How To Calculate Coast FI – Free Coast FIRE Calculator

Imagine you front-load your investments and retirement account early on. From now on, you can afford to stop investing and earn less. You can “coast” into retirement with an easy job. Our calculator tells you exactly when this will be the case for you and how to properly run your numbers.

My husband and I are about to reach Coast FI in the next couple of months. No matter what happens from now on, I don’t worry about my finances in retirement anymore. I don’t need to earn, save and invest anymore towards retirement. I already self-funded my personal retirement account. That will provide additional income next to the state pension I’ll get among others.

Let me tell you, that feeling is awesome. It gives me the freedom and security to make changes in my work life that are in my best interest without feeling financially constrained. And that gives me soooo much peace of mind. It will do so for you too. Let’s see exactly how.

The FIRE movement and Coast FIRE / FI

The FIRE movement – Financial Independence Retire Early – calls this process Coast FIRE or Coast FI. I like to think of Coast FI as of the most important milestone for someone’s journey to financial independence. But also, for everyone who wants to ever retire at all. Because once you’re there, you will be ok in retirement (financially). You already took care of closing your personal retirement gap.

If you want to calculate your personal retirement gap, get a copy of our Retirement Gap Calculator helping you to properly run your numbers and not oversee a whole in your pocket for retirement.

There are different versions of Coast FIRE like Coast-to-Target FI and Flamingo FIRE I cover in this post. But there is also Barista-Coast FIRE / FI that combines Coast FIRE / FI with the Barista (FIRE) approach. Find more details in the recent blog post Pros & Cons Of The 13 Types Of Financial Independence. However, for now, let’s dive into how exactly Coast FIRE or Coast FI works.

What Is Coast FIRE / FI?

Coast FIRE / FI is the fastest way to a semi-retired lifestyle. But it’s the longest way to full FIRE and retirement (typically at official retirement age in your 60s). If you want to learn everything about how the semi-retired concept works in general, you can read the blog post about Semi Retirement: How To Semi Retire In 5-10 Years. In a nutshell: if you (and your partner) semi-retire you typically still work for an income but in a part-time position and a low-stress job.

Coast FIRE or Coast FI highlights the FI part (financial independence) and neglect the RE part (Retire Early) of FIRE – Financial Independence Retire Early. So, rather than pursuing early retirement (in your 30s or 40s) and stop working (for an income) you want to “coast” into retirement with an easy job emphasizing real work-life-balance while continue working.

Coast FIRE / FI: Phase 1 & Phase 2

Phase 1

In phase 1 on your Coast FI journey you focus on earning and saving more money so you can invest A LOT of your income fast. That requires some sacrifices. I want to be very clear here. You will need to give up some of your current spendings. But, and this is very important, only for a couple of years. You do that until you have “enough” in retirement savings and reach a specific point in your portfolio.

From there, your investments (in the stock market) will compound (un-touched) into a quite nice amount until you achieve full financial independence. Typically that is at official retirement age in your 60s. When this “enough” will be the case for you, tells you our free Coast FIRE Calculator down below.

Phase 2

Once you finished phase 1, you don‘t start withdrawing yet from your investment portfolio. That’s how your money can grow (into your F.I.R.E. number) in the back through the power of compound interest alone. I talk about that F.I.R.E. number and how to calculate yours in the blog post How To Retire Early With Kids: Your Guide To The Fastest Way.

So now, you can “coast” towards retirement. You can stop saving and investing for your retirement early on in life. That means, you don’t need to earn that money anymore and can afford to earn less. What that does is allowing you (and your partner) to switch jobs into a low-stress and part-time position.

The Benefit Of Coasting To FIRE

You need to hustle, work full-time (or 2 jobs) and pare down only for a couple of years. Then you already self-funded your retirement account and can afford to “coast” towards traditional retirement. That is a huge accomplishment. Especially if you achieve that in your 30s or 40s.

Afterwards, the lifestyle benefits are huge. As your savings rate could be 0% from now on, you can afford to earn less as you don‘t need to save and invest anymore. You can change your work life without risking your financial future. From that point on, you only need to earn money to cover your family’s living expenses. Or you can focus on achieving other financial goals such as becoming debt-free fast(er).

As most FIRE folks have a high savings rate of 50 % and more, they only live off of 50 % of their income anyway. That allows them to really retire early from the (work) life they live now and switch jobs or even careers. That’s the power of having a high savings rate and using that to reach Coast FI fast.

