Coast FIRE means having enough money in your retirement savings account that, without adding more, it will grow to support your retirement expenses as you get older.
Once you reach Coast FIRE, you still need income to cover your monthly expenses, but you no longer have to save for retirement. By saving and investing wisely early in life, you can let your investments grow over time and provide for your retirement when the time comes. This strategy provides increased freedom in career decisions, reduced working hours, and additional funds for an improved lifestyle.
Coast FIRE Calculator
The Coast FIRE Calculator helps people find out when they can become financially independent and track their progress. The calculator takes into account various factors such as investment, expenses, savings, returns, inflation, and withdrawal rate. It uses these factors to estimate the time it will take for someone to achieve financial independence (FI).
Financial Independence Age
Financial independence age is when someone has enough money to cover their expenses without needing a job. The Coast FIRE Calculator helps people determine their financial independence and make informed decisions for their future.
Key Factors Considered in the Calculator
- Current Total Investment: This factor considers the existing portfolio value or investments that an individual currently holds.
- Annual Expenses: The Calculator takes into account an individual’s annual expenses, including housing costs, groceries, transportation, utilities, and other essential expenses.
- Monthly Contributions: Determining the amount of money an individual can save each month is a crucial factor for FIRE. By examining surplus income after expenses, the calculator considers the individual’s saving potential.
- Expected Returns and Inflation Rate: The Calculator incorporates expected investment returns and inflation rates to project future portfolio growth. This estimation takes into account market performance, and compound interest and adjusts for the effects of inflation to provide a realistic outlook.
- Withdrawal Rate: The calculator determines the annual withdrawal amount (Safe Withdrawal Rate – 4%) that will not deplete the account balance. This rate ensures that individuals can sustain their lifestyle throughout their financial independence journey.
FIRE Number = Annual Spending/Withdrawal Rate
This Calculator utilizes the Compound interest rate
Where A is the final amount, P is the initial amount, n is the annual growth rate (which is the Investment growth rate minus the average inflation rate), and t is the time in years. This gives as
Coast FIRE Number = (Annual Expenses)/(Withdrawal Rate * (1+n)^t)
The calculator combines all the key factors and generates a result in the form of the COAST FIRE Number. This figure represents the savings you’d require as your financial cushion, allowing you to stop saving and comfortably meet your expenses with your current income.
Examples
Case Study 1
Meet the Jane’s family, a family of four with annual expenses of $80,000. Both parents, aged 35, have saved for 10 years and now have a net worth of $600,000. To fully retire early, they estimate they need a total net worth of $1.5 million.
Their current net worth of $600,000 will grow to their early retirement goal in 15 years if left untouched. As of now, they only need to cover their annual expenses of $80,000 per year and no longer need to contribute to their retirement savings. With a coastFIRE number of approximately $600,000, they’ve officially reached Coast FIRE and are on their way to early retirement.
Case Study 2
Now let’s consider John, a 28-year-old single individual with annual expenses of $60,000. John has been diligently saving for the past 7 years and has accumulated a net worth of $50,000. He must have $324,931 in his savings account (7% annual growth rate with respect to a 3% inflation rate) to coast toward FIRE.
Pros and Cons of Coast FIRE
| Pros | Cons |
|---|---|
| Savings Incentives: It encourages individuals to save and invest by providing a clear target for financial independence. | Sacrifice: Achieving coast FIRE may require individuals to make certain sacrifices in their current lifestyle to save and invest more aggressively. |
| Efficiency: By maintaining a balanced lifestyle, individuals can focus on personal growth, career development, and pursuing their passions. | Risk: Depending on investment choices, individuals may face market volatility and inherent risks associated with investing. |
| Flexibility: It offers the freedom to make choices about work and life without the constraints of traditional retirement timelines. | Debt Restrictions: Individuals aiming for coast FIRE may need to limit their debt and avoid excessive financial obligations that could hinder their progress toward financial independence. |
Summary
Coast FIRE offers a unique approach to financial independence by allowing individuals to achieve a level of financial security that aligns with their desired lifestyle. The Calculator serves as a valuable tool in determining the financial independence age and tracking progress toward this goal.
By considering key factors such as current total investment, monthly expenses, savings rate, expected returns, inflation rate, and withdrawal rate, individuals can make informed decisions and take steps toward achieving financial independence.
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