Coast FI: You’re Doing it Wrong

The beauty of the Financial Independence movement is that it represents a wide swath of people, with different experiences, different strategies, and different goals. What we share is the common pursuit of a financially independent existence, and the principles of FI allow us to achieve this goal.

I really appreciate the many different approaches people take to the same basic problem. Some find ways to earn more, through entrepreneurship and side hustles. Some save more by finding clever ways to shed expenses and subsidize costs. And others delve into novel investment strategies to boost their returns.

Generally, I have no gripe with the way that people manipulate this equation. As long as you’re growing your savings gap, and investing those savings (relatively) wisely, who am I to complain?

A Disturbing New Trend

People often post on personal finance forums to detail their financial situation and ask for advice on early retirement. This is often done anonymously, and is especially common on some PF subreddits including r/CoastFIRE.

Lately I’ve been seeing a lot of posts with a similar setup, and it’s frankly disturbing. It gives me concerns about these folks’ understanding of FI, and the potential mistakes they could be making.

The posts go something like this:

Hey everyone. 26M here. I’ve been working hard and saving for a few years now, and my net worth just hit $90k. I also just got a raise, and I make $65,000 a year now. I share an apartment with 3 other people and eat cat food, so my yearly expenses are about $14,000. Should I Coast FI now, or wait a year?

This example might be a bit hyperbolic, but not by much. Just last week, a twenty-something with a $40k net worth suggested that he/she should cut their hours and take the Coast FI plunge. Are you shitting me?!?

Again, I normally try not to criticize others’ plans, and everyone has a unique set of circumstances that define their path. But clearly some of the more recent “FIRE followers” are a little misguided on how this thing works.

I don’t claim to be an expert, but I’ve researched and written a fair amount on the Coast FI method. Some people even thought I coined the term (I didn’t). Others have called the approach partial FI, Barista FI, or Slow FI.

Here’s a brief refresher on the subject.

What Coast FI is

In my first post on this topic, I defined Coast FIRE like this:

Coast FIRE :

1. The point at which you can stop making retirement contributions and still expect to have enough saved for a comfortable retirement.

Then I further clarified my definition:

2. The point at which you can reduce your savings rate to 0% and still reach FIRE within a reasonable time period.

Obviously, this is not etched in stone. I’m sure many would argue that they can coast without reducing their savings rate to zero, which makes sense to me. My point with definition #2 was to say your Coast Number is the point where you don’t need to save any more for retirement. If you can continue to save, even better.

Coast FI should be viewed as a milestone on the path to financial independence. It’s a checkpoint we all reach at some time that tells us that we can think about slowing down and relaxing a bit. For some, that means reducing work hours or switching to a more fulfilling job. For some families, it may mean dropping down to a single income.

The core feature of the Coast FI milestone is that the heavy lifting has been done. The nest egg has been sufficiently built up so that it will continue to grow, even in the absence of additional contributions.

What Coast FI is not

The numerous questionable interpretations of Coast FI that I’ve encountered lately seem to have some misconceptions in common. Here is how I would characterize and address these misconceptions.

Coast FI is not a multi-decade strategy

By my definition, someone who has begun to coast is no longer saving for retirement. If they’ve already accumulated a 7-figure net worth, then this is perfectly fine in most circumstances. However, if they’ve only just hit the $100,000 mark, and they need to get to $500-600k in order to ensure a safe withdrawal rate in retirement, we might have a problem.

The most recurrent issue I see in these forums is people contemplating coasting too early. It might work, but it might not. If you’re only 10% to your FI savings goal, it can be a long and very bumpy ride to retirement. And you’re almost ensuring that you will need to work multiple decades in your (albeit reduced) work arrangement. If I had to work full-time for 10 years, or part-time for 40, I would probably opt for the former.

I won’t even get into how impossible it is to predict what will happen in the coming 10, 20, or 30 years. Who knows what the job market, interest rates, and the general economy will look like over this timeframe. Will you get married? Divorced? Have kids? Twins? Get sick, or have to care for a family member who gets sick?

In sum: it’s a pretty terrible idea to expect that 30 years of the Barista FI lifestyle turns out exactly how you planned.

Coast FI is not a substitution for a high savings rate

Here’s another fallacy I keep encountering: the idea that Coast FI is a retirement strategy in and of itself. In other words, the notion that you can coast your way through life instead of pursuing that more traditional FI path.