The Downside Of Coasting To FIRE

You won’t retire early. Work will not become fully optional. So, you will never reach the same level of time freedom as someone who decided to purse FIRE and EARLY retirement. This is very important. You have to be well aware of the fact that you will need to continue working. That limits your possibilities and the life choices you can make. Because you don’t have the choice weather you wan’t to work or not.

Personally, I believe that continue working is not a downside. Especially, if you can choose the kind of work you’re doing. If you can work a low-stress and part-time job you find fulfilling and meaningful.

Because it is actually a privilege to have the choice of what work you want to do. How many hours you want to work and when. In fact, it is a privilege to work at all. People, especially women, have fought for the right to work for very a long time. So why should we throw that overboard now?

I recently took a 2-years long parental leave. I could not have imagined how much I missed working as an employee. Even if it’s just for 2 to 3 days a week and a couple of hours per day. Even if it’s on top to our blog. I truly cannot imagine to stop working in my 40s. At least, that’s how I feel about it at the moment.

Coast FIRE Type 1: Coast-to-Target FI

Coast-to-Target FI is a version of Coast FI. Here you don’t want to wait until official retirement age to fully retire. Instead, you already opt for a specific target (semi) retirement date like at age 55 or 60.

But, therefore your Coast-to-Target portfolio needs to be higher than your Coast FI portfolio (if you want to retire earlier than the official retirement age). So, you need to earn, save and invest more money for a longer period of time. Typically, you hustle for 5-10 years to build up your required portfolio. Then, you can coast towards your target retirement age (when you fully retire).

Paring down for 5-10 years to save and invest A LOT fast is quite some time. So, living frugally and working a lot to save and invest a lost must feel really good to you personally. Compared to Coast FI you delay semi-retirement for years and that can feel significant. But, and I found this very powerful, in return you can reach full retirement sooner. Now, you decide what’s more important to you.

Coast FIRE Type 2: Flamingo FIRE

With Flamingo FIRE you want to accumulate 50% of your FIRE number (more down below) in your retirement account before you stop investing. You will reach Semi FI even later (than with Coast-To-Target FI). But you also reduce your semi retirement period to 10 years or less. By doing so, you will reach traditional FIRE and full retirement earlier. That’s how you will eventually still retire EARLY. It’s another trade off.

Once you saved up 50% of your desired retirement savings, you don‘t start withdrawing money. That’s how your portfolio will compound quite fast into your FIRE number and a fully funded retirement account. The math behind is easy. If your portfolio has a 7 % return rate on average, it doubles in 10 years. If it’s 10-15+ % return on average, your portfolio may only need 5 years to double or somewhere in-between.

Reaching 50% in retirement savings early on in life means you need to work, save and invest A LOT for minimum 5 years (but mostly more). So, you will need to live more frugally (than before). This time is too long to consider frugal living as a burden. Once you hit those 50 %, you quit your full-time, high-stress job. That’s because from now on, your savings rate and investment rate can be 0%. But still, you will need to rely on earning a decent income in semi retirement to cover your bills before you can fully retire.

We modeled how Flamingo FI would look like for us in this blog post in section “Semi-FI through Coast FIRE / Flamingo FIRE”. If you want to know everything about Flamingo FIRE (including the origin of its naming), read Flamingo FI – The Best Path to Financial Independence? from its creator Money Flamingo.

Understanding Your Coast FIRE Number

Your Coast FIRE number marks a specific point in your portfolio. That is when you have invested enough in retirement savings that your investments can compound and grow into a fully-funded retirement account by the time you reach official retirement age. You can calculate your Coast FIRE number down below with our free Coast FIRE / FI Calculator.

Once you reached your Coast FIRE number, you don’t have to contribute anything else to your portfolio (as long as you don‘t start withdrawing yet). In the back your money grows through compound interest.

We translated the mathematical process behind compound interest into an easy-to-use Compound Interest Calc. It’s totally free. Just enter your Coast FIRE number (after calculating it down below with our free Coast FIRE / FI Calculator) and see how your portfolio grow over time. It’s fascinating.

Keep in mind that the process behind compound interest is based on the average return rate. In reality, the market goes up and down over the years. Your investment growth is not linear but rather a bumpy road. But still, over the long-run the market always goes up (again). Always.

