The premise of Coast FIRE is simple – you stash away enough cash as quickly as possible so that the markets then do their thing and by the time you reach your target retirement age you have enough cash to retire comfortably.
With time on your side and compound interest your investments will grow by 5-7%/year.
So, let’s say you saved £300,000 by aged 30. If we invested this at a return of 5%/year we would end up with just over £1,000,000 in 30 years time – perfect for a comfortable retirement.
Coast fire means you put a lot of effort in for a short number of years, then can work at a more leisurely and comfortable pace for the remainder of your working life.
How to Calculate your Coast FIRE numbers?
This is where it gets a bit tricky;
You’ll need:
- A target retirement date
- A target Income in retirement
- A Figure to save by a target age
Target Retirement Date
The further into the future this is the easier it will be to reach.
If you saved £225,000 by age 20, received a return of 4% after inflation and waited 40 years you’d have over £1,080,000 by the time you reached 60.
However, if you were already 35 and spent the next 5 years saving up £225,000 and invested it in the same way you’d only end up with £493,000 (Still not a figure to be sniffed at).
If you wanted to retire at 50 and had saved £225,000 by 40 you’d only have £333,000.
So, you need to know when you want to retire first.
Target Income
If you assume a safe withdrawal rate of 4% you’d need £1,000,000 to produce an income of £40,000 a year without spending your capital. This of course scales up and down depending on how much income you want.
Your target income figure should be based on your projected expenses during retirement – it’s worth noting here that spending tends to peak by the age of 60 for high earners and 70 for “normal” people. As you get older you typically need less and you do less.
So, we might want a retirement income of £30,000 (adjusted for inflation of course) in retirement. This would mean we’d need 25 times this amount saved up by our target age – £750000.
A Figure to Save by a Target Age
Now we need to work backwards from this figure to work out how much we have to save.
So we have our target figure – £750,000
And we have a target date for retirement of when we are 60.
We’ll assume a 4% return after inflation (you may want to be more conservative than this with Coast FIRE.)
So, we divide £750,000 by 1.04 for each year before our retirement.
So, if we save until we are 40 we will need to save £342,290.
At which point you can simply earn what you need and spend what you like without worrying about saving or investing again.
What are the problems with Coast FIRE?
Well you’ve probably noticed the obvious issue – you still have to work to sustain yourself from now until you retire once you have amassed your stash. The advantage is that you can work any job that covers your living costs – which opens up a lot of opportunities.
The second issue is that you’re reliant on the markets entirely to get you to your target numbers. Of course if you needed to you could always top up your stash.
Finally, you have the same risk of all stock market based target retirement dates – you’re actual FIRE data could change if your target data happens to coincide with a massive dip in the markets.
Who is Coast FIRE for?
Coast FIRE is most suited to people in high paying jobs who want to do something different, less stressful or less lucrative as they can quickly get a pot that will get them to their retirement number at which point they can do any work that provides for their living costs.
It can also be used by people who want to hustle really hard for a few years whether flipping houses, side hustling or taking on a lot of extra hours to build up their pot and then coast the rest of their working life without having to worry about the retirement.
How does it compare to other types of FIRE?
Well this is where it gets interesting – in order to stash away enough cash you’re looking at hustling reasonably hard for at least 3-5 years. However, when you consider that some people reach FIRE in 10 years or less saving 70% of their income the strategy may become less appealing.
Lean Fire – If you want to live a lower cost lifestyle you could spend an extra few years and save up enough to FIRE quicker.
Fat Fire – If you are looking for a big income in retirement your coast fire number would need to be much much higher. Fat Fire tends to rely more on business and income generating assets so it’s very hard to compare the two as you’d likely need assets more than just a base stash in index funds.
Barista Fire – Barista FIRE is very similar to Coast FIRE except it works on the basis that your target FI number can be less for every thousand pounds you earn during your early retirement. For every 10,000 you earn in retirement you can shave £250,000 off of your pot. As expenses tend to decrease over time this can be a good way to reach semi-fire earlier but like Coast FIRE you still have to work.
It really comes down to how much you want FIRE and how far you’re prepared to go to get there quickly. If your main aim is to stop working it’s not going to help, if you just want to change career knowing you’ll be comfortably secure in your dotage then it’s great. Let me know your thoughts on Coast FIRE below or if you have any questions add them too!