If you’ve read Mr. Money Mustache’s seminal post, the Shockingly Simple Math Behind Early Retirement, you already know the secret. Your savings rate is the single most important metric for determining how quickly you’ll reach your FI goal. Full stop.

If you can save and invest roughly 50% of your take-home pay, you can expect to retire in 15 years from a starting point of no savings. Get more aggressive with your savings rate, and you might get there even faster.

On the other hand, this means that a lower savings rate of 5-10% could extend your working phase by decades. And, as we’ve already covered, Coast FI involves a reduction of your savings rate, often a complete reduction to zero. This means that coasting cannot work unless you’ve already amassed significant savings. Ergo, you can’t skip the “earn and save” part of the journey.

Coast FI was never posited as an alternative for the real thing. It’s not Coke Zero.

Coast FI is not a shortcut

Which brings me to my final point. Coast FI is not a shortcut, or a workaround of any sort.

I’ve been thinking a lot about these bad takes on Coast FI, and wondering why they seem to be getting more common lately. I have a theory.

I think a lot of the premature FIRE-ing comes from a warped sense of investing after living through the previous 12-15 months. Specifically, we’ve seen a decade’s worth of market action and returns in the space of a year. I think that the appearance of easy, fast, multi-bagger returns is distorting especially young investors’ minds. Add in shitcoins, NFTs and meme stocks, and you’ve got a perfect storm for unreasonable expectations.

A lot of people just started investing last year. They rolled a stimmy or two into Robinhood, and turned $1,400 into $5,000 with an unresearched (but well-timed) bet on GameStop or AMC.

If all you’ve ever known is 10X returns on bankrupt companies, Dogecoin, or the speculative play du jour, you probably think index investors are Luddites.

The obvious problem with this thinking is that this is not how the world works. You can’t gamify FIRE to the point where you skip the part of the process where you actually save and invest. It’s only a matter of time before the inevitable reversion to the mean.

The bottom line: there are no free lunches in life. You can’t live off your savings and investments unless you actually take the time to save and grow your investments. If you don’t put in the work on the front end, you won’t be able to enjoy it on the back end.

Some Coast FI Guidelines

I assure you that the purpose of this post was not just to trash-talk Redditors and novice FIRE hopefuls. I have a new proposal for a couple more guidelines to further define what it means to Coast FI.

Think of these rules not as constraints, but rather like bumpers on a bowling alley. If you adopt these tenets while pursuing FI, you’re much more likely to stay in your lane and hit your target.

OK, here we go. You are ready to Coast FI if…

#1: You are 10 years or less from reaching FI, based on reasonable expectation of market returns

In the analogy from my original post, this is the point where you can stop peddling and expect your momentum to carry you through to FIRE. Any earlier, and you need to rely on exceptional returns or luck. Any later, and you could significantly overshoot your FI target (which is OK).

A 10 year horizon to financial independence translates to being roughly 60% of the way to your FI savings goal, if you expect the market to return at least 5% per annum.

Sixty percent of a FI investment target of 25x expenses would mean you’ve already accumulated 15x of your yearly spending goal. Once you’ve made it 60% of the way, it shouldn’t take you longer than 10 years to reach your retirement savings goal, and you might even get there much sooner.

#2 You can maintain a savings rate of 20% during your Coast period

I just made up this 20% figure, but here’s the logic: Even if you’re too early for standard Coast FI, that doesn’t mean you shouldn’t pursue a better quality of life. If you can cut back your hours and still save, then I’m all for it.

It’s hard to judge exactly what your savings rate needs to be, because it depends on how big your nest egg is already. But if you’re 20% to your FI goal (eg. 5x annual expenses saved), and you maintain a 20% savings rate, then you’ll most likely reach your goal in less than 10 years.

In other words, you can start coasting a bit early if you combine a decent savings rate with a modest net worth already accumulated.

#3 You have some solid contingency plans

There’s no way around it: there will always be some risk associated with quitting and/or reducing your earning potential before your nest egg is fully funded. Therefore, everyone who considers the Coast FI path should do a personal risk assessment prior to taking the leap.

Think about the most common things that could go wrong, and how you would deal with those hypothetical situations. The more solid your fall-back plans, the higher your appetite for risk can be.

Some examples of solid contingency plans:

  • Your Coast FI strategy is to stay with your current employer, but to reduce your hours. You still collect benefits. Your boss has told you that you can increase your hours whenever you want.
  • You have a unique set of skills that assure demand for your services. If you ever needed to increase your income, it would be easy to score some work.
  • You’ve created a side hustle that can cover any shortfall in your plans. Or maybe the purpose of ‘coasting’ is to focus on growing this project.
  • You’ve thought about the ways your life can get sidetracked or your plans could change (divorce, sickness, children), and you have a plan for dealing with those situations.

