Should You Choose Coast FI or Go All In on FIRE?

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2:55Hello, hello, hello, and welcome to the BiggerPocketsMoney podcast. My name is Scott Trench, and not with me as always, with me for the first time is Evan Lawler from the Financial Foundation. He's working towards CoastFi, and he is the perfect person to beat up or at least contrast You know, my approach, my all-out approach to financial independence at an early age, when I was 25, I was doing things a little differently than Evan. There's overlap and there's differences. And I think Evan has a really, really healthy evolution of the approach I was taking 10 years ago now towards my version of financial independence.

3:26So without further ado, Evan, welcome to the BiggerPocketsMoney podcast. I couldn't be more excited to have you guest host today with me and hear your story and your tweaks to financial independence.

3:37Evan Lawler:Thank you so much for having me on, Scott. I am extremely excited to be here and jump into the details and see how our different approaches have evolved over time. Awesome. Well, hopefully this episode is applicable to everybody and anybody, but CoastFi, I think, is most impactful for people who start out early in their careers. The earlier you get started, the sooner you can coast, of course. But before we get into that, can you maybe define what CoastFi is for us, Evan? 100%. Yeah. CoastFi are, I like to think of kind of a hybrid form of financial independence because it's really F-I not R-E.

4:10Evan Lawler:So financial independence, but not retiring early. It's front loading your retirement investing such that you reach a point that your investments are projected to grow, such that when you reach retirement age, your portfolio should be able to sustain you in retirement. So you actually spend a lot of your time coasting to retirement where you just cover your day-to-day expenses, but no longer need to invest towards retirement. I think that there's a lot of appeal to that, right? Hey, my retirement's done. I'm actually set as long as I can just figure things out. You know, maybe you can get there by 35.

4:42I can figure things out for the next 30 years and just kind of relax a little bit with a money perspective, maybe not take the most demanding job or be there for my family if that's something that I'm aspiring to have at some point. But from a skeptic's perspective, does it really result in time freedom? I can hear somebody saying fire is about actually being able to retire early and this is not it. What would you say to somebody with that perspective?

5:07Evan Lawler:I would understand. I think you have to start with the end in mind. And I think that if you're a fire purist, then I would agree with you. I think that, yeah, you are not going to be retiring early if your goal is to pursue Coast Fi. However, it does offer a ton of flexibility. And I think that as the fire movement has kind of grown and matured, we can stand on the shoulders of the giants before us and say, lots of people reach financial independence, and then they find themselves working. They pursue these hobbies. and one day someone starts paying them for it. And so I think Coast Fire acknowledges the reality that for many people, especially people who are ambitious enough to pursue financial independence to begin with, will probably be earning money even after they reach that FI number.

5:49I think financial independence or the pursuit of financial independence is a spectrum. And as we move farther along that spectrum, we gather power back into our lives and take that power away from, for example, the local employer who pays the highest wages in our profession. And I think that's what a lot of your stuff on Instagram in particular seems to talk about. I saw one the other day was like, you know, how much my savings account impacts my ability to take my lunch break on my terms or whatever. And it's the same it's the same concept here applied across the spectrum. I think Coastify is for many people on the journey to financial independence, the first milestone where there's a little bit of that sigh of relief.

6:28Like I have power over my boss now. I don't need the highest paying job in order to retire. or I can begin to expand my viewpoint and maybe begin to take more risk or take a little bit more time back in my day. Is that the right way to think about it?

6:42Evan Lawler:I think that's completely right. And the skit you're mentioning, yeah, I put those together because I think it acknowledges the reality that having money or having investments or a portfolio is not just a number on a screen. How does it actually impact your day-to-day life? And I think you're exactly right that Coast Fire is really probably the most significant milestone outside of someone who first gets an emergency fund or something like that. For financial independence, Coast Fire is really that first milestone that I think for a lot of people, they can kind of look around and say, hey, I've bought myself in a way a traditional retirement and I no longer have to contribute to that.

