Coast FIRE: Front-loading your retirement savings to give yourself more flexibility later in life

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Coast FIRE: Front-loading your retirement savings to give yourself more flexibility later in life
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Coast FIRE: Front-loading your retirement savings to give yourself more flexibility later in life
The Coast FIRE approach to retirement makes the most of the power of compound interest.Nastco/Getty Images; Theerapan Bhumirat/Getty Images; MicroStockHub/Getty Images; Savanna Durr/Insider
  • Coast FIRE is an offshoot of the Financial Independence, Retire Early (FIRE) movement.
  • It involves front-loading all of your retirement contributions early in your career.

In 1992, Vicki Robin and Joe Dominguez posed an interesting argument in their book, "Your Money or Your Life." What if instead of working a 9-to-5 job for the majority of your adult life, you saved enough money to reach financial independence and retire young? Part lifestyle, part financial movement, the Financial Independence, Retire Early (FIRE) concept was born. Categorized by intense frugality and extreme savings, many followers aim to quit their jobs and live off of their saved assets by their 30s or 40s.

As the movement grew, so did the variations. Different versions of FIRE were born that offered alternative paths to retirement and financial independence for those who didn't want to participate in the traditional FIRE, including one practice that would allow people to "coast" comfortably into financial independence.

What is Coast FIRE?

"Coast FIRE is basically an offshoot of the FIRE movement," says Katherine Fox, a certified financial planner at Arnerich Massena. In essence, it's front-loading 40 years of retirement contributions into a 10 or 20 year span, then allowing that money to grow in retirement vehicles until traditional retirement age. The name comes from the idea that once someone saves a certain amount, they can "coast" into retirement with less effort on the backend.

People who reach Coast FIRE usually work until their 60s, but stop contributing to retirement accounts around age 30 or 40. This then allows them to make other choices with their money and careers later in life that aren't dictated around saving for end-of-career retirement.

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How does Coast FIRE work?

Like other long-term financial planning, Coast FIRE mainly works through the power of compound interest. "If you have $100 saved and it earns 5%, then the next year, you have $105, and it's earning 5% and so on and so on," Fox explains.

The key to making Coast FIRE work is the time you let that investment grow, letting the base get larger and allowing your savings to build exponentially.

Though still an impressive thing to accomplish, Coast FIRE is generally considered a lighter lift than the traditional FIRE. "The coast would be easier," says Matt King, a wealth planner at Willmington Trust.

Quick tip: With any investment strategy, time is of the essence. The earlier you invest your money, the better.

How much do you need to save to reach Coast FIRE?

There's no one amount that guarantees Coast FIRE. How much you need will depend on each person's age, lifestyle, and needs in retirement. However, financial bloggers and FIRE followers have pushed this general formula to calculate a Coast FIRE amount:

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Coast FIRE: Front-loading your retirement savings to give yourself more flexibility later in life
The Coast FIRE formula.Shayanne Gal/Insider

FIRE followers usually define their full FIRE number as their annual expenses multiplied by 25, an approach derived from the 4% rule.

Coast FIRE example

Following these formulas, if someone believed their annual expenses in retirement would be $40,000 per year, they'd multiply that by 25 to figure out how much they'd need to save to reach full FIRE. In this case 40,000 X 25 = $1 million.

For argument's sake, let's assume their investments will grow by 8% each year and they've got 20 years to let it grow. Their Coast FIRE number would roughly be:

$1 million / 1.0820 = $212,766

If you plug this number back into a traditional compound interest calculator, you'll find that with an initial investment of $212,766 and no additional contributions, in 20 years you'll have just shy of $1 million. Following this formula, if you want to retire by 65, you'll need that $212,766 saved by 45.

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How accurate are these projections?

"You're going to get yourself in a lot of trouble, in my opinion, using those rule of thumb calculations," King says. This doesn't mean that Coast FIRE isn't possible, just that many of these formulas are oversimplified scenarios.

"There are a lot of moving parts that go into retirement: rates of return, inflation, taxes, your expenses over time," King explains. "Those small differences have dramatic impacts when you're talking about these kinds of time horizons."

There's also the basic factor that you could underestimate how much you'll actually need in retirement. "If you're 25, and you're living on a 25-year-old salary, and have 25-year-old responsibilities, and you're saying 'I'll spend this much in retirement,' that might change if you get a partner, if you get kids," Fox says.

This just means that if you want to follow a Coast FIRE retirement plan, it's usually best to talk with a professional who can offer guidance about all of the nuances of retirement, your specific situation, and help you come to the most reasonable Coast FIRE number for you.

Quick tip: Download Personal Finance Insider's free 'Guide to Financial Planning' for important information about finding and working with financial planners.

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What are the pros and cons of Coast FIRE?

When making any type of retirement plan, it's important to look at it from all angles. Below are some pros and cons to consider when thinking about Coast FIRE.

ProsCons
Reaching Coast FIRE may give you the confidence to consider another career. It may allow you the freedom to earn less and explore other interests, family responsibilities, or other commitments. You may be able to focus more intensely on other financial goals later in life. You might have the opportunity to work part time or in a lower-paying industry that's more aligned with your passions. You'll have continued access to health care, assuming you keep working. All retirement comes with inherent risks, and Coast FIRE generally amplifies these. You may need to save more than you would for traditional retirement to mitigate them. Future returns are never guaranteed and slight changes can have dramatic impacts over 30 or 40 years. There will generally be opportunity costs. That is, you'll have to give up a lot now for an ideal in the future. Not making contributions into pre-tax accounts like 401(K)s or IRAs could subject your future income to a higher tax bracket.

Is Coast FIRE is right for you?

Coast FIRE isn't for everyone. Generally, it will work best for young adults who have plenty of time to benefit from compound interest, particularly young high earners.

"It would be really effective for people who are right out of college and jumping into, say, investment banking or tech," Fox says. "If you can keep expenses low during those years when you don't have a lot of responsibilities, you can save a lot of money when you're really young." It may also work well for dual-income couples who can live off of one salary and stash nearly the entirety of the other away.

Outside of these general profiles, anyone looking into Coast FIRE has to be very disciplined and comfortable with risk. "Traditionally, as you approach retirement, you would take less risk," King says. "With this approach, you would need to be very comfortable with higher volatility, and you've got to be able to stay fully invested for many, many years."

You should also be someone who is comfortable adjusting your retirement plans if necessary. "Be ready to be flexible if you need to start putting money into those accounts again," Fox says, noting your plan should include reevaluating every few years.

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If this sounds like you, Coast FIRE may be a good option and an alternative to the traditional 40-year retirement plan.

"It's absolutely worthy and something to aspire to, I would just weigh other things you want to be saving for and if it's worth it," Fox says. "It depends a lot on your personal situation."

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