When Can I Coast FIRE?

When I was a kid, there was a large hill between my house and the park that I would often frequent with my friends. We typically rode our bikes to the park, so we were constantly faced with the dilemma of biking over the hill.

Some of my friends would ride slowly and gradually up the hill, grinding away at their pedals and making us all wait for them to get past this obstacle.

Others would take the ‘sprint’ approach, where they’d pedal as fast as possible to get up and over the hill, flying down the other side and hurdling toward the park.

I used a different technique. I would pedal as hard as I could as I approached the summit. Then I would stop pedaling completely. I tried to time my method such that I had just enough speed left to get me up and over the hill.

If you paid attention in physics class, you’d recognize that I was converting kinetic energy into potential energy. By estimating how much kinetic energy (momentum) was sufficient to get me over the hill, I was able to stop exerting myself early and enjoy the ride.

The personal finance world is no different. We have the ability to estimate when our assets are enough to sustain us in the future. Once we reach this point, we can dial back our effort, relax a bit, and enjoy our time as we coast to financial independence.

Enter Coast FIRE.

What is Coast FIRE?

Let’s start by defining Coast FIRE.

Coast FIRE :

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

Technically, a 30 year old who has accumulated $100,000 in assets can probably stop saving and still retire at 65, assuming a 7-8% real rate of return over the next 35 years. This is the magic of compounding.

Since we’re not traditional people, I would take the definition a step further.

Coast FIRE :

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

I’ll let the definition of FI, RE, and the time period be up to you. To me, Coast FIRE means we can scale back our current work arrangements and begin the transition to the next stage of our lives.

In other words, we will stop pedaling and let our momentum carry us to financial independence.

You might ask, “how does this differ from traditional FIRE?” In essence, we are exiting the rat race slightly earlier than our FIRE target date (based on a 4% safe withdrawal rate) and shifting to a less stressful, more enjoyable version of life for the few years before officially reaching FI.

Rethinking Your ‘Stopping Point’

Let’s get more granular with the concept of Coast FIRE.

We’ll start by defining FI as the point at which one has accumulated 25 times their annual spending in assets.

Most people save until this point, and then sink their flag into the FI mountain and post their story on r/financialindependence. This post is then met with a slew of congratulatory “go fuck yourself” replies.

While there is certainly nothing wrong with this approach, it is the equivalent of pedaling up and over the hill. If you are not in love with your current work situation, or you’re constantly stressed out, then there might be a better way.

An alternative could be to ‘dial it back’ a bit and coast. Maybe you can transition to a less stressful department at work. Or you can go part time. Maybe you want to take a sabbatical or mini-retirement and then begin more meaningful work.

The core premise of Coast FIRE is that you are still meeting your basic expenses through some form of work or income-earning activity. You’re just not earning an excess that would otherwise be going to savings.

Savings Rate and the Advantages of Coasting

Although I haven’t explicitly stated it yet, a healthy savings rate is necessary to Coast FIRE. If you are currently saving 5-10%, then coasting is probably not an option. Why? Because the portion of your current income that goes to savings is the part you can cut out when you coast. If it’s not a significant chunk of money, then coasting isn’t all that different than your current situation.

Here are two scenarios to illustrate this point.

Scenario #1 – 20% Savings Rate

In this first scenario, couple #1 are earning a middle class income and are able to save 20% of their take-home pay. Their spending breaks down as follows, which is eerily similar to the latest data from the Bureau of Labor Statistics.

When couple #1 reaches their coasting point, they have a few different options. They could think about doing any of the following:

• Start working part time and/or reduce hours worked by 20% (4 day weeks)
• Take a lower paying job that is more fulfilling
• Switch jobs for another benefit such as a shorter commute

You get the idea. If you don’t have to worry about earning 20% of your current income, you can make work-life balance adjustments as you see fit. But since your savings rate is only 20%, you are relatively limited in the magnitude of the change.

