Coast FIRE Calculator

What is Coast FIRE?

Coast FIRE (Financial Independence, Retire Early) is a personal finance strategy that focuses on achieving a level of financial security where you no longer have to actively contribute to retirement. The concept is based on the idea that you save and invest aggressively in your working years until you reach your Coast FIRE point. Once this milestone is reached, your investments are sufficient to grow on their own to support your retirement, even if you don't make additional contributions.

A simple way to explain Coast FIRE is:

1. Aggressive Saving: You save and invest a significant portion of your income. The goal is to build up your investment portfolio quickly.
2. Reach the Coasting Point: There comes a point (the "Coast FIRE point") when the amount you have saved is enough that it will grow to your desired target value by the time you reach retirement age (with your assumed rate of return). You don't need to continue saving for retirement after reaching this point.
3. Increased Financial Independence: After hitting the Coast FIRE point, you can theoretically stop saving for retirement and still be on track for financial independence by your intended retirement age. This doesn't mean you stop working. Instead, it means that any money you earn from this point on can be used for your current living expenses or simply enjoying life more without worrying about further retirement savings.
4. Flexibility in Employment: One of the biggest benefits of reaching Coast FIRE is the flexibility it provides. You can choose to continue in your current career, shift to a less demanding or more fulfilling job, work part-time, or pursue passion projects, knowing that your retirement is financially secure.

Financial Independence is a Journey

Financial independence is a progressive path that involves several stages, each marked by distinct financial milestones. In this journey you move through various phases: financial dependence, financial solvency, financial stability, financial security, and finally, achieving financial independence. The FIRE (Financial Independence, Retire Early) movement offers a structured approach to navigate through these stages.

The Phases of Financial Growth

• Financial Dependence: This is the starting phase where individuals rely on others (like parents or credit providers) for financial support. It's a period of learning and gradual exposure to financial concepts.
• Financial Solvency: Solvency is the stage where individuals can meet their financial obligations on their own. It's characterized by the ability to pay bills on time and handle debts responsibly, marking the first step toward financial autonomy.
• Financial Stability: Stability occurs when individuals not only meet their current financial obligations but also start preparing for unexpected expenses. This phase often involves building an emergency fund and having a rudimentary investment strategy.
• Financial Security: This stage is reached when individuals have sufficient financial buffers and investments to protect against life’s uncertainties. It typically involves having diversified investments, retirement savings, and insurance to mitigate unforeseen risks.
• Financial Independence: The pinnacle of the journey, financial independence is achieved when individuals have enough wealth to support their lifestyle indefinitely without needing to work for money. This stage allows for the utmost financial freedom and life choices.

A Path to Financial Independence: Coast FIRE

The FIRE movement accelerates the transition through Financial Growth phases with its unique approach. It emphasizes aggressive savings and investment, often aiming to save and invest over 50% of income, alongside cost reduction and a simplified lifestyle, to rapidly progress from financial solvency to stability and security. Additionally, FIRE advocates often increase their income through various means, accelerating debt repayment and savings growth, with the ultimate goal of achieving early financial independence and the option of retiring well before traditional retirement age.

There are a number variations of FIRE but Coast FIRE has a strong following because of how achievable it is. It strikes a balance between aggressive early savings and lifestyle flexibility. And by focusing on saving and investing heavily until a certain financial threshold is reached, individuals can then "coast" without needing to save further for retirement.

How do you Calculate Coast FIRE?

Calculating your Coast FIRE point involves determining the amount of money you need to have invested now so that, without additional contributions, it will grow to support your desired lifestyle in retirement. Here are the steps:

1. Estimate Your Retirement Needs: First, estimate how much money you will need annually in retirement. A common method is to use a percentage (like 70-80%) of your current annual expenses. This is because you're likely to have paid off your mortgage, perhaps downsized your home, and no longer have dependents.
2. Determine Your Retirement Portfolio Size: Use the 4% rule (or a withdrawal rate that you're comfortable with) to calculate the total size of the retirement portfolio needed. For example, if you need $40,000 per year in retirement then your portfolio should be $40,000 / 0.04 = $1,000,000. The withdrawal rate is often referred to as the Safe Withdrawal Rate or SWR.
3. Calculate Future Value of Your Current Savings: Use a future value (FV) formula (or compound interest calculator) to determine what your current savings will grow to by your retirement age. The formula for FV is:

   FV = PV × (1 + r)ⁿ

   Where:

   • PV is your current savings/investments.
   • r is the annual return rate (in decimal form). Simply subtract the inflation rate from this number in order to inflation-adjust your figures.
   • n is the number of years until retirement.
4. Determine the Coast FIRE Point: Your Coast FIRE point is reached when the value of your current savings in a particular year equals or exceeds the Coast FIRE number in that year. It's a little confusing at first so take a look at the example below.

