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FIRE blogs are lighting up with a new kind of FI: Coast FI. This is a very cool name for a milestone my husband and I hit this year, amidst all the chaos. Let’s find a little bit more about it.

On FIRE

FIRE is the acronym for Financial Independence Retire Early. The movement started a little more than a decade back, and has, so to say, spread like (wild)fire. The appeal of not being yoked to a job for most of one’s adult life, is tremendous.

The traditional FIRE route involves high savings rate towards the beginning of one’s career- enough to reach one’s financial independence number within 5/10/15 years of work. This does entail some extreme frugality- though the definition of both frugality as well extreme, varies widely.

One then has the option of quitting entirely, going part-time, changing jobs or careers. This is the RE part of FIRE.

Types of FIRE by Size

FIRE can be classified as leanFIRE, fatFIRE, and obeseFIRE.

These references to BMI is based on the size of your nest egg as the time of retiring.

LeanFIRE is a small nest egg, so it throws off a small annual income. Maybe under $50-60k a year. That translates to a stash of $1.5-$1.8M.

I used a 30x multiplier, instead of the usual 25x multiplier (based on the 4% Rule). This lowers the required withdrawal rate down to 3.33%- which is a safer bet considering that the money has to last for 40/50/60 years. In traditional retirement, the money only needs to last 25-30 years, on average.

All of these numbers- the annual retirement expenses that qualify as lean, and the multiplier used to calculate a safe withdrawal rate- are all loosely defined.

FatFIRE is more of a plump sum. Maybe $60k-100k in annual retirement expenses, requiring you to accumulate $1.8M-$3M. This is a more doable lifestyle for many physicians.

The $60-$100k of annual expenses in retirement is more doable for most physicians. It is enough for some discretionary spending, such as travel, dining and gifts. Retirement takes away many of the costs we have, related to work. However, if the kids are still at home or you’re still paying for their education, the numbers may get tight. Also, housing expenses need to be low- with a mortgage preferably paid off.

Last comes obeseFIRE, with a stash large enough to give you a cushy retirement. This makes it hardest to achieve within the short time frame that FIRE demands. More than $100k of annual withdrawal requires a nest egg of $3M or more.

FIRE by Timeline

Going by the previous discussion, you probably figure that you have to put retirement savings front and center to achieve FIRE.

This philosophy doesn’t jive with me. I want to enjoy the journey as much as the destination. I certainly want to save, but not at the expense of everything else. Also, we love our jobs and are not looking to get at the first opportunity.

Like Oscar Wilde said, “Moderation in everything, including moderation”.

Traditional FIRE, which I’m going to call Cruise FIRE (because you’re cruising full speed towards the FIRE goal) is not the only way to do this.

Coast FI is getting more and more popular. I came across this fun term in The FIoneers blog. I’m not sure who coined it, but that’s where I first came across it.

Coast FI

Coast FI means that you’ve saved enough towards retirement, that the assets will grow to your FI number, by traditional retirement age.

Say, your target retirement number is $3Million, based off $120,000 in annual expenses in retirement, at a 4% safe withdrawal rate.

You could either hunker down and get to $3Million in the shortest possible time and call it quits. CruiseFIRE-style.

For Coast FI, let’s bring out the trusty spreadsheet.

Coast FI Calculation

Let’s put in the assumptions first. Say, you’re 40 years old, you love your job and want to work another 20 years. You want $3Million saved up when you finally retire. We assume a real return of 4% (after inflation).

Now we calculate how much you need to have in assets now, without further contributions, in order to reach that goal.

We will use the PV (Present Value) function of the spreadsheet to get there.

Rate refers to interest rate, or in our case, annual returns, adjusted for inflation.

Number of periods refers to time, in years, we have for our principal to compound over.

Payment amount refers to future contributions, usually monthly. This, in our case, will be zero- since we’ve accumulated enough resources to reach our goal without further contributions.

Finally, the Future Value, is the total goal amount we are trying to reach.

And, we have our answer…. If you have $1.37Million in your retirement accounts, you will reach your goal without contributing any more towards retirement.

And you can coast your way to FI.

As always, you can play with the spreadsheet any amount you like.

