Coast FIRE (also known as Coast FI) has been making the rounds on social media. But what exactly is this trending investing strategy, and is it realistic?
What is Coast FIRE?
Coast FIRE is an investment strategy where people aggressively invest for retirement until their portfolio reaches a target value, often called their “Coast FIRE number.” The idea is that once they’ve hit that number, they can coast to retirement without having to contribute another dollar, because the balance will continue to grow via compounding returns.
Coast FIRE takes inspiration from the more well-known FIRE movement, which stands for Financial Independence, Retire Early. An important distinction is that the Coast FIRE strategy is not an early retirement strategy (hence why some people drop the “RE” from the name). You would still work to cover your expenses after you hit your Coast FIRE number, but in theory, you’d be able to stop saving for retirement if you wanted to and focus on using your income for other goals.
“To me, this is an upgrade from the OG, traditional FIRE movement,” says Chris Woods, a Charlotte, North Carolina-based certified financial planner and the founder of Silvis Financial. “People would try to retire at 35, 40, 45 and still have another 50-plus years of life expectancy, and it’s very difficult to save enough in that short period of time to cover expenses for the rest of someone’s life.”
Why did coasting gain traction?
For most people, the draw of Coast FIRE is the financial flexibility to focus on the “now.” Say you typically save $1,000 for retirement each month and decide to stop those contributions once you hit your Coast FIRE number. What would freeing up that $1,000 mean to you? You may decide to use that money for travel or invest for other goals, like a down payment.
The Coast FIRE strategy also offers the potential for career freedom. Some people work corporate jobs because they love what they do, it covers their expenses, and it allows them to save for the future. But that may not ring true for everyone.
If someone chooses to lower or stop retirement contributions after hitting their Coast FIRE number, that may allow room in their budget to shift to more fulfilling, perhaps even part-time, work instead.
“That, to me, is an appeal to it: having more time to enjoy life for themselves and with their family,” says Woods. “Especially anyone with kids because that’s such a finite window when the kids are in the house. … I want to say 80% or 90% of the time you’re going to spend with your kids is spent up until the time they turn 18.”
Not all smooth sailing
As with any investment strategy, there’s a level of risk that comes with Coast FIRE. For one, the core principle hinges on the market performing how you expect it to.
While there are decades of performance history for market indexes like the S&P 500, it’s important to keep the age-old saying in mind: “Past performance does not guarantee future results.”
Woods warns that just a few down market years can disrupt your plan for stretching your savings through retirement, especially if you’re young and projecting far into the future.
Estimating how much you’ll spend in retirement and your withdrawal rate (factors that go into calculating your Coast FIRE number) can also be hard to figure if you’re decades away from retirement.
Of course, you can take a more conservative approach to the math by factoring in inflation and potential market volatility, but, at the end of the day, there’s no accuracy guarantee.
I tend to be overcautious when it comes to investing for retirement, so even when I hit my Coast FIRE number, I’ll likely still contribute at least something to my retirement fund as a “just in case.” But it really comes down to personal preference and your appetite for risk.
A reality check on Coast FIRE
Woods encourages people to continue contributing to tax-advantaged retirement accounts if they’re eligible, since the money grows tax-free and extra contributions can protect against unforeseen circumstances.
In his experience creating financial plans, Woods has found it rare for people to be set for life at age 35 or 40 unless they’ve come into a large amount of money from, say, an inheritance. “People might pull up an S&P 500 fund, look at the last one, three or five years of performance, and then say, ‘Oh, well, hey, if I can just do that over the next 20 years, I’m going to be OK.’ And I think that can be an unrealistic view of the market and set an unrealistic expectation,” he says.
That’s not to say you have to write off the Coast FIRE strategy entirely if you’re seriously considering it, but it can be tough to plan on your own. It might be worth it to work with a financial advisor to make sure your numbers are right and you have a solid plan in place. If you can’t afford one or want something lower-stakes, some brokerage accounts also offer financial advisor services.