If you want to learn more about investment growth, I highly highly recommend reading the book The Simple Path to Wealth. It’s one of my top favorite books about investing and financial independence. We have also written about Decoding Market Growth: Key Drivers Behind The Market’s Upward Trend and The Market’s Singular Direction: Upwards – A Historical Perspective.

Also, and this is important, your Coast FIRE number, totally depends on your withdrawal rate of choice. In the next paragraphs I explain why and how. Also, that is covered in the book mentioned above.

How To Calculate Your FIRE Number

Your FIRE number is the amount of money you need to have saved up in your portfolio so that the passive income it generates can pay for your bills. Basically forever, without fearing to run out of money. That in itself depends on how much money you withdraw from your portfolio. More down below.

For example, let’s assume your annual spendings – you expect to have in (early) retirement – are 30.000. For a safe withdrawal rate of 4% you now multiply 30.000 by 25 and get your FIRE number with 750.000. If withdrawing 4 % annually you could take out 30.000 per year for up to 30 retirement years with a very high probability to never run out of money during those 30 years.

What Is A Safe Withdrawal Rate For Your Retirement Planning?

The withdrawal rate tells you how much money you can can take out from your portfolio in retirement without running out of money. That rate translates into a certain percentage. And, it depends on your retirement planning. How long do you expect your retirement horizon to be? Do you plan for 20 years of retirement, 30 years or more?

Most people, who are part of the FIRE movement, use the 4% rule as a SAFE withdrawal rate for a 30 year retirement period. They can SAFELY take out 4% from their retirement savings each year (in retirement) without fearing to run out of money. I’ve written about the 4% rule in the blog post How To Retire Early With Kids: Your Guide To The Fastest Way.

If you expect your retirement period to be shorter than 30 years, like 20 years to 25 years, you can actually raise that 4% rate. Most retirement advisors recommend a 5% SAFE withdrawal rate for anyone with a retirement age of 65-70 years. Some even recommend 5.5% – 6% for such a retirement planning.

As a rule of thumb you can say, the older you are, the shorter your retirement period is, the more you can raise that 4% withdrawal rate. But only up to a specific point like 5-5.5% if you want it to be SAFE.

Vice versa, if you expect your retirement period to be at least 30 years like 35 years or 40 years, you should consider to lower that 4 % rate. Most people in the FIRE community like using a 3%- 3.5% rate because their desired retirement age is actually in their 40s or 50s (or even earlier).

How To Calculate Coast FIRE – Free Coast FIRE Calculator

We offer a free Coast FIRE / Coast FI Calculator for your convenience. Go ahead and run your numbers online within minutes. See how much you personally need to save and invest into your retirement account until you reach your Coast FIRE number. And, when you will reach a fully-funded retirement account. Here we’ve also written down the exact calculation of your Coast FIRE number line by line.

The Danger Of Not Taking Inflation Into Account

Your free Coast FIRE / FI Calculator takes inflation into account within the calculation process. That’s because inflation is the process behind raised prices for any goods you want to purchase with your money. That is called your purchasing power. So, if you want your purchasing power to remain the same in retirement, you need to consider inflation.

Or in other words, you will need more money (than you need now) to buy the same things. So, if you want to continue buying the same things like food, gas or afford going out you will need more money.

Our free Coast FIRE / FI Calculator integrates this inflation process. You don’t need to worry about how to calculate that by yourself and let the calculator do the job for you. In Europe, people typically calculate with an inflation rate of 2%-3%, mostly around 2.5%. In the US, people expect a higher inflation rate of over 3%, typically 3.3% (if taking the average of the last 100 years of all inflation rates).

Is Coast FIRE / FI The Right (Early) Retirement Strategy For You?

Figuring out if Coast FIRE or Coast FI is the right retirement strategy for you, can be broken down to one simple question: Do you want to take the stress out of your work life as soon as possible without worrying about your financial future (in retirement)? If you answer YES then Coast FI might be just perfect for you. If you want to go deeper here, you may want to read the following blog content:

• How Early Retirement Works vs Semi Retirement: Your Options
• Semi Retirement: How To Semi Retire In 5-10 Years
• General FAQs (about semi-retirement)

When you walk away today with at least one new idea to improve your financial journey I’d love to show you some more in the next post. If you haven’t already, you can apply to become a part of the community to not miss any new release. For that you can subscribe to our newsletter below in the green footer.

Now, I’d love to hear from you: What do you find most appealing about Coast FIRE or Coast FI (as a retirement strategy)? Let me know in the comments below!

Title image source: Jeremy Bishop on Unsplash