The idea here is that you wouldn’t be completely blindsided if things don’t pan out the way you think they will. Because, they never do.

In my case, I was prepared to leave my job when we decided to move to VA last year. I subsequently rejected an undesirable job offer from my company before settling into my current position. I was able to make these moves because we are already very close to our FI target, and my wife will continue to work for the next few years. If we weren’t in such a strong financial position, I wouldn’t have risked losing my job.

Final Thoughts

It’s exciting to see so many people take agency over their situations and embrace financial independence. I applaud anyone who thinks critically about their life and finds ways to establish a better balance.

I think the only issue is that some people are getting out over their skis. The eagerness to set FI plans in motion, combined with unreasonable expectations of market returns, is pushing some people to consider Coast FI a bit prematurely.

Like so many things in life, patience is key. The early years are a grind, and there’s really no way around it.

Financial independence, and all of its variants (including Coast FI), depend on the engine of compounding returns. You save up a sum of money, invest regularly, and at some point the returns on those investments will outweigh your contributions. This is the point where you can think about coasting.

What’s your take on Coast FI? Do we spend too much time defining abstract concepts? Is everyone just too impatient for regular FI? Let me know in the comments.

14 thoughts on “Coast FI: You’re Doing it Wrong”

  1. i would say to any younger person of average means that you have to do the heavy lifting at some point. there will be work and it might suck. obviously, the younger you can start saving and compounding then time is your friend. of course, you can choose a different path of taking it easy and eeking out a “fun” living in your 20’s or early 30’s. be a ski bum or 20 hr./week bartender but if you want the financial independence security you gotta earn the money at some point. hell, when i met mrs. smidlap we didn’t have much of a combined nest egg but ate the turdburger for about 10 years and it was less of a shock when her J.O.B. went away. we’re coasting by her not “needing” for her to find some crappy full time job. we also quit fully funding our IRA’s with out paychecks but continue to fund my 401k.

    reddit is a cesspool. “hey skippy (26M), coast or don’t. good luck. if it all fucks up you can’t stay at our house.”

    Reply
    • Hey Freddy, thanks for chiming in. I have no problem with people who want to be beach/ski bums, just don’t pretend you’re working toward financial independence at the same time. As you said, you have to put in the work at some point. I appreciate following your story and your ‘glidepath” strategy. Hopefully we’ll be in a similar situation in the coming years, although I don’t really want to work as much 😉

      You’re right, Reddit is a shitshow! I rarely post or comment because the vitriol and snarkiness is on another level.

      Reply
  2. My wife and I have only recently started talking about pulling the Coast Fi ripcord. We’ve already throttled back 401(k) contributions to only get the employer match, and in a couple years we’ll both drop to 60% employment — every weekend a four-day weekend! But we’ve piled up $665k over the last fourteen years across IRAs, 401(k) plans, and invested HSAs. And two years of living expenses on top of that in cash and ESGV. And only nine years left on a mortgage that drops to five figures next August. More power to the twentysomethings of reddit but YIKES.

    Reply
    • That’s awesome Adam, sounds like you guys are well on your way! The responsibility and semblance of an actual plan that you just laid out is far better than what I’ve been seeing lately. Also, pretty great that you can both drop down to 60% time. I would do that in a heartbeat if my employer was on board, and frankly I’d probably be happy working 3 days a week for another ten years. Congrats again on your progress!

      Reply
  3. I didn’t realize that there was a name for it! We’ve always referred to it as the “god forbid something happens, we’re still covered”/”buying time” zone. We hit that fortunate point at the end of last year, where if something happens like we have to take every excess monthly amount (401K, investments, savings, extra mortgage) and use it for some disaster like medical bills for the MIL, we’ll still be able to retire at our original (non-FIRE) planned retirement date due to regular old compounding interest. And now we’re just buying days. Every month buys us 2 weeks to a month based on what we currently save. And if no disasters strike we’ll be done with mandatory work in 4 years. 🙂

    To answer your question, I think it’s good to have a term to define a concept rather than a long awkward phrase like we were using.

