Reader Question: Should I Coast FI?

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 I had a reader send me a nice email with some lengthy questions.  This individual was doing well, including maximizing all retirement accounts, had money saved outside of retirement accounts, and worked in a volatile industry and lives in an area where the local economy is boom or bust.   He is 33 and has already worked for eleven years and is a homeowner.  I’m assuming he and his wife are good savers based on the details provided, but he didn’t disclose the exact amount saved.  His final question was “What would you have considered doing differently?”  (Hint: I would have considered Coast FI)

Shirt’s Response:

My answer to what I might have done differently probably applies to your situation.  It is the concept of “Coast FI”.    I’m four years older than you are.  I was just short of my 32nd birthday and took a job promotion/change that took me on an exciting work path but is/was a time consuming job.  It ultimately moved me much further away from family and to a place with limited outdoor recreation.  At the time of making that decision, we already had a net worth of $700,000 including a couple of years worth of living expenses in a taxable account.   

I should have looked at that number and trusted the math with the old “rule of 72” and scaled back right then.  We had already proven we could live and be pretty happy spending $50,000 to $65,000 per year.  We really didn’t need to save anymore for retirement and as long as one or both of us earned the enough to cover living expenses, we were already free for the rest of our life.  That original chunk saved before 32 with investment earnings is still 68% of our net worth.   The dollars earned/saved in your 20s are worth so much more than the dollars earned/saved at 35.  I’ve earned double what I earned five years ago, but as I look back on the math the dollars earned recently are not worth as much as the early money invested.  I often think I should have bought back my time right then and scaled back, either working for a more relaxed employer in my industry or finding a more interesting career.  Investment earnings and time would still leave us with more money than we’d ever need by the time we were in our 40s.  (RelatedThe Math of FIRE)
You can’t get the front half of your 30s back.  Parents get older, friends start having families and more time restrictions, some people get consumed by their work, and there’s always the risk of something happening to you or your immediate family’s health.  Life is also too short to live somewhere you don’t love once you have that baseline stash.  I’ve known people who have moved to Colorado, Utah, and even Southern California from the area I live in.  A college graduate who works hard can easily earn fifty or sixty thousand a year and that’s still nice living if you don’t have to put money away for retirement anymore.  
Lots to think about and I hope that helps.  I’m glad I got to respond to you at this point in your career/journey.

What is your Coast FI number?  

The purpose of my response was to get the reader to think about Coast FI.   I define Coast FI number is the amount saved to fully fund a retirement without needing to make any additional contributions.   This is something burnt out professionals need to consider:  At what point can you scale back your earnings to the point of only earning current living expenses but still be financial secure in retirement?

Here are two basic examples of Coast FI.  We are providing a $48,000/year retirement budget and a $60,000/year retirement budget at age 65.  The underlying assumptions are conservative with an 8% annualized return and a 3% annual inflation factor.  The goal is to have a portfolio that can generate this income in today’s dollars.

Coast FI:  $48,000/year budget.   Required Dollars Invested

Age 25:  $162,400

Age 30:  $207,268

Age 35: $264,532

Age 40: $337,618

Age 45: $430,896

Coast FI:  $60,000/year budget.   Required Dollars Invested

Age 25:  $203,000

Age 30: $259,085

Age 35: $330,666

Age 40:  $422,022

Age 45:  $538,619

I ran this analysis for a friend of mine considering leaving her career in finance.  She wanted to move into a profession that closer aligned with her sense of purpose and came with the perk of life flexibility.    The annual budget she was accustomed to was roughly $60,000 and she had diligently saved into her retirement accounts.   We ran the numbers through a similar illustration and she had exceeded the Coast FI threshold for her age.  She pushed the eject button from corporate life and hasn’t looked back.

This Math Is Just As Important for the FIRE movement.

Early retirees face this same decision.  Do they work to hit the fail safe number, or should they scale back years before and downsize how much they work?  The following are common considerations:

  • You can’t get back time.  Are you sacrificing relationships today to hit one large number?
  • What damage are you doing to yourself?  You only have one body and mind, it must be taken care of since damage could be cumulative over time.
  • Do you want to sacrifice two, three, four, or five years of pain trudging through a job you don’t like to hit a “never work again” number?
  • Will you earn money in early retirement?  Many people back into money and end up with more.  I’ve occasionally run across the an early retiree who said they worked too long.  
  • Your investments will likely perform much better than the 4% rule.   A 6% sustainable withdraw rate is around 50% successful in various simulations (not recommended, but pointing out why you’ll probably have more money)

So lets get back to this reader’s situation:  

Working Assumptions:  33 Years Old, $750,000 Saved, $60,000 Projected Annual Expenses.   Based on the email and the geographic location of his work, we’re going to assume the reader doesn’t exactly love his job or current location.  Because of this we’ll title scenario #1 Death March to FI:

Option #1:  Death March FI:

Target Financial Independence Number:  $1,500,000

Amount Saved/Yr $70,000

In this scenario using a basic 8% return, the reader will reach the target number in five years, between his 37th and 38th birthday.  It sounds simple, but those next 4+ years will be grueling.  

