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The short version

  • Coast FIRE requires you to save for retirement at an increased speed so that your investments start to compound on their own.
  • Typically, Coast FIRE requires a frugal lifestyle in order to push a large percentage of your income towards savings.
  • There are other types of FIRE paths (Lean FIRE, Fat FIRE, Barista FIRE) that allow you to save for different goals and in different ways.

What is Coast FIRE?

Coast FIRE is one of the most popular of the FIRE Movement’s offshoots. In simplest terms, being Coast FIRE means you have invested and saved early enough in your life that your retirement portfolio will continue to grow enough on its own so that you’ll still have enough for a typical retirement.

The goal is not necessarily to retire early like in traditional FIRE, but instead to save and invest earlier in your life so that you can allow compound interest and your investment returns to coast you towards financial independence during your golden years.

That means that rather than worrying about retirement contributions throughout your life, once you hit your savings target (or Coast FI number), you have more breathing room to live the life you want without worrying about retirement contributions.

It’s a bit more flexible than going full FIRE. Rather than having to limit your lifestyle for the rest of your life, you’re only aggressively saving until you hit your Coast FIRE number. And because your investments will continue making you money, your savings target is also more manageable: Think a couple hundred dollars in the next five to 10 years rather than a million and more by your desired retirement age.

How does Coast FIRE work?

Coast FIRE is all about letting your investment returns coast you towards a comfortable retirement. In order to figure out how to do that, you first need to decide when you want to stop working and how much you expect to take out of your retirement savings per year.

Before calculating your Coast FIRE number, you need to find your FIRE number — Basically, this is how much you need to retire comfortably.

This formula looks like this:

Your annual expenses x 25 = FIRE number

The 25x rule assumes you’ll spend 25 years in retirement.

For example, if you have $75,000 in annual expenses and plan to live similarly in retirement, Your FIRE number would then be $1,875,000:

75,000 x 25 = $1,875,000.

Once you have your FIRE number, you then plug in the average annual return you expect from your investments. The equation looks like this:

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

Continuing our example from about, let's say you expect an annual return of 6% on your investments and you expect to retire in 25 years.

$1,875,000 / (1 + 0.06)25 = $437,063

This means, $437,063 is your Coast FIRE number. This is your goal for how much you should save up and invest if you expect to earn an average of 6% (the “Coast” part of Coast FIRE).

This figure also represents how much you need to be comfortable during retirement. Always remember that this is an estimate, not an exact number. Consulting with a financial advisor can help you get a true understanding of how much you might need in retirement.

More: How to find a financial advisor you can trust

How to invest following a Coast FIRE strategy?

While the investments you choose will be a personal choice, those pursuing Coast FIRE will find certain investments more beneficial to their strategy.

  • Index funds: Index funds allow you to invest in multiple stocks all at once from companies within a certain index. A few of these indexes include the S&P 500 and the Dow Jones. Index funds are often popular because they offer built-in diversification in well-known and often well-performing companies.Learn about index funds here.
  • Real estate: Those pursuing Coast FIRE are often looking for the fastest way to grow their investments. While it’s by no means guaranteed, owning real estate can provide a large source of passive real estate investment income that you can continue earning even after you retire. However, this option requires quite a bit of money upfront, so it’s not the perfect investment for every investor.
  • REITs: For those who want to invest in real estate but don’t want to do the work of owning a property, REITs are a viable option. Real estate investment trusts are made up of companies that own and/or finance real estate projects. These projects can be both commercial and residential housing. Like index funds, REITs offer exposure to a wide range of investment options from one trust.Related>>How to Invest in REITs: Should You Add Them to Your Portfolio?
  • U.S. bonds: When you buy a bond, you essentially become a creditor to whomever you’re purchasing the bond from. The federal government and state governments offer bonds, as well as private companies. You’re lending one of these (or all of these) entities money for an agreed-upon interest rate. Bonds are often more reliable than stocks or other securities because they have this interest rate tied to them.

