Being 31 years old (at the time of this writing) — I felt like now might be a good time to analyze what it would take for me (or anyone else) to achieve Coast Fire by 35.
For those that don’t know, Coast Fire is when you’ve achieved enough financial assets that you can let grow and compound on it’s own for years until you start to draw from the pile when you reach retirement age.
For this type of FIRE method, you’d stop adding to it and “coast” — letting the assets grow on it’s own.
At 35–you’d have approximately 30 years to let those assets compound while you’re busy slacking off–which is a ton of time for growth.
So–how much do you need to make Coast Fire happen by the time you hit the age of 35? That depends entirely on your estimated expenses in retirement, as well as what you assume your long term investment returns will be over the course of 30+ years.
It also depends on what you define as a proper “coast” set up. I take a unique twist on Coast Fire, which I’ll explain shortly.
But first, let go over the basics (using my self as a reasonable case to analyze).
Costs in Retirement
Estimating what your expenses in retirement when it’s over 30 years away is slightly ridiculous, but for the purposes of this post, let’s give it a shot.
For now, I’m a renter–but I plan to own a primary residence in cash by the time I reach retirement age. That will leave me with just having to account for enough income to cover maintenance, insurance and taxes on shelter–which will lower my overall expenses.
Assuming my other expenses total somewhere around $4,000 per month (I live relatively frugally)–then I’d need assets that can cover that amount per year that I can draw from without running out of money before my journey comes to an end.
Assuming I need to cover $4,000 per month, I can take that number and multiply it by 12.
From there, I take that number ($48,000) and multiply it by 25. This gives us the “safe withdrawal” rate that allows me to maximize my chances of the money never running out as I draw from the balance.
Our grand total “retirement” number lands at $1.2M. That means I’ll need to be reasonably sure that whatever capital I accumulate at age 35 will total around 1.2M when I hit my full retirement age (I’ll use the age of 65 for our purpose here).
Coast FIRE at 35–Getting to 1.2M in 30 years
In order to back into the number we’ll need to hit at 35 for Coast FIRE–I’ll need to make some assumptions about what my rate of return will be on my investments over the course of 30 years.
Of course, this is impossible to know for sure, so we’ll have to use what history tells us has happened over the last few decades or so.
If we assume that we use a broad-based total stock market index fund as our investment vehicle for Coast FIRE, we can assume a 8% annual rate of return and plug that into a compounding interest calculator to see where we’d need to be at 35 to get there over 30 years.
This number is lower than what the SP 500 has returned over the last 50 years–which has been approximately 9% (nominal return–not including inflation’s impact).
Factoring Inflation into the Equation
When we’re talking about retiring over the course of 30 years–you’ve got to factor in some level of inflation that will impact your purchasing power over that long of a period of time.
There’s obviously not telling what this is actually going to be–so we’re just making an educated guess here.
In order to account for some level of inflation, we can look at the real returns of the SP 500 over the last 50 years and we get a number of about 5% (shout out to the Motley Fool for doing the leg work here.)
So now the fun part, let’s plug in 5% into a compounding interest calculator to see what we need to put away at 35 to get to our number at 65.
Coast FIRE – The Magic Number is $275,000 at 35
For me, my coast FIRE number is $275,000 at 35 years old. This brings me to an inflation adjusted $1.2M net worth over the course of 30 years if I just let that money cook on it’s own (with no extra contributions).
This is the traditional way that most people would calculate Coast FIRE.
I, however, have a different take on Coast FIRE than most other bloggers out there.
Coast FIRE–Fatal Flaw #1
Aside from all of the assumptions made on returns and inflation, I think Coast FIRE has a fatal flaw.
It assumes literally zero contributions for decades after you’ve hit your target. The odds that you’ll contribute nothing extra, after you’ve trained yourself to be a savings machine and rack up a big net worth in your early to mid thirties, is practically laughable.
Even if you go full “4 hour workweek” and quit your job to pursue some low-paying passion project, odds are that you’ll eventually earn enough money to create some margin over just your day to day expenses.
So–I think the traditional method of calculating Coast FIRE is actually pretty conservative.
The thing you need to understand is, at age 35, even incredibly small contributions over that long of a time period can make a huge change in this equation.
Even an extra $100 per month contributed over the course of those 30 years will give you an extra ~$100K at 65 (assuming our 5% compounding growth rate).
That’s a massive 8.3% difference–and we’re talking a measly hundred bucks per month.
Given that you’re a cash-saving, disciplined machine–you’re probably going to save more than that, even as you live your best life pursuing whatever life passion you put on hold grinding at your job.
Coast FIRE Fatal Flaw 2
There’s another flaw these FIRE calculations never take into account, and that’s some sort of government transfer payments (aka social security) that is likely coming your way (in some form) when you’re old and grey.
We have no way of knowing what this will be–and I’d never like to count on money from the government–but the odds of there being literally nothing coming is very low.
Sure, there are going to be adjustments to social security, but the odds of there being some amount coming your way is fairly reasonable to expect.
This will help to cover some of your expenses during your full retirement.
Coast FIRE Fatal Flaw 3
Let’s assume your plan of pursing passions, and coasting along after the age of 35 all comes to fruition and works out.
You end up discovering your passion, and you build a life around it.
At the age of 65–are you expecting that you’ll just magically give it up and put it down because you “are retired” now?
Come on, we both know that’s probably not going to happen. You’re going to want to continue doing what you love!
That also probably means you’re going to be making at least some money in “full” retirement–which means that capital is going to go further than you think.
All of this is to say–you’re probably aiming a little high with your Coast FIRE calculation–and could likely move faster than you think.
Good luck on hitting that FIRE number and coasting your way to freedom at 35 (or sooner).