What Is Coast FIRE? The Casual Way to Reach Retirement

If you’ve been exploring the concept of financial independence, retire early (FIRE) then you might have come across Coast FIRE.

Yup, another variation and strategy to add to your personal finance list! 

It’s incredible how the early retirement movement has exploded in the last few years and the strategies people use to reach this challenging goal. 

But Coast FIRE is a bit more recent of a concept compared to some others and it might be the FI variation you’d want to pursue.

Now before you jump in, it’s important you understand the basics, the pros, and the cons of pursuing a strategy like Coast FIRE. Let’s dive in!

What Is Coast FIRE?

How would it feel to know that you have already invested enough towards your financial independence and that you can just coast towards retirement without having to save a portion of your salary further? 

Coast FIRE works by aggressively investing enough money earlier in your career and at a younger age, which then allows you to eventually stop your contributions and still reach your financial independence number in the future.

Your investments will accrue enough interest (by the power of compound interest), meaning at a certain point you no longer need to invest and can “coast” to early retirement. Instead, you’ll work to just cover your expenses and won’t need to invest for retirement.

For example, those who are on the path to Coast FIRE will know it as slow financial independence (Slow FI is another term), still requiring a job to cover current expenses. But, the job may be lower stress or aligned with passions; as there is a lower-income required (and therefore more choice). 

Using Coast FIRE relies on compounding, so there is a higher risk than all other types of FIRE that you may not reach your desired total by the time of retirement. 

Coast FIRE Example

For example, I’ll use the standard state of financial independence as having 25x your annual expenses. So, if you spend $50,000 per year then you need $1,250,000 to be financially independent.

If you start investing when you began your traditional career in your early 20s and could save and invest $150,000 by 30 and not add to your investments for another 33 years, you would have $1,300,000 (assuming a 7% annual rate of return).

Coast FIRE example compounding chart.

This does not account for inflation or if your expenses were to rise, so something you may want to calculate in your own FI number. 

While 63 might not be the traditional early retirement you think about, you have not invested anything else since age 30. And you still shaved a few years off your retirement.

So if you want to “coast” to early retirement sooner, then you need to invest and save more early on.

For example, if you save and invest $250,000 by 30 and let it “coast,” you’ll reach your FI number by 54 instead, taking nine years less than the first example. 

What to remember about Coast FIRE

Remember with Coast FIRE, you still will need to find ways to cover your expenses while you let your investments “coast” to your financial independence number.

What’s cool here is as long as you have saved an emergency fund, you won’t have to worry about aggressively saving or investing anymore. 

This allows you more options when it comes to where you work and the salary you take. Now you have more options to leave a high-stress job or no need to work long hours for a top tier salary.

You can explore and find things you like to do, just as long as it can cover your living expenses

Calculate Your Coast FIRE Number

The example above hopefully gave you a quick insight as to how Coast FIRE works, but you can work out your own number as well as how long it will take you to get there. 

To work out your own Coast FIRE number:

  1. Firstly calculate your FIRE number by multiplying your anticipated annual expenses by 25 
  2. Calculate how many years you have between now (your current age) and your desired retirement age
  3. The calculation looks something like this FI / (1+R)^Y
    1. FI = Amount You Need to Retire
    2. R = Rate of return (I used 7%, but you can use 5% if you want to account for inflation)
    3. Y = Years for Compounding

Let’s use the same numbers from the Coast FIRE example I gave, but let’s use a few scenarios so you can see the difference. The goal for each is to hit your Coast FIRE number by 30, but with variations of when you want to retire.

  • Retire by 60: 1,250,000/(1+.07)^30 = $164,208 needed by 30
  • Retire by 50: 1,250,000/(1+.07)^20 = $323,023 needed by 30
  • Retire by 40: 1,250,000/(1+.07)^10 = $635,436 needed by 30

The easiest way to see these numbers and mess around with them is simply typing it into Google. It does the calculation for you, without struggling with Excel or fancy calculators.

Google calculation of Coast FIRE.

Is Coast FIRE The Right Financial Move?

It is important to note that Coast FIRE may not be a viable option for those later in their careers. Because it so heavily relies on the power of compounding, these accounts make the most gains right at the end of the investment period. 

Unfortunately, this means that those with less than 15-20 years worth of income left are unlikely to take part. If you’re beginning to invest at this age, there is still hope and plenty of resources for investing as a beginner.