Option #2:  Coast FI

In Option #2, we assume the reader decides to make a change into Coast FI.  This assumption consists of earning enough money to cover living expenses with a small amount saved per year (unknown new employer is probably nice and offers a 401k match).

Target Financial Independence Number:  $1,500,000

Amount Saved/Year:  $6,000

A simple compound interest calculator with the same return and invested dollars estimates it’ll take nine years to reach the $1,500,000 target number.   This delays full financial independence for five years, so the decision comes down to the quality difference between death march job and unknown replacement job.   

One thing of note, in either scenario the investment earnings start becoming a more impactful portion of the annual returns than the amount saved.  

Geoarbitrage:  Great in theory, tough in action

I want to touch on one final point in this reader’s question:  Geoarbitrage.  They likely plan on moving after they quit their jobs.  They live in an area where almost no one would voluntarily choose to live but has great incomes for certain industries.  We’re going through a similar situation and looking at moving post retirement.  Here are some issues and thoughts that have come up for us and others may not think about:

  • When/how do you buy your “retirement” home?  I’m a fan of taking a (sub 4%) mortgage into early retirement.  Its tough to get a mortgage once you no longer have income.
  • You will have to go through disassociating yourself with your professional identity.  How much more change is reasonable to take on at the same time?
  • What is your social circle?  Moving means a new set of friends, neighbors, acquaintances.  Who will these people be and how will you find them since many adult friendships are developed through work?
  • What does your routine look like? Don’t discount the loss of everything else familiar, your gym, your grocery store, your local running path.
  • What about health care?  Changing doctors and dentists is added pain.
  • Changing states?  More irritations with the joy of dealing with state governments.   Add in the fun of a multistate tax return!
  • There’s also no “perfect” destination.  Every area we’ve looked at and I’ve analyzed to exhaustion come with trade-offs.   Some places are hot, others are cold.  Do you like the beaches and the mountains?  Want them both?  Maybe the low cost of living goes out the window.

With taking all of the above into consideration, I’d recommend the reader identify their potential final destination and move there in advance of hitting their FI number.  There’s a longer runway to figure this out while still working and enjoy Coast FI. 

I want to give credit for some of the inspirations to this post and my understanding of the concepts of Barista FI, Coast FI, Fully Funded Lifestyle Change, and F*** It FITread Lightly Retire Early even writes about pursuing financial independence while in a job she loves.  I’m impressed by all of these writers in the personal finance space who spend hundreds of hours of their time helping educate others with minimal to no monetary gain in return.  

8 Replies to “Reader Question: Should I Coast FI?”

  1. This is really interesting and something we’ve been talking a lot about lately. We’re easily on track for a comfortable FI in ~5 years, but that’s 5 years of grinding still. Do we want to, instead, lighten up on our jobs and FIRE in 7-10 years?

    The question is a bit different since we’re in our 40s than it might be in our 30s, but still intriguing.

    I appreciate the concept of Coast FI vs. Death March FI.

    1. I think the choice really comes down to two things, the first is trusting the math. You have to pick out three specific starting points over the last 100 years to point out a moment where the math *didn’t* work for growing your stash. Outside of those time periods, the math works.

      The second is evaluating what the replacement income looks like. If you’re making $250,000, $300,000 or more and your replacement lifestyle job may only be 1/4 of that number, it might be worth continuing that march. However if the replacement job is still 50% or more of the existing pay, then that’s probably a worthwhile time for money trade to make.

      I went down the death march path because I lacked some combination of the network to be confidently employable, the realization that it would be easier elsewhere at a lower level, and let my ego get in the way. I was easily employable at 1/2 to 2/3rds of the current earnings rate.

    1. That’s a great list and post, thank you for sharing. Ironically we’re finding shopping at Costco for Instacart is better than actually working there and having a boss and set hours.

  2. Thank you for putting this concept into words! It turns out I’ve been aiming for what you call Coast FI while calling it “The Downshift” in my head. Once my spouse and I have saved enough for our future selves to retire at 60, we will give our current selves permission to back off of the burnout-level careers. We’re hoping to reach The Downshift next year, in our mid thirties. And I guess we’ll be living Coast FI in two senses: we’ll be coasting to FI while still being able to afford to live in our beloved yet expensive coastal city.

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