How to Reach Coast FIRE (The Relaxed Way to Retire!)

0:00What if I told you there was a version of FIRE where you could stop saving for retirement in your 30s and still retire comfortably at age 65. It sounds too good to be true, but it's called coast fire, and it might be the most achievable path to financial independence that nobody's talking about.

0:21Hello, hello, hello, and welcome to the BiggerPocketsMoney podcast. My name is Mindy Jensen, and with me as always is my not-coastal co-host, Scott Trench. Thanks, Mindy. Great to be here, and great to discuss how we can help people peak their net worth. He's not the coast, it's the mountain peak here on BiggerPocketsMoney. I'm so excited to get into this topic today. No, Coastify is not when you go and live by the beach. It is when you have enough saved that traditional retirement is funded with a high probability of certainty such that you can, at your discretion, optionally spend everything you earn or earn less to just cover your living expenses today.

0:58It's a very freeing milestone mentally and psychologically. Okay, Scott, let's get into that a little bit more. What happens in your finances that allows you to coast? What does coast fine really, really mean? I think it's this concept of if you have $300 ,000 saved in your 30s, and your goal is a$100 ,000 a year annual expense profile, then you're almost certainly at a 7 % long term annual return rate going to have that$2.5 million, and many people use 7 % return rates to include assumptions around inflation, for example, you're almost certainly going to have that$2.5 million inflation adjusted net worth by the time traditional retirement hits, if we perform anything like what we've seen performance wise in the overall financial markets over the next 30, 40 years.

1:47And so that's the idea here is if you are able to stockpile that wealth, especially early in life, and just leave it untouched in your retirement accounts until that point, you should be set for your traditional retirement, again, assuming long-term average trends. And that can be a very freeing milestone to break. It's much more achievable to think about those numbers and hitting those numbers early in life than it is to building a$2.5 million portfolio in your 30s that can distribute at$100 ,000 a year, which can be a very, very overwhelming obstacle for many. Did you say you could be set for life with Coast Fi?

2:19That is what I said, I guess. What a pun. Okay, so what I like about Coast Fi is that you are saving a more nominal amount instead of this push, like you said, to get to the 1 million or 2.5 million or whatever it is that you have your Fi number. Now I've taken care of my 65-year-old self. If I don't wish to work anymore, let's say you're in a super stressful job and this job pays really well, you'd rather not work there anymore. You can still go out and get a different kind of job, cover your current living expenses, but not have to worry about being able to save for retirement. You've already taken care of your retirement.

2:58Or now you can start stepping back your retirement. Let's say you're in a job you like or you don't actively hate. You can continue to work there, continue to save for retirement. And now retirement isn't 65, it's 62. And a couple of years later, it's 58. And a couple of years later, it's 52. And then you can really start stepping back and creating the life that you want, creating your retirement timeline on your own timeline where you're not doing this all out mad dash to grab as much money as you can, save it now so that you can retire now. And again, I think that comes back down to that freeing concept.

3:36I think a lot of people who are in the FIRE community really obsess over this goal of financial independence, perhaps to an unhealthy degree, and they attempt to break that. Again, I use this number 2.5 million because that's around the midpoint of what BiggerPocketsMoney listeners say is their desired target for financial independence. Their FIRE portfolio has$2.5 million, thus allowing them to spend$100 ,000 a year adjusting for inflation indefinitely into the future. There's a whole bunch of concepts here. You know, I think Mr. 1500, Mindy's husband came up with the concept of the death march to fi.

4:10And that is a, you know, a phenomenon that people feel, but it's much, it can take a lot of pressure off if you're like, wow, I am just going to be so set here at 30 or 40 with just the amount that I have in my retirement accounts. That's going to compound so nicely over the next 30 to 35 years that I don't really have to crush it and keep grinding it out, I can ease off in a pretty meaningful way and really begin to enjoy the benefits of the wealth that I've built up over this time. So that's the concept of Coast Fire. It's a relatively niche or niche, depending on where you're from, concept in the fire community.

4:45I don't think you're going to see this as a particularly popular strategy where people are actually beginning to change things, but it's a major mental milestone. And you should feel great if you've hit Coast Fire, even if you're far away from actually being able to today live off of your asset base alone, because it means that you fully funded your retirement in a traditional sense, or you will have a fully funded retirement in traditional sense by the time you hit traditional retirement age. So I'm going to push back on you a little bit, Scott. You said you don't think it's for everybody. I think it is for everybody.