7:16Evan Lawler:Is this what I want to continue doing? Do I need to keep earning 100K or is there something that I find more fulfilling at 50K or 70K? I'll also call out that I think your journey and mine are very similar. If we roll back my age to, I think you're 26, 27 right now. 25. 25. Okay, yeah. So we roll back my age to that point. I'm doing many of the same things you're doing. And I'll also call out that at 35 now with two kids, those activities are very unappealing. Some people with families that are married with kids under five are still able to house hack and live and flip and do the things needed to move towards financial independence, but it's a lot less appealing.

7:55And I think that there's a reality in the world of financial independence, that it just gets harder in that middle period, especially when the kids are below school age. And Coast 5 might be a great proxy target to just take the pressure off. Like, hey, we don't need to race towards true and lasting two and a half million permanently sustainable financial independence with our young kids. We can just be like, are we on track to get to Coast 5 pretty soon? Or are we there? We can take a breather and then resume that journey to finishing the play to true, you know, total financial independence, maybe once there's a more reasonable set of life conditions that come about.

8:30So anyways, all this to preface, I think that CoastFi is a great goal here. It's a wonderful starting point, one that many never reach, but a huge milestone that feels much, much more attainable, especially for young people than moving to a two and a half million traditional$100 ,000 a year annual spending five number here. So let's talk about how to get there as quickly as possible, make it$75 ,000 a year. And one of the reasons I wanted to talk to you about this is because I have a very strong opinion on this or had a very strong opinion on this and wrote down exactly how to get to a version of this in Set for Life, which I think you've read here.

9:03And I think that after 10 years, the world has changed and there's inflation and there's different opportunities and different challenges that people face. And so I'd love to hear your take on that. Like, how does one get to coast by as quickly as possible in their 20s in today's world?

9:18Evan Lawler:Yeah, 100%. And just to clarify, I have read Set for Life and I absolutely loved it. So if I can just throw that out there. I think everybody should read it. I think it was almost 10 years ago now, I came up with a hypothesis for how to pursue FIRE, financial independence, or a version of that. Approach that first million dollars in net worth for somebody starting out in their 20s. And I broke down this ride to financial independence into three buckets, right? The accumulation of the first$25 ,000. And to get there, I figured, hey, if you're 25 and you have already taken the highest paying job that's available to you.

9:53There's not really much leverage on the income front. There's nothing to invest. So how are we going to get ahead? We're going to maybe take a side job, maybe try to generate a little bit of extra income, but really we're going to cut expenses. And we're going to cut expenses by focusing on the big three expenses, which is not your daily latte. It's your housing, transportation, and food costs. And you keep those costs low by getting a roommate or living in a very cheap place relative to your income. You drive a beater economy vehicle or ideally bike or walk to work. And then you pack lunch most of the time.

10:24And that's how you save money. And an entertainment budget, I'm very jealous of you living in Philadelphia. You know, Eagles games, I still have to go to my first Eagles game in the link. I've been to a bunch of away games, but I've actually never, my whole life, never go into an Eagles game at home. And that's not the thing to cut, right? In your budget. That's the thing that life memories are made out of. And that's where we're going to spend a little bit of extra actually, because the costs in those big three are really low. That's going to enable us to accumulate a lot of cash. And then we're going to use that cash.

10:50I'm a big advocate of accumulating that cash after tax the first few years and foregoing the tax advantages of retirement accounts for a number of reasons. One, when we're in this early part of the journey, we're going to be earning much less, most likely, than we are later in the journey. And so the tax opportunity cost is very low relative to doing this, for example, in your 30s or 40s when your career earnings may be much higher. Cash in the bank relative to low expenses is what enables opportunities. That's what allows you to start a business or job hop or take a job that offers much lower base pay but offers equity upside at a company or a job that is mostly commission-based or entirely commission-based.

11:28These things can really ramp your income, but they're unavailable to somebody who spends almost all of their income and must continue to collect that salary to sustain their lifestyle. Okay, so we have our tackling the big three expenses, accumulating cash in particular for the first couple of years, using that to jump to an opportunity that can really turbocharge our income. And then last, we have the long slog of investing accumulation here, right? So as part of that investing accumulation, we have our housing decision. I'm a big fan of the house hack. I know that's one that has particularly fallen off in the last 10 years.

