In the past few months, I received several emails from readers asking about a FIRE concept that is just starting to get traction in the FIRE community: Coast Financial Independence (also called Coasting FI and Barista FI). I thought it would be worthwhile to write about this concept as I’m sure it would be a great option for a lot of people. We have used Coast FI principles as part of our FIRE strategy as well.
What is Coast FI?
Coast FI is the point at which you have saved enough to get to FI by the time you reach the traditional retirement age without having to make any further contributions to your portfolio. Once you reach this point you can stop saving altogether. As long as you don’t touch your nest egg, it will generate enough income in retirement – thanks to the magic of compound interest.
I have spent a lot of time considering the different milestones on the path to FIRE. To me, that Coast FI is a really important one that deserves a lot more attention than it has been getting. Once you reach Coast FI, 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 good is that?
I believe that Coast FI is possibly the most important milestone on the way to Financial Independence. Why? Just think about how many 50 or 60 somethings worry about not having enough money in retirement. Once you get to Coast FI, that is one thing you don’t ever have to be concerned about.
Wait, isn’t this like Flamingo FI?
It 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.
With Flamingo FI, there are three retirement phases – semi-retirement (10 years if everything goes to plan), FIRE and Traditional Retirement. With Coast FI, there are only two – a long phase of semi-retirement and traditional retirement.
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 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.
Here is a graphical comparison of Coast FI, Flamingo FI, and traditional FIRE for someone in their 30s:
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.
How to calculate your Coast FI number
Calculating your Coast FI number is a bit more complicated than figuring out your numbers for other FI milestones where you simply have to multiply your annual spending by a specific number (Flamingo FI: 12.5x, traditional FIRE 25x). The reason for this is that your current age is the most important factor for Coast FI. The younger you are, the lower your Coast FI number.
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 also called Barista FI sometimes) and still enjoy a comfortable retirement 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.
Flamingo FI requires a bigger nest egg for most people than Coast FI. The only exception is people who are less than 10 years away from traditional retirement. In this case, your Flamingo FI number would actually be lower than your Coast FI number.
The Semi-Retirement and Coast FI calculator
If the formula above makes your head spin, I have a treat for you: The Money Flamingo Semi-Retirement Calculator! With our free calculator, you can calculate your Coast FI number and age. It also calculates your Flamingo FI and Traditional FIRE numbers and the age at which you could reach these FIRE milestones. If you think semi-retirement might be an option for you, this is a great way to get a realistic idea of when you might be able to exit the FIRE highway. To download the calculator you can either head over to the Semi-Retirement Calculator page where you can find more information about how to use it and what the results mean. Alternatively, you can enter your details below to download the calculator straight away.
Who should consider Coast FI?
We will all pass the Coast FI at some stage on our path to FIRE. But who should consider using Coast FI as an exit? Anyone who is not happy in their job. Professionals close to burning out. People who want to prioritise spending time with their kids. 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 or cannot continue saving for retirement (and FIRE).
What do you think about this concept? Is Coast FI something you would consider?