Scenario #2 – 60% Savings Rate

Now let’s look at the scenario of couple #2, who are able to save 60% of their take-home pay. This couple has boosted their savings by house hacking their single family home, driving older cars, making smart grocery shopping choices and cutting useless subscriptions. Here’s their current spending breakdown.

As I mentioned, the larger your savings rate, the higher your flexibility and the more you can do by coasting.

With a 60% savings rate, we- I mean couple #2- can do the following when they hit their Coast FIRE number:

• One person can stop working completely. This would have the added benefit of saving on income tax and childcare costs.
• Both people can search out lower stress or meaningful work.
• Work in seasonal capacity (take summers off).
• Explore other options, such as starting a business or ramping up a side hustle.

As you can imagine, there are far more possibilities at play when your savings rate is higher. In other words, the benefits of coasting are much greater if your savings rate exceeds 50%.

Projecting Your Coast Point

So now you’re familiar with the concept of Coast FIRE. You’ve seen the benefits of the strategy, especially in the case of a medium-to-high savings rate. You’re probably envisioning the ways coasting can improve your life.

The obvious next question is this: when can I start coasting?

The key concept here is that when you start coasting, your savings rate goes to 0% but your current investments will keep appreciating and compounding. The momentum of your past saving and investing will carry you through to FI; it’s just a matter of calculating “how soon?”

We’ll do two different projections: one based on a 4% safe withdrawal rate, and with a more conservative 3.33% SWR. These values correspond to saving 25x and 30x your annual expenses, respectively.

Coasting to a 4% SWR

The rows across the bottom show your coast point, which represents how many times your annual spending you’ve accumulated in assets (xExpenses). The columns down the side show the expected annual rate of return on your assets, after inflation.

From this chart you can project the following outcomes:

• If you stop with 15x your spending in assets, you can expect to reach FI in 10 years with a 5% annual rate of return. For an 8% return (historical average), you’ll get there in about 6 years.
• If you start coasting with 20x in assets, then you can expect to reach FI in 2-4 years with similar market performance.

Coasting to a 3.33% SWR

If you want to be more conservative in your estimates, you can aim to save 30x annual spending before considering a drawdown strategy. If you plan to retire in your 30s or 40s, this is probably a safer bet.

Here’s a breakdown on how your coast point will impact your FI date in this scenario.

• If you stop with 20x your spending in assets, you can expect to reach FI in 8 years with a 5% annual rate of return.
• An 8% return will get you there in about 5 years.
• If you start coasting with 15x your expenses in assets, then you can expect to reach FI in 10-15 years with average market performance of 5-7% returns.

Run the calculations for your own situation. I bet you’ll be surprised to see how soon you may be able to coast. In our case, we could consider coasting (in some capacity) in as little as 2-3 years, depending on how the next couple years play out.

Summary

There are two final points to consider when deciding whether Coast FIRE should be part of your financial independence strategy.

1. Are you flexible?
2. N.E.R.R. – no one ever really retires

Coast FIRE, just like the 4% SWR, should not be followed blindly. Shit happens, and you sometimes need to be flexible and adjust to outside conditions.

For example, if you begin coasting right before a recession and a 30% market decline, you have two choices. You can keep coasting and ride it out, which might take twice as long to reach your FI number. Or you can pick up some extra work and start contributing to your investments again.

Which brings me to the second point- No one Ever Really Retires. Take a look at every FIRE blogger you know that has ‘retired’ in their 30’s or 40’s. Nearly all of them are still earning money in some capacity, whether it’s a passion project, part-time side hustling, or passive investments.

Chances are that you will do something after you FIRE. And if you’re going to continue earning money after you pull the ripcord, then you might as well consider coasting earlier. Go volunteer somewhere. Explore new opportunities. Do more rewarding work.

Stop pedaling, and let the momentum take care of your long-term goals.

What do you think about coasting? Does it make sense to stop pedaling and let your momentum carry you to FI? Or would you rather keep pounding the pavement til you’re free?