There are many other types of investments that you could consider, but these are some of the most common ones for Coaster FIRE followers. The investments you choose will be determined by your risk tolerance and personal timeline.

What are the different types of FIRE?

Coast FIRE is just one offshoot of FIRE. All FIRE offshoots rely on investing your way to retirement by finding your FIRE number. However, how you get their may change based on your preferred flavor of FIRE. Here are the most popular ones.

Traditional FIRE

Traditional FIRE is the original pillar of the Financial Independence, Retire Early movement. To reach FIRE, this means you have enough saved and/or invested to support yourself during retirement without having to work. Additionally, the goal is to retire well before the traditional retirement age of 65.

Lean FIRE

Lean FIRE is often a more attainable version of FIRE. The catch is it involves saving just enough to live a comfortable — but by no means lavish — life during retirement. So, while you can save less in your younger years, you’ll also need to be able to live on less during retirement. For people and families with obligations they must meet, lean FIRE allows you to prioritize those needs while still saving some for early retirement.

Fat FIRE

For those who want to live a truly lavish lifestyle during retirement, Fat FIRE may be the right move. So, if you want to live in a high cost of living area during retirement, purchase a larger home, support family, or travel a lot, you need to account for these extra expenses. Fat FIRE does just that.

Barista FIRE

Again, Barista FIRE has the same retirement goals as the traditional FIRE movement. You’ll retire early with investments to cover most of your living expenses. However, while you may retire early, you would still pick up a part-time job (like as a barista!) to cover health insurance costs and other costs that can be more difficult to plan for.

Drawbacks and risks of FIRE movement

The FIRE movement has good intentions, but that doesn’t mean it’s free from criticism. Consider the following potential risks associated with the FIRE movement before jumping in.

It's not realistic for a lot of people

The FI movement has been criticized for being slightly idealistic. According to the Census Bureau, 49% of Americans had no savings for retirement in 2017. So it would be a stretch to assume that the average person can save enough to retire 10, 20, or even 30 years before the traditional retirement age.

Coast FIRE also requires an intense dedication to putting money towards investments. There are many factors that make it difficult for certain groups to save the kind of money using the strategies the FIRE community promotes. Often, this isn’t addressed within the community.

More: How can emotions affect your investing decisions

You can't know how much retirement will fully cost

While the FIRE movement tends to stick with the 4% rule for withdrawals during retirement, how much money you’ll really need is impossible to predict. For some, the risk of retiring early just to run out of money is too intimidating.

Investments come with risks

Having enough money in retirement depends heavily on how your investments perform. Your retirement portfolio will need to perform well overall to rely on your investments fully as income. There’s no telling what the future holds, though. At the end of the day, all investments come with risk, so you’ll need to be willing to take that risk on, or have a backup plan.

You might have to live frugally — like, really frugally

Reaching FI doesn’t come overnight, and that’s just the first half of the FIRE equation. There’s a reason the “traditional” retirement age is in our 60s. It takes a long time to save that much money. For many, this requires great sacrifice either in social life or creature comforts.

The takeaway: Is CoastFIRE right for you?

So, how do you decide if Coast FIRE is the right FIRE option for you? Well, start by asking yourself the following questions:

  • Do you have the ability to save a large percentage of your income each month?
  • Are you willing to drastically cut your expenses in order to reach FIRE?
  • Are you comfortable taking on risk?
  • Do you currently have the discipline to live frugally for a long period of time?

If you answered yes to most of these questions, Coast FIRE could be the right option for you. It’s a path that takes incredible financial discipline and is still riddled with some uncertainties. Still, making a strict plan to retire early can benefit those who want the freedom to focus on their families, travels, or other ventures earlier than their 60s.

Find the best retirement tools and strategies

Christopher Murray Freelance Contributor

Christopher Murray is a personal finance writer and editor who focuses on making content engaging and understandable for all generations.

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