However, for those in their 20s and early 30s, Coast FIRE can be a viable option for retirement and financial independence. 

Pros of Coast FIRE

  • More than any other financial independence journey, Coast FIRE offers freedom and independence a bit later in life. After intensively saving for retirement in the early years of your career, Coast FIRE enables you to switch jobs and live out the rest of your working life in a less stressful environment, if it’s something you’re interested in. 
  • This type of work enables you to stay engaged in the workforce for as long as you need to cover expenses prior to retirement. It’s widely known that many retirees struggle in the first stages of retirement with a lack of purpose and social interaction, but instead, this eases you into retirement slowly. 
  • Because you’ve started early, Coast FIRE actually enables you to change your mind and pursue traditional FIRE too. By beginning the saving and investing habits early on means you are set up perfectly if you decide to pursue one of the other forms of FIRE. 
  • You can use the money you would save and invest in other things. If you stick with your current job and salary, you might have extra. Naturally, you want to ensure you don’t overspend but it can give you more freedoms to travel or treat yourself in moderation.

Cons of Coast FIRE

  • As with any investment; returns are not guaranteed and especially not at the rate you may be expecting. Even if you do everything right by choosing a diversified, low-risk portfolio of index funds; your investments may not grow to the amount you need within the timeframe you have set. 
  • Coast FIRE is the slowest pursuit of financial independence compared to other types of FIRE. This means that patience is key and that it can be frustrating and boring having to wait for your money to grow without actively investing in it. 
  • Coast FIRE locks you into working until the traditional retirement age. typically, which does mean another 20 or 30 years of work. You have no ‘early retirement’ to look forward to (unless your investments grow at a higher rate than expected) which means you will have to continue the 9-5 or a job to cover your living expenses until then.
  • You need an early start to coast more effectively. Meaning you could start Coast FIRE in your late 30’s or even early 40’s, but you are going to need a lot more saved upfront. You’ve missed out on early compound interest already where you may not have needed to be so aggressive. I look at this strategy as for those in the early 20’s just getting started

How To Pursue Coast FIRE

If you are in your 20s or early 30s, then Coast FIRE is a viable option for you. And in order to get started, you’ll need to figure out some numbers:

  • What is your FI number?
  • What is the expected annual return rate?
  • What is your time horizon?

But there are additional things you can do to help you reach your FI number sooner and ensure you can coast your way to financial freedom. These are all no-brainers, but something to keep in mind.

  • Get rid of debt: having debt will hold you back from being able to save and invest more aggressively. For you to even approach Coast FIRE, you’ll need to pay off debt early and fast. It may not be possible, in which case this finance strategy probably is not going to work for you.
  • Become more frugal: if you can learn to live with less and keep your expenses low, it will require that you need less money to retire. This can help you reach FI even earlier. Of course, with inflation and the rising cost of living, it might be hard to know exactly.
  • Invest in index funds: I like the three-fund portfolio approach of index funds. It’s simple, removes any constant need to tinker or make mistakes, super low fees, and constantly proves to be an effective investing strategy. You can’t control the markets, but keeping your investments simple and smart will be your best move.
Tools to help you on your Coast FIRE journey:
  • Personal Capital to monitor net worth, investments, spending, and more for free.
  • Blooom to monitor your 401k or IRAs. Get recommendations, catch hidden fees, and more for free.
  • YNAB or Savology. These budgeting tools can help you keep to a stricter budget, especially since Coast FIRE you need to keep your costs down.

Alternatives to Coast FIRE

Coast FIRE potentially can be a great option for you, but there are other types of FIRE that may fit your desires better. Interested in learning more? Below are the other common types of FIRE: 

Traditional FIRE

If you’re looking for a more aggressive savings and investment plan which means you aren’t required to supplement your income, traditional FIRE may be a better option. 

Lean FIRE

Perhaps you live frugally and won’t require as much income during retirement as the average American. In this case, Lean FIRE would be more well-suited.

Fat FIRE

On the opposite end of the spectrum, those who’d like to retire with a heavier lump sum would want to choose Fat FIRE. 

Barista FIRE

Similar to Coast FIRE, but instead you can retire early and work part-time to help cover a portion of your expenses. This lets you dabble in early retirement but still let your investments compound.