For instance, if you think 4% real return is too pessimistic, try 5%.

The higher rate lets you get away with less in your accounts now: $1.1Million.

Or say you want out in 15 years, then you need a little more, $1.66Million in your investments.

You get the drift. Now, whip out that spreadsheet and crunch some numbers. It’s right there on Google.

What does Coast FI look like?

Outside of the spreadsheet, what does CoastFI look like? What changes does it effect on your lives? The list is as long you want it to be.

If you do not need to save towards retirement any longer, you can bring home a lot less and still keep up your lifestyle. Or bring home the same amount and live it up a bit.

I have also put down what we’re doing or planning to do differently as we hit this milestone.

Changes at work

Quoting J.L. Collins, call it “F-You Money“. You can finally drop the least pleasant parts of your work. Or take less call. Stop working nights.

Or change jobs entirely, if you hate your current job.

Or cut back at work to try out that passion project you’ve been dreaming of for years but kept putting off.

You don’t have to wait until you’re fully Finally Independent to make these changes if you’re willing to work to meet your daily expenses.

As we’ve hit this milestone, it makes me feel better about writing this blog. Blogging takes away my time from medicine- and doesn’t pay anywhere near what medicine does (or at all!). But it’s close to my heart- and knowing our future is tad more secure, helps me breathe easier.

Changes in lifestyle

We’re obviously not trying to undo all the good we’ve done until now, but you can do the things you love best, without it impacting your future.

Take that vacation. Or one every year. Celebrate a special occasion.

If you’re in a really good place and can afford to go bigger, sell that beater you may be driving. Or buy the house.

House and car, though, are the notorious duo that keep many, many docs from accumulating wealth- so a little restraint is advised.

I think the same principles apply, whether you’re CoastFI or not. Buy your car with cash. And keep your mortgage to 1-2x of gross annual income, unless you are in a very high cost of living area.

I will sheepishly admit my caveat here. We’re going the house route. We’re homebodies, spend a lot of time at home hanging out, cooking, having friends over. So a beautiful place to live has been dream for both my husband and me.

We’re custom-building a home. But, we’re sticking to the mortgage rule. Our mortgage will be just about 1x of annual income, thanks to the sale of an investment.

Fast-track to Financial Independence

I like this one. The momentum I gain from hitting this milestone motivates me want to go on and reach full FI.

At our high marginal tax bracket, it anyways makes sense to keep shoving money into the tax advantaged retirement accounts. Our 401(k)’s, Cash Balance Plan, Backdoor Roth IRA’s and HSA.

Every milestone along the road does that, the bigger ones just have an outsize impact.

Also, thanks to the power of compounding, the more your current principal, the faster it grows. So the zeros add up quicker.

And the sooner you’ve achieved the CoastFI milestone in life, the more this benefit accrues.

And doctors should be able to do it in a few short years out of training. The White Coat Investor mantra works. Live like a resident, pay off your student debt, shove money into retirement- and then you’re free to live the rest of your life on your terms.

It took us this long to get here only because we had not the foggiest idea of financial literacy until a few short years ago. It’s alright. We do better when we know better.

Amp Up the Giving

The flexibility of having some extra cash at your disposal means that you can touch more lives, in your communities and the world.

Give to your favorite causes.

Give to your children. Or other family members.

We plan to start UTMAs for our children at this milestone. We have 529 accounts for their education that we’ve already front-loaded up to our goal.

Riskier Investments

I am touting any complex financial products you don’t completely understand. Or whole life insurance.

But you could afford to diversify into some riskier investments that you may have been wary about earlier.

For us, this meant dipping our toes, for the first time ever, into passive real estate investing. For those who are familiar with these investments, the minimum investments are often high- $50,000-10,000; you need to be a sophisticated or accredited investor and it is definitely more complex than Index Investing- which has always been my cuppa tea.

But I want to explore it, and reaching CoastFI gives me some confidence in taking this risk.

As I mentioned earlier, we intend to continue maxing out all tax advantaged accounts. I will only take some of the money I’d otherwise put into my taxable account, and redirect it to the real estate side. Fingers crossed! When I have one or two of those under my belt, I will be back with that story.