two potential exit points on the road to Financial Independence: Coast FI and Flamingo FI. You could also use the principles described in this article to create your own approach.
We picked the “50% to FI” point (aka Flamingo FI) because 10 years of semi-retirement followed by Financial Freedom felt like a great balance for us.
I’ve created the Coasting Exit Points grid below to give you an idea of how long your semi-retirement stage will be at various exit points (in % terms) – depending on your expected portfolio return. If your expected return is 7%, then you could exit the rat race at the 70% mark and get to FI through compound interest in just over 5 years.
When you think about it in this way, every exit point is a version of Coast FI – including traditional FIRE (where you exit at 100%)!
Benefits of Coast FIRE
The benefits of this strategy are obvious – you only have to work for a few short years before you can move to part-time work. You can leave your high-stress job, don’t have to worry about the next promotion and can start planning for the life you really want. You can also stop stressing about and obsessively tracking your net worth. Coast FI makes the most of the power of compound interest compared to all other types of Financial Independence. Plus, with this approach, you get to enjoy the benefits of the semi-retired life for a very long time. Simply put, when you coast to Financial Independence, you get (some of) your time back sooner so you can get on with life.
Risks – Is Coast FI Dangerous?
Yes and no. Coast FI relies on compound interest. There is absolutely no guarantee you will get the market returns you need (and assumed you would get when you ran the numbers). If you hit this goal at a young age and then don’t look at your investments again until you are close to retirement age you might be in for a rude shock. If your nest egg is nowhere near as big as you thought it would be you might be in trouble, especially if you can’t go back to work (because of your age or health).
There is a simple solution to this: Simply re-Coast FIRE every year! Make it a habit to calculate your current Coast FI number once a year to check if you are on track. If your portfolio value is lower than your current Coast FI number you should top up your investments. The good thing is that you are semi-retired, not fully retired, so it should be easy to pick up a little extra work for a little while. You might only need to add a few thousand dollars that will make a big difference over time.
So yes, Coast FIRE can be a dangerous strategy if you don’t make sure you stay on track and top up your investments if needed. This is easily mitigated by re-calculating your Coast FIRE number and monitoring your portfolio performance on a regular basis.
Coast FIRE in Australia
The Australian Superannuation system is not very popular in the FIRE movement for the simple reason that you can’t access your retirement savings until you are 60 years old (or 65 if you are still working past age 60). While this might be a valid consideration if you are on the traditional path to Financial Independence and want to retire early in your 30s, 40s or 50s, Superannuation is actually the perfect system for Coast FI. It is tax-advantaged – you only pay 15% tax on your contributions and your money and your savings benefit from decades of compounding.
In my opinion, it makes a lot of sense to have your Coast FI savings in superannuation. In fact, Mr. Flamingo and I have our Coast FI number in our super accounts and the rest (the part of our portfolio we will draw from once we retire early) outside of super in our taxable accounts.
The best part is that once you reach your super preservation age, you can access your investments tax-free. This means that you don’t have to account for taxes when you do your Coast FI calculations if you keep the money in super.
Life after Coast FI
Once you hit this milestone you have a plentitude of options. From now on, you can coast to Financial Independence. Your portfolio will do the hard work for you and you are free to get on with life.
If you want to, you can semi-retire and work part-time. But remember, you don’t have to stop working in your full-time career. You could also keep saving and investing for a few more years to get closer to FIRE before you move to part-time work.
If you decide to semi-retire, here are some ideas to get you started. You could…
- Take a mini-retirement (aka sabbatical)
- Start your own business
- Travel and work as a digital nomad
- Become a freelancer
- Take a more rewarding job even if it pays less
- Simply work for your current employer on a part-time basis
- Go back to uni part-time or take a course in a field that interests you
Once the financial pressure is off, a whole world of options, so take some time to make a life plan that works for you.
Coast FIRE is one of the first and arguably the most powerful milestone on the path to Financial Freedom. It gives you options and the peace of mind that you’ll be ok when you reach the traditional retirement age. Coast FI unlocks the benefits of semi-retirement and allows you to spend more time with the people you care about and on projects that are important to you. While using this strategy means that you will have to work in some capacity until you reach retirement age, it is a great option for those who don’t want to stop working for a long time. There are also tweaks and alternative strategies (like Flamingo FI) that you can use to speed up your journey to FIRE without giving up the freedom semi-retirement offers.
Is Coast FI a strategy you are considering as an alternative to Early Retirement? What are your thoughts on alternatives like Flamingo FI? Let us know in the comments below!