Latest / The Financial Freedom Podcast with Fexingo: Quitting Your Job, Living Off Investments, Independence / The Coast FI Number That Changes Your Early Retirement Timeline
Transcript
- Lucas: If you have been burned out on the aggressive saving phase of early retirement, there is a version of financial independence that basically tells you: you can stop saving right now. Your current portfolio can coast its way to retirement without another dollar of contributions. Luna: Okay, that is a very appealing message. But is it real? Or is it one of those internet math tricks that looks good on a spreadsheet and falls apart in real life? Lucas: It is real, but it has a specific set of assumptions that you have to get comfortable with. The concept is called Coast FI, or sometimes Coast FIRE. And the core idea is that you calculate the amount of money you need today so that, if you never save another dollar, your investments will grow to your full FI number by a target retirement age. Luna: So it is basically the inverted version of the standard FIRE calculation. Instead of asking 'how much do I need in total?', you ask 'how much do I need now to not need to save anymore?' Lucas: Exactly. And the math is actually pretty straightforward. Let us use a concrete example. Say you are 35 years old, and you have determined that your full FI number — the amount you need to retire and live off a 4 percent withdrawal rate — is 1.5 million dollars. If you assume a 7 percent real return, which is roughly the historical average for a stock-heavy portfolio after inflation, then by age 60 you need that 1.5 million. So the question is: what lump sum today, at age 35, growing at 7 percent real for 25 years, gets you to 1.5 million? Luna: I have actually run this before. It comes out to roughly 276,000 dollars. Which is a lot less than 1.5 million. Lucas: Right. So if you have 400,000 dollars invested at age 35 — and many people on the FIRE path are around that number — you are already past your Coast FI number. You could, in theory, stop contributing to your retirement accounts entirely, and your portