In my first blog post about Financial Independence I wrote about what Financial Independence is and how you can reach it.
As I’ve often said before there is different ways to reach FIRE. The way to get there and when to get there is different for everyone. One type I particularly like is Coast FIRE or CoastFIRE. Its not easy to reach but if you manage to get there it can give incredible peace of mind and it will work in any country in any kind of pension system!
What is Coast FIRE?
Reaching Coast FIRE means that you come to a point where your investments have grown large enough that even if you do not add anything the rest of your life your investments will keep growing and reach a point where its high enough at the age you choose to retire.
It hasn’t got so much to do with the coast so much, although it does reminds me of sailing, as once you have your sail up you can just let the wind take you where you need to be. You still might need to steer a bit but generally you can sit back and relax.
This means that you will need to invest more money early on in your working career. Some say that if you manage to get 100.000 by age 30 invested you will be Coach FIRE by 65. Meaning you wouldn’t need to add one cent anymore after you have done this to your portfolio. Of course the calculation itself is a bit more complex, but it can give a certain peace of mind if you manage to get there in time.
The core you need to remember here is that you can be CoastFIRE once your portfolio is big enough to compound naturally to your CoastFIRE number, without adding a single cent, to the the number you want it to have at your planned retirement age
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Why choose Coast FIRE?
The reason to choose Coast FIRE is quite simple. In the early days of your life you are sometimes in a position you can save aggressively. Meaning that you can live in your 20s and early 30s incredibly cheap and because you are young you will not be judged for this.
Once you reach mid 30s you will be facing a lot of expectations. By then people will expect you to have some real estate, a car, not sleep in hostels anymore on holiday. Additionally you might be in a phase of your life where you want to start a family and children can be expensive, so it is good if you can invest early on.
Also if you work as an independent in Europe or have your own small business most likely you need to take care for the bulk of your pension yourself. In this case Coach FIRE can be very interesting for you. Perhaps you don’t want to retire early but you do want to be sure you can retire at 67 like everybody else.
There is plenty of more reasons to choose CoachFIRE, in my case peace of mind is an important one to, as once you reach CoachFIRE you have a certain peace of mind that aside from your state pension you have a back up plan to retire.
Three step plan to CoachFIRE
Before you can calculate your CoastFIRE number you need to determine the age you want to retire. The earlier you want to retire the more challenging the path to Coast FIRE will be. If you plan to retire at 67 most likely it will be much easier then if you plan to retire at 67.
If you can live with a retirement age of 60, this should also be doable, perhaps even 55, but once you are aiming for under 50 then it will get quite difficult. But everything depends of the path you follow of course!
Why is that? Because of compound interest. Compound interest assumes that your investments grow every year with 7%. The longer your money is invested, the more time it has to grow. So the later you retirement age is the more time it will cost you to get there.
Before we can determine our retirement age I want to set the following stats we will be assuming during our calculations. The only thing that I will be changing is the retirement age.
25.000 EUR of expenses is exactly what I spend last year. I know this is a Corona year but at the same time this does include payment off a loan for a house, and this might be something that is paid off by the time you retire, so it should be enough money to live on comfortably. If you want to spend more you will need to aim for a higher number.
Again this can be adjusted for inflation.
The market grows with about 10% every year, so 8% is a safe bet. 2% inflation is the EU goal, so also there it seems like the right choice.
The last parameter 3,5% withdrawal is rather conservative and should allow our fund to keep growing even after we are CoachFIRE.
CoastFIRE at 67
67 might be interesting if you need to take care of your own pension. Retiring at this age with CoastFIRE will be the easiest, but that doesn’t mean its without a challenge. By the age of 35 you would need to have invested 110684. If you don’t reach this by 35, you can still reach it later by investing more and more in your portfolio.
CoastFIRE at 60
If you want to CoastFIRE at 60 it will get a bit harder for you!
You still need to reach the exact same number (714286 EUR) to CoastFIRE, but 7 years earlier this time. That means you will need to have a bigger fund, or 166428 EUR by the age of 35.
CoastFIRE at 55
If you want to CoastFIRE at 55 you will still need 714286 EUR by 55!
That means that you would need 222711 EUR by the age of 35. Not an easy amount to gather! Again you can still keep adding if you wouldn’t get this amount by 35!
CoastFIRE at 50
The last age I will show here is CoastFIRE at 50. In this age category you would need to gather 298046 EUR invested by 35! Not an easy task!
Once you know your goals & the CoastFIRE number you need to reach, you will have to start on a long path to Financial Independence. This might be the one tip you like to hear the least but living frugal will get a whole new meaning if you want to be on the CoastFIRE path early on.
A better way to say invest aggressively is probably just “invest”. Meaning you invest everything you save. I am not saying you should not have an emergency fund, actually I believe you should. I also think you should not invest in to risky ventures. Investing is always Risky but some investments are more risky then others. Check out my ETF strategy for a safe sustainable investment strategy.
The government will help you
Now if you are living in Belgium or another country with a state pension, then you will be getting some extra money from the government at 67. This could make it easier to retire. Personally I see this as an extra bonus that will be needed for the added costs that will come from being older.
But knowing this support is coming you can probably safely change your withdrawal rate to 4% instead of 3.5%. Making this adjustment could reduce the number you need to go on the CoastFIRE path with 15%!
Everyone’s path is different
Lastly I would like to stress that everyone’s path is different, and what is right for me might not be right for everyone. You can also create your own Roadtrip that could just be a mix of different ways to FIRE. Apart from Coast FIRE you can also Barista FIRE, Lean FIRE and Fat FIRE. These are a few more other ways. Combinations are also possible!
Personally Coast FIRE is a favorite of mine because of the stress free life you can have once your number is reached. Indeed once you reach your number you are certain you will be able to retire at the age you have chosen. You can put this money aside and just Coast your way to financial freedom.
What is your path to FIRE? Let me know in the comments bellow, and follow me for more blogs that can help you with your Roadtrip to FIRE.