5. Adjust for Inflation: It's important to adjust your calculations for inflation to ensure your future purchasing power is adequately accounted for.

Coast FIRE Point Example

Consider the following scenario:

• Current Age: 30 years
• Desired Retirement Age: 65 years
• Desired Annual Retirement Spending (Today's Dollars): $40,000
• Current Invested Assets: $100,000
• Annual Return Rate (assumed): 7%
• Annual Deposit: $5,000
• Safe Withdrawal Rate (SWR): 3.5%
• Inflation Rate: 2%

Step 1: Calculate the Final FIRE Number

Firstly, calculate how much you'll need in retirement to support your Safe Withdrawal Rate (SWR). This is also know as your Final FIRE number. In the above case the calculation is: 40000 / 0.035 = $1,142,857.14

Step 2: Calculate the Coast FIRE Numbers (Per Year)

Your Coast FIRE point is the first year in which your net worth exceeds the Coast FIRE value. This means you need to calculate both your future net worth and the Coast FIRE value for each year through to retirement. The formula is:

Coast FIRE_m = (Retirement Annual Spending) / (SWR × (1 + r)ⁿ)

Where:

• r is the annual return rate (in decimal form). Simply subtract the inflation rate from this number in order to inflation-adjust your figures.
• n is the number of years until retirement.
• m is your age in that year.

For example, at the age of 30 your Coast FIRE number would be: Coast FIRE₃₀ = 40,000 / (0.035 × (1 + 0.05)³⁵) = $207,188.90. Note the rate used is inflation adjusted i.e. 7% - 2%.

Step 3: Calculate Your Net Worth (Per Year)

To calculate the future value of your current savings (your future net worth), including annual deposits, we use the future value of an annuity formula:

FV = PV × (1 + r)ⁿ + P × ((1 + r)ⁿ - 1) / r

Where:

• PV is your current savings/investments.
• r is the annual return rate (in decimal form). Simply subtract the inflation rate from this number in order to inflation-adjust your figures.
• n is the number of years until retirement.
• P is the annual deposit.

This needs to be calculated for each year to retirement. For example, to calculate your net work at 65 years-old: FV = 100,000 × (1 + 0.05)³⁵ + 5,000 × ((1 + 0.05)³⁵ - 1) / 0.05 = $1,003,203.07

*These calculations are complex and time-consuming so it's best to use our calculator above or a spreadsheet.

Step 4: Determine Your Coast FIRE Point

In this example your net worth never reaches the Coast FIRE number. However, small adjustments can make a big difference e.g.

• Adjusting the investment return rate to 8% means your Coast FIRE point is 12 years away, or
• Increasing your SWR to 4% puts the Coast FIRE point at 24 years away, or
• Increasing your annual contributions to $10,000 would see you hitting Coast FIRE at 46 years old (16 years)

Small differences can mean a big deal when it comes to compounding. That's why it's important to get started as soon as possible.

Glossary of Terms

• FIRE (Full FIRE) - Financial Independence, Retire Early, is a movement focused on extreme savings and investment that allows individuals to retire far earlier than traditional budgets and retirement plans would typically permit.
• Lean FIRE - A minimalist approach within the Financial Independence, Retire Early (FIRE) movement, where individuals aim to retire early by living frugally and maintaining a minimalist lifestyle to reduce their living expenses significantly.
• Fat FIRE - A variant of the Financial Independence, Retire Early (FIRE) movement that involves saving and investing a larger sum of money to achieve financial independence, enabling a more comfortable and luxurious lifestyle in retirement compared to the standard or lean FIRE approaches.
• Barista FIRE - A strategy within the Financial Independence, Retire Early (FIRE) movement where individuals achieve partial financial independence and retire from their main careers, but continue to work part-time, often in low-stress or enjoyable jobs, to cover some living expenses and maintain healthcare benefits.
• Coast FIRE - A strategy within the Financial Independence, Retire Early (FIRE) movement where an individual has saved enough money early in life that they no longer need to actively save for retirement. They can then "coast" until traditional retirement age, focusing on covering only their current living expenses without needing to save additional funds for the future.
• Inflation - An economic term describing the general increase in prices and fall in the purchasing value of money over time. See our inflation calculator to model inflation scenarios.