    As far as being impatient for FI, I’m not sure. I think maybe it’s a symptom of the overall uncertainty of employment in a rapidly changing economic model. If you look at the transition of the model of work over the past 40 years, it’s getting less and less stable. The move from long term employment at a single company through the 80’s. to the job hopping of the 90’s/00’s, the emergence of the gig economy in the 10s, the COVID disruption of the last year+, and the appeal of the idea (fantasy) of not having to work full time could really be a coping mechanism to feeling completely unsure of one’s ability to maintain long term full time employment. I’m not saying that to provide an excuse to be irresponsible or make dumb life choices, but if you were working, put together some scratch, and then got sent home due to COVID to sit on your duff for a year, I can see how some younger folks are starting to think about how little they can live on and rationalize that they could probably pick up PT work as needed and then bada bing bada boom they’re FIRE’d. That also could be a bunch of bs due to too much navel gazing.

    Anyway, great blog post!

    Reply
    • Hey Meg, thanks for the comment! I think, back in the day, most people were saving up as an insurance policy for when life throws you a curve, as you mentioned. Before I knew anything about FI, this is why I saved an invested beyond the minimum suggested amount. I was almost 30 before I realized it could be used as a tool to buy my freedom years/decades earlier.

      I think you’re absolutely right that people feel less stable about their employment situation these days. And they should. The onset of the gig economy has been horrible for most people in terms of benefits and security, even if it has offered some ‘flexibility’ for some. I think it’s great that people feel more urgency to take their situation into their own hands. I’m just concerned that some of these people could be exiting the full-time/well-compensated workforce a little too soon, and they might regret this move later in their lives.

      Sounds like you guys are doing a great job of working toward your Coast FI goals, no matter what you call it. Keep buying those days!

      Reply
    • Agreed. I think the bottom line is that you have to do some heavy lifting at some point. Unless we get Universal Basic Income, and then we can all stay home and coast!

      Reply
  4. Like you say, Coast Fi probably works better as a milestone to an overall plan. It shouldn’t be the plan in itself from the start at least. The biggest problem is impatience and lack of perspective…aka “youth” looking for the path of least resistance. The 2008 recession scarred me big time. But they do deserve credit for even being interested in the concept of FI at an early age. You have a great point about maintaining a normal savings rate of 20% or maybe even 10% once the coast FI trigger has been pulled. If someone doesn’t feel an ounce of hesitation going from a hefty 50%+ savings rate to 0% savings overnight, they probably haven’t been saving/investing long enough to make it count.

    Reply
    • Hey Noel. I agree, I’m happy that young people are at least thinking about how to exit the rat race ASAP, that’s actually pretty encouraging. The drop in savings rate is what keeps me from quitting right now. If I were to stop working today, I’m projecting that our savings rate would be less than 10%, and I think that’s why I’m hesitant to stop at this point. Once our daughter hits Kindergarten, there’ll be more breathing room, and I think it’ll be easier to pull the trigger.

      Reply
  5. Definitely a milestone in my opinion. To each their own. I’ve written on risk tolerance and FIRE Fubar before, so it’s known that I’d rather expire with an 8-figure sum in the portfolio then be broke and have to move back in with my parents at 39, but that’s just me.

    While I have none to present here, I’m certain that the evidence-based research of any form of “coasting” in life clearly shows that it usually doesn’t generate great long-term outcomes. To that end, thanks for writing this so others have the ability to access this solid info!

    Reply
    • Thanks Mr. Fate! The new PM role has me quantifying risk and planning risk mitigation strategies all day now, so this was a timely topic for me. I agree that I’d probably rather have way too much saved than be up at night worrying about our bank account balances. I just think about how different my perspective is from 10 years ago, and then realize that I could never commit to a 30 year plan of part-time work, or something similar. It’ll be interesting to see how this plays out with the new generation of Coasters.

      Reply
  6. The problem with going part time in Coast FI (assuming you keep the same job) is that companies never say – “this person is part time now so we have to cut their workload in half.” They still expect you to get everything done, so you might as well get paid as much as possible for it. If you can truly do your full-time job in half the time, you’re overemployed and ripping off the company. There’s tremendous pressure to be productive and busy every hour with no idle time.

    Reply
    • Hey Wallies, you’re definitely right that most companies will probably expect just as much work for reduced hours (and reduced pay). It’s funny, because in my new role I find that I’m only working about 30 hours per week, but at the same time I believe my output is much higher (or valuable) than it was when I was in the office 40+ hours a week. Do I feel like I’m ripping the company off? No, because they’re getting more out of me than before.

      Reply

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