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How does Coast FIRE work?

As part of the traditional FIRE movement, savers plan to retire early when they have enough passive income coming in each year to meet their expenses.

On the other hand, the Coast FIRE strategy entails aggressively saving and investing until you meet a target amount that will eventually grow to be enough to support you in your golden years.

The idea is to save and invest earlier in your life so that you can then “coast” and only worry about basic living expenses knowing the power of compound interest and your existing investment portfolio will ensure your needs are covered during your golden years.

Your FIRE number is usually calculated by multiplying your estimated annual expenses by 25 (assuming you’ll spend 25 years in retirement). So, for example, if you think you’ll need $40,000 a year to cover your costs in retirement, your savings target would be $1 million.

However, Coast FIRE operates under a couple of assumptions — your expected annual rate of return from your investments and how much time it’ll take to grow them:

FIRE number / (1 + annual average rate of return of your investments)(time in years to grow your investment) = Coast FIRE number

So, if you’ve set your FIRE number at $1 million, expect an annual average return of 10% on your investments and expect to retire in 25 years, you’ll need to have saved roughly $36,363 before you can start coasting and stop putting more funds toward your investments.

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Why Dogen doesn’t believe you can just ‘coast’

Dogen says you’re technically not financially independent unless you can just quit your job tomorrow and live off your savings and passive income — which is what he did. So, he doesn’t believe you can attach the FIRE label to this retirement strategy.

But, he also has concerns with folks anticipating a set return on their investments, since the stock market isn’t always steady. The other problem is that down the road, your expenses could look very different from today’s.

When Dogen retired in 2012, he intended to put his $80,000 a year toward a simple life on his grandfather’s mango farm in Hawaii. But that’s not what happened.

Dogen decided to stay in pricey San Francisco and ended up having two kids with his wife. He also recently splurged on a new home in the Bay Area by selling a decent chunk of his stocks and bonds.

This move set him back from making about $380,000 a year in passive income to about $230,000 — which he claims is no longer enough to cover his family of four’s living expenses.

Starting in September, he expects his annual expenses to include $80,400 for tuition at a private Mandarin immersion school, $68,400 for housing costs and $26,400 for food (including weekly date nights).

Now, Dogen says he or his wife (or both of them) will need to re-enter the labor market and make a new plan to reach FIRE once more.

“I was happy to live a very simple life, but life turned out differently,” Dogen told CNBC. “And for people to think they have the next 20 years planned out with no changes, that’s irrational thinking.”


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Serah Louis is a reporter with Moneywise.com. She enjoys tackling topical personal finance issues for young people and women and covering the latest in financial news.


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