12:03It's not as easy and obvious an analysis as it was for me as a 23, 24-year-old in 2014. That was a very easy analysis. Now it's a little harder. Maybe it's easy in Pennsylvania. I don't know. Certainly harder here in Colorado. And then from there, it's index funds, you know, the traditional best practices for investing. Now we're going to go through the tax advantaged order of operations. Once we've accumulated that first few hundred grand or so outside of those, we're going to go through that traditional stack and we're going to grind it out until we get to true and lasting financial independence.

12:30So that was a lot, right? That's my monologue. I condensed books worth of information into that. But that's the approach I laid out. I think you're pursuing a version of that with a new twist or different flavors of it. Can you tell me where things have evolved or at least in your mind for how you're going to approach things personally?

12:48Evan Lawler:A hundred percent. And I absolutely loved that breakdown. I loved it in Set for Life. And I think that a lot of the same lessons still apply. And people could definitely go pursue that. Me personally on the Coast Fire journey, there's a lot of similarities and some subtle differences. So I think first off, frugality, just like you said in the book and said here, there's no getting around it. Right. And I love the way you described it in Set for Life that it's, you know, every dollar that you save is like a dollar and 15 cents or a dollar and 25 cents in increased income because that is real savings in your pocket right now.

13:26Evan Lawler:And I completely agree with your approach that tackling the big three housing, transportation and food are going to really move the needle and smaller kind of entertainment purchases probably won't move the needle as much. And I think that that's really exciting for young people because they often feel like, well, if I save money, that means I can never see my friends or I can never have a fun experience. And that's simply not the case. And I would even go beyond that, that I think people that find themselves deep in the weeds of cutting small expensive are sometimes kidding themselves. Because, you know, maybe you have you're living in a big place with two guest bedrooms and each day you're miserable on the way to work because you don't stop for a coffee.

14:07Evan Lawler:And sure, yeah, you're saving$5,$7 each day, but you'd be far better off probably just cutting those big expenses down a little bit and then enjoying those small luxuries to enrich your life. So frugality, 100 % agree. The first difference that I think for the traditional FIRE approach versus Coast FIRE is really taking advantage of those tax advantage retirement accounts. I think that Coast Fire itself, because all of the money is being earmarked for a traditional retirement age, at least past 59 and a half when current tax law says that we can access those tax advantage retirement accounts. The advantage in my eyes is that you can really be tax optimal.

14:50Evan Lawler:So you can max out that 401k, obviously getting that full company match, IRA, HSA. And for, I think, a lot of young people pursuing Coast Fire, that will be all the money that you invest in that year going into those tax advantage accounts. But I will fully acknowledge that you do give up some of that flexibility, whether or not you're aiming to start a business or something like that. Awesome. And so do you personally do that? Do you put everything into these retirement accounts and the goal is racing towards the COSTFI number and then kind of pop it up and say, what are the next options from there?

15:26Evan Lawler:Exactly. Yeah, that's my current approach. I started this journey with only my W-2 income and I had my emergency fund. I had some operating cash just in my checking account. And then every other dollar was going into my tax advantage retirement accounts. I didn't have any money in brokerages. I wasn't putting any after tax money at all. You're talking about that in past tense. What's present tense? As I'm kind of starting these side bets that we've talked about before. So, you know, working on my social media campaign and stuff like that and additional income is coming in now have money in excess of what I can put into these tax advantage retirement accounts.

16:04Evan Lawler:Now I am starting to build a bit of an after-tax position, which again, that's why I acknowledge, right? If your goal is to start a business or to go into a different direction, a non-traditional direction, then building up that cash or cash equivalents is very important. So tell me about how are you feeling about your journey with money at the beginning of this process? And have you achieved Coastify? How are you feeling as you approach or get past your Coastify number? Well, I think that it's exciting because it's a spectrum on the way there. And each milestone, you're building either a larger retirement income or you're pulling your retirement age, your Coast Fire retirement age forward.

