If you’re interested in the world of money, you may be familiar with an acronym: FIRE. FIRE stands for Financial Independence Retire Early and it’s a very common acronym that gets thrown around personal finance spaces. FIRE put plain and simple is having enough money that you no longer need to trade your time for money. So you don’t need a job.
You don’t need to collect a paycheck. You don’t need a salary because you have enough in assets or potentially you have enough in passive income, so that you can spend your time doing whatever you want and all your bills are still paid.
The concept of FIRE is not really new. There have always been what amounts to wealthy people. You think about people like royal families who don’t really have to do anything. They have enough money to live their life, travel fabulously, and invent Polo or something.
However, for most of human history, this kind of lifestyle was reserved for the hyper-wealthy and hyper-privileged. Only in about the last hundred years has it really become an option for those of us who are more “normal.”
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Coast FIRE is more accessible
I believe that Coast Financial Independence is the most accessible and the most easily reached version of financial independence available to the most people. The traditional idea of financial independence says basically work as much as possible, save as much as possible, spend as little as possible, and retire from full-time work as early as possible.
There are a lot of people in the financial space who have achieved this and they’ve achieved it at very young ages. You can find all sorts of blogs and Instagram accounts out there from people who retired at 30 or 35 and for most of us that’s not realistic.
Firstly, using myself as an example, I didn’t even know that FIRE existed until I was about 26 years old. The chances of me reaching FIRE in four years between the ages 26 and 30 was zero. Coast Financial Independence is this milestone along the way of achieving a kind of traditional FIRE.
To me, it’s something that feels much more accessible and can prove really motivating to help keep you going on your FIRE Journey.
Coast FIRE Explained
So what is Coast Financial Independence? Coast FI refers to having enough money in a variety of investment accounts, so that between your current age and your ideal retirement age, you no longer need to contribute to those accounts.
Your money is just going to compound on its own. Your money will reach your retirement number without any further contributions. So you’re just riding in the wave. You’re “coasting” until retirement.
Just like having an emergency fund, hitting Coast FI is one of these milestones that can relieve a lot of the pressure around your financial planning and help you feel way more secure about your overall financial picture. I like to think of
Coast FI is kind of like responsible partying. It’s like having a glass of water after every shot of tequila because you are doing the right thing for your future self. You’re saving for that future self and making sure that 65 or 75-year-old you is going to be able to ball out.
But you’re also giving current you permission to spend and enjoy the present day.
How Much Money Does It Take to Reach Coast FIRE?
We’re going to walk through three different scenarios of what it takes to reach Coast FI. So let’s assume that you want to retire fully from work at age 65. You want to have $1.75 million total as your net worth and you want to be able to spend $70,000 a year.
I’m using $70,000 a year as your annual retirement spending because of 2022 data. The 2022 BLS data says that the average American spends $72,900 per year. 2022 is a little bit of an outlier because we had so much Covid-related legislation and spending going on.
I don’t just want to take this number on its face. I want to lower it a little bit down to an even, realistic $70,000.
You may want more money in retirement and I encourage you to do your own retirement calculations whether that’s for traditional retirement traditional FIRE or Coast FIRE.
You can use whatever numbers you want. I recently made a video updating everyone on my plans for financial Independence because I spend much less than $70,000 a year in spending. I just don’t see myself spending anywhere near 70k a year. So play around with the numbers.
How we are making our calculations
For the calculations today, we are going to use 70k. We’re also going to assume an annual return rate of 7% on your investments. This is the average annual S&P 500 return adjusted for inflation.
You might see people, especially on social media, using an average annual return of 10%. This is the S&P 500’s annual return– not adjusted for inflation. People like to use it because obviously, 10% is higher than 7%, so it gives much more fabulous numbers.
I think that’s incredibly misleading. Honestly, I think it’s a little bit of like financial malpractice because we know inflation exists, so why wouldn’t you take it into account for your financial planning? We will not be using 10%, we will be using 7%.
The accounts that we’re going to be using in today’s example are going to be retirement accounts– so 401K, 403b, IRAs things like that. Now if you don’t have those accounts, don’t freak out! There is a free investment guide that you can grab. We also have an investing 101 course called “How to not die broke.”
That will walk you through how the stock market works and also walk you through how to open an IRA for yourself.
How Much Money You Need to Invest to Reach Coast FI at 30 Years Old
To reach Coast FIRE at 30 would be the dream. Honestly, I wish I had known about financial independence earlier than age 26 because I would have started investing earlier.
In order to reach Coast FIRE at 30, you’ll need to have $164,000 invested in the stock market by age 30. $164,000 is definitely a lot of money, but when you think about traditional retirement investments, you’re thinking $1 million, $1.5 million, or even $2 million.
If you can start investing at your first job, and especially if your first job offers you a workplace match, this number is achievable for a lot of people.
How Much Money You Need to Invest to Reach Coast FI at 40 years old
Once again, take advantage of that workplace retirement plan. Take advantage of any matches that they may offer, keep your debt at bay and your investments will add up. If you can get $323,000 invested by the time you’re 40, you will have hit Coast FI.
Here’s a guide to help those starting to invest in their 40s (it’s not too late to start!)
How Much Money You Need to Invest to Reach Coast FI at 50 years old
A lot of people think if you can’t retire early at age 30, then you shouldn’t bother even trying. It’s not worth it. I personally think that’s incredibly shortsighted. Hitting Coast FI at 50 is definitely something to celebrate and it opens up a world of opportunities for you.
It might mean that you can leave a high-pressure, high-stress job and go down to part-time work. Or, it might mean that you leave an industry you’re not really passionate about, so you can take a lower-paying job that you truly love. It means more financial flexibility and that’s always always a good thing.
Hitting Coast FI by age 50 is definitely something to be very proud of. The number you need to be Coast FI by age 50 is $635,000. In just 15 years that 635k at an annual 7% return rate will turn into $1.75 million– which is amazing!
The Power of Compound Interest
The power of compound interest, y’all! I really like the idea of Coast FI. It’s something I encourage you to strive for. I think saving for retirement for most of us is a long road.
But having milestones like $164,000 or $323,000 gives you points of celebration. It also gives you different points of financial flexibility. Coast FI doesn’t have to be your be-all end-all.
It doesn’t have to be the point where you stop investing. You are welcome to continue investing beyond your Coast FI number, but I think it’s a fantastic major financial milestone to be working towards.
Personal finance is personal. If you want a bigger number for retirement beyond 1.75 million, or if you think you need less than that, play around with different numbers.