5:16I think anybody on the path to financial independence should open up a COSFI calculator and just run the numbers. I think there's so much comparison to people like Carl and I share our numbers over on his website and people will see that and be like, oh, I'm not there. Well, don't compare the beginning of your journey to the well past the end of my journey. Look at where you're at in comparison to your COSFI number. The Pioneers have a calculator, a COSFI calculator, where it's already got some numbers entered in there just to show you what you're supposed to put in there. And at age 30, if you want to retire at 65.

5:54Let's actually do it, right? Scott, I'm going to share my screen with you. This is the copy of the Finears COSFI calculator. It's a Google sheet. It's super easy to use. You're literally just plugging in a bunch of different numbers. Your current age, age 30, your target retirement age of 65 is where we'll start. These are some assumptions. The 4 % safe withdrawal rate and an inflation adjusted growth rate of 7%. I think 7 % is a little low. I'm going to change that to eight, Scott. And then annual expenses in retirement, 100 ,000. Passive income, zero. Fine number, 2.5 million at age 30 to retire at age 65.

6:32You would need$169 ,000 in your bank right now. That is so much more approachable and so much more attainable, especially for somebody who's just starting out, who might not be making a ton of money, who's thinking to themselves, how am I going to save$2.5 million? You don't need to. You only need to have$169 ,000 at age 30. But what if you don't want to retire at 65? What if you want to retire at 55? Well, let's see what that says. Now at age 30, you need$365 ,000. Playing around with this calculator just gives you some ideas of how easy it's going to be. Maybe I'm 35. Okay. At age 35, if you want to retire at 55, you need$536 ,000.

7:17That's still a whole lot less than 2.5 million. So this Coast Fi idea is such a brilliant idea. I've been in the Fi community for a really long time. And in the beginning, it was all about frugality and getting to the end as fast as you can. And now let's say it takes you 10 years to get to Fi with the all out approach. Those are 10 pretty miserable years. And I know this because I did it. But what if it took you 11 or 12 really awesome years? I'd rather have an 11 or 12 year journey that was pleasant than a 10 year awful journey. I think that while this should be good news for everyone, this concept of Coast Fire, I think it's particularly powerful for young people, right?

7:57So you're 27, let's put a 27 year old in there wanting to retire at 65. And this person, let's put that return profile at 7 % per year, which again is a more conservative approximation of this. I mean, because you have so long between now and that retirement date, and then you only need$191 ,000 saved up at 27 to never have to contribute again to your retirement accounts. This is assuming not another dollar goes in to get to your coast fire number. You are likely with, if the return profile goes, you know, anything close to historical averages, or even a little worse with the 7 % assumption, you are likely to have this$2.5 million inflation adjusted terminal net worth at 65 and be able to withdraw$100 ,000 in inflation adjusted dollars in those, what, 38 years.

8:43So it's a pretty powerful concept. So it's actually quite achievable, I think, for many. It's still a lot of work to get$191 ,000 saved up by 27, of course. But that's a very achievable amount of money, I think, for a lot of folks compared to when you hear about all these folks that are trying to get into millions of dollars in their late 20s or early 30s and achieve a true early retirement level of wealth at that point in time. I mean, this person can spend the rest of their life spending every dollar they make or working a much easier job that's much less demanding and making less money and not have to contribute.

9:15And so it's a very powerful concept, I think, especially for younger folks as a milestone in that journey. Absolutely. And Scott, we haven't talked about passive income yet. You've got rental properties. Give me a number for annual passive cash flow on a rental property. Let's say somebody has one or two rental properties. Our$500 ,000 rental property ought to, paid off, produce$30 ,000 to$40 ,000 a year. So let's use$30 ,000 as a conservative approximation. $30 ,000 in annual passive income. Oh, look at that. Your FI number dropped from 2.5 to 1.75 million. And your COST FI number is now only 133 ,000 at age 27.

9:58And you said paid off rental properties. I want to extrapolate on that. Scott is talking about at age 65, this will be paid off. All right. We are going to coast into our first ad break. After this, we're going to break down exactly how much you'll need saved in your 20s, 30s, 40s, and beyond to achieve Coastify. AutoTrader is powered by auto intelligence, the hyper-personalized way to buy a car. AutoTrader's tools sync with your exact budget and preferences to tailor the online car shopping experience totally to you. Budgeting lets you input your info to see listings in your price range. Search and inventory helps zero in on your dream car.

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12:17Thanks for sticking with us. Let's do this. Let's have a 35-year-old. And this 35-year-old has just bought two rental properties. So in the time from 20 to 35, they were unable to amass two rental properties. Those are not trading in any cash flow today. We're not assuming any cash flow whatsoever today. But just over 30 years, there's two 30-year mortgages on them. By the time that they're 65, this will generate$60 ,000 a year in passive cash flow, right? These could be two house hacks between the ages of 23 and 35, for example. Now this person just needs, what is that, 130 grand in their retirement accounts, and they're done.

12:53Their retirement is a$2.5 million spending level retirement is done, not counting social security, any other types of benefits, any other type of wealth building. If they just have 131 ,000 in 401k, for example, and two rental properties that are beginning that amortization journey, the amortization of the loan, they're done. Of course, these are all assumptions. We can't see into the future, but these are safe assumptions. These are not crazy assumptions. I actually don't like the 7%. I'm going to go to 8%. Can you go to 5 %? I can go to 5 % in a minute. But right now, assuming you have$60 ,000 in annual cash flow, your COSFI number at age 35 is now$99 ,000.

13:32And at 5 % return, it bumps up to$231 ,000. That's why I like this Fionniers calculator so much. They did all the math for you. All you have to do is change these numbers and go back and forth and play. Oh, okay. I'm 35. I've got two rental properties. I'm only making 5 % and I want to retire at age 55. Now I need$376 ,000 as my COSFI number. And again, that's so much more attainable and so much more realistic than 2.5 million at age 35. Let's do a couple of other maneuvers here. Can you make the rental property passive cashflow go to zero? I sure can. And let's make the retirement age 65. And let's make a 35-year-old.

14:15By the way, we're choosing 35 intentionally for two reasons, right? One is, this is my age. I'll be 35 shortly here. And second, this is about the midpoint of the age for people listening to this podcast. So right around that level here. So if a 35-year-old is very conservative in their assumptions or very scared about the future and they say, we're just going to get a 5 % return over the next 30 years, they would need$600 ,000 saved in their IRAs at the age of 35 to feel comfortable about retiring. Mindy, let's go to your more, what I think is more realistic assumption that we're going to get closer to 8 % return over 30 years.

14:50Now you need$250 ,000. So either way,$250 ,000 or$600 ,000, very different than the$2.5 million net worth at age 35 target. Both are much more realistic, much more achievable for many of the people, not everybody, but many of the people who listen to this or watch this podcast. And remember, this is if you get to this age and never put another dime in, you will be comfortable retiring at age 65 with$2.5 million, and you would need the$250 ,000 in your accounts at age 35. If you continued to contribute to your retirement accounts, your retirement age just steps back, marches towards you. You've got your money up front and now you're marching your retirement age back as you continue to contribute a little bit more.

15:34So you can be 35 and live a great life. You're covering your expenses. As long as you're not going into debt, you've got your retirement covered. You don't really have to save anymore and invest anymore. What we did, Carl and I, once we hit retirement, of course, we didn't believe that Bill Bengen was correct, even though he is, we continued to save. Now it's just a game to us. How much can I amass by creatively investing in these other things? We've got our safe investments. You know, index funds is, I think, 50 % of our portfolio. And then the other 50%, we're like, well, let's see what we can do with this.

16:11One thing to note is that the concept of Coast Fire, I think, is really more of a concept that applies to young people, right? The concept of Coast Fire becomes less relevant as one gets older or closer to their target retirement age. And that's because there's less time to compound, right? You need to be adding to the portfolio pretty aggressively. If you're starting from scratch and want to build a portfolio like this$2.5 million mark, if you're starting at age 50, for example. So to illustrate that, let's actually put this in there. And I think because you have a shorter time horizon, sequence of return and investment risk in the near term is more of a concern.

16:48So I think you have to bring down your assumption on the long-term growth rate a little bit, or the investment growth rate, in order to be conservative enough if you are starting later. So Mindy, I would put this growth rate at 6 % for this particular one. And then I'd say we're starting at age 50. What does that look like from a COST-FI number? All right. Age 50, to amass a$2.5 million portfolio with a 6 % return, you would need to have$1 ,043 ,000 at age 50. Yeah. And that seems really scary. You do not need to have a million dollars at age 50 in order to retire with$2.5 million. Just to be clear, you need to have a million if you don't want to continue adding to your retirement accounts and have$2.5 million under this set of assumptions.

17:35But your Coast Fire is a much higher number. So a 50-year-old with a million who wants to retire with$2.5 million would be Coast Fire. But if they had zero, they could retire at$2.5 million, even if they were starting with zero. They just have to be very aggressive about how much they're contributing to their retirement accounts. And that would be a tall order, but possible. Very aggressive. Okay, let's change that now to age 40, Scott. At age 40, we are cut almost in half, $582 ,497 that you would need to have at age 40, assuming a 6 % return to have 2.5 million at age 65. The reason it's not cut by a little bit more than half is because we're using a 6 % return ratio instead of the rule of 72 at a 10 % growth rate here.

18:21But yes, you would need half as much in this scenario as you would at 50. So it's really a young person's number here, this Coast Fire calculator, someone that is very far away from traditional, their target retirement date to determine this number. Okay, and since we're doing this with 40, let's do it with 30. Again, slightly more than half,$325 ,000 at age 30. And just for fun, Scott, let's do age 20,$181 ,000. So if you had$181 ,000 by age 20, you could safely assume that you would be retiring at age 65 with a 4 % withdrawal rate, with a$2.5 million portfolio if you had$181 ,000 invested at age 20.

19:03And I think it's even more unfair than that, unfair of an advantage to the young person, because I think you can get a little bit more aggressive with your long-term growth assumptions at that point in time. So I think you can bump that growth assumption to 8 % in this particular example for a 20-year-old. And that was going to give us a shockingly low number,$78 ,000. And look, there are a good chunk of 20-year-olds who will amass something in this ballpark or by 25. If you, for example, are working through college or able to fund college for very low cost or for free and are working through high school, I mean, this is an amount that is hard, but possible for some of the Gen Z generation to accumulate.

19:39They could be coast-by by the time I graduate college in some of these cases? Well, let's do that. Age 22 on the COSFI journey, you need$91 ,000 in order to allow that to grow at an 8 % rate, which I think is very conservative to 2.5 million. This is something that's so interesting. I'm going to make my girls watch me walk through this calculator with them. And they are going to be like, mom, we don't care. And I'm going to be like, you need to watch this one. This is awesome. One nitpick I have with you, Mindy, on this, and I want to see how you respond to this observation, but remember that the growth rate of 8 % is an inflation-adjusted growth rate.

20:19So if we assume inflation is going to be at this 3 % mark, then we're really assuming an 11 % nominal return, which many people do attribute to very long-term stock market performance. But I'm not convinced that the 8 % return profile, which again is inflation adjusted, is actually a conservative. I think it's more realistic and something that you could use for a 22-year-old, but not one that I'd be comfortable with using for somebody that's later in their journey or does not have the full 30, like a full very long-term outlook to go ahead and realize. Okay, I think that's fair. I said conservative.

20:52I meant realistic, I think is the word that I did. But I popped it down to 7%. And now we're at 136 ,000. I think for a 22 year old, that might be a bit of a stretch. But if you go to, you know, 25, age 25, now you need 166 ,000. I think that's kind of doable, especially if you're, you know, 20 with that, what do we say 20 was 119 ,000. at the 7 % rate. I just think this calculator is so much fun because you can plug in all these different numbers. It instantly does the math for you. And it really makes this seem way more possible. We truly believe financial independence is attainable for everyone, no matter when or where you're starting.

21:35But the earlier you start, the easier it's gonna be. And all these kids, I know, Scott, you had a presentation at BiggerPockets where you were just sharing the concept of financial independence. They said, but I'm young. I want to live my life right now. And I thought, now is the best time to be saving. Mindy always thinks that though. I do. I do think. When's the best time to save money? Right now. After our final ad break, we will break down how a Coast 5 portfolio should be structured. AutoTrader is powered by auto intelligence, the hyper-personalized way to buy a car. AutoTrader's tools sync with your exact budget and preferences to tailor the online car shopping experience totally to you.

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