16:45Evan Lawler:So currently I have about$200 ,000 invested, which puts me, I think, around 65 in the$100 ,000 per year income range, inflation adjusted income. And so that is exciting to me because then I know like, all right, well, even if everything went wrong right now and I could only my savings rate went to zero, I could only cover my day to day expenses. When I get to that retirement age, I already can count on a projected retirement income of$100 ,000 in inflation-adjusted retirement income. So it's really exciting to me, and it gives me a lot of peace of mind. How much do you have in your retirement accounts right now that would lead to this$100 ,000?

17:26Can you walk us through the math you just shared?

17:28Evan Lawler:So currently, I have about$200 ,000. I think it's$198 ,000 invested in my tax-advantaged retirement accounts. And that's basically all the money I have outside of some savings. And so if I were to stop today and allow that money to grow over time, then it would put me around$3 million or something like that. And that would put me in the$100K range for withdrawal rates. And so my goal is to instead continue to grow from$200 ,000 to$500 ,000 by contributing about$3 ,300 per month. At 30 with$500K, that money is projected to grow to$5 million at age 65, which would yield me a$200 ,000 per year in inflation-adjusted retirement income.

18:10That's awesome. I want to go back a moment here and talk about real estate again because I think that that's the biggest change here. Not real estate specifically, but the I'm going to max out these retirement accounts and get to this coast-fi number and then kind of pop up and look at these next set of options. It sounds like there's actually a little bit of evolution in your particular story from that, where there is a little bit more of a prioritization of after-tax investments or liquidity because of that optionality that's starting to come into your life already. But in my case, the rental property math was overwhelmingly powerful.

18:42It was way better than, you know, in any average conditions than these 401k or tax advantaged accounts at that moment in time, right? Because I put down$12 ,000 on a$240 ,000 duplex here in the Denver area. I got a 95 % leveraged mortgage. The payment, I'm now I'm reaching, what the heck was the payment? It was somewhere in the like$1 ,200 range. I'll have to go look that up. I've talked about this a million times and I'm forgetting the number now. And then the other side rented for about$1 ,100 and I had a roommate paying some money. And so that becomes very compelling math, right? I think it was like$1 ,400,$1 ,500,$1 ,500, somewhere in that range, all in for the payment, property taxes, insurance, all that kind of stuff.

19:20So that's a really compelling story for financials, right? That offsets rent. That's a direct cash inflow. There's an amortization going on. There's appreciation that's highly leveraged. It's less risky. To me, Philadelphia today, the greater Philadelphia area today offers the same, if not better opportunities on paper that Denver offered in 2014. And yet that is not a priority for you. I think you mentioned you're actually going to, right before we're talking about this, you mentioned you're living in an apartment right now and you're going to rent another apartment. You're going to upgrade, a big upgrade going from a one bed to a two bed, 600 square feet to seven, 750 or so, right?

19:56Yeah. Classic five, five approach there. Walk me through why isn't real estate appealing to you in a lot of other Gen Zers right now?

20:04Evan Lawler:I think we're told and we've been hearing a lot that like real estate is really expensive. And I think that you're right, that there is opportunity for real estate investment. I think that it's just not quite so obvious. And maybe I think I would have to develop a certain level of expertise in order to pursue those opportunities. And it's not quite so clear cut as maybe it was in the past. That's just my perception. I don't have like substantial data to back that up. But I think for me personally, the answer is just simplicity. That it's I'm putting money in broad market index funds. They're in tax advantaged retirement accounts.

20:43Evan Lawler:I'm doing simple math, living in a cheap apartment. I'm not dealing with tenants. I'm not working with loan officers. I am just doing the simple things as best as I can. And that is really appealing to me. And I think that real estate could be an exciting opportunity in the future, especially because when you get into this fire world, there's so many people that are so passionate about the way that real estate can cash flow and lower your expenses. But I think for me personally, just as someone getting involved in it early on, and for a lot of my peers who are young people starting to get interested in the ideas of financial independence, there's something so exciting about the fact of just earning a W-2 income, going through a series of investment steps, savings, investing, certain accounts, and just following that path forward, never having to deal with those physical assets or anything like that, just living in an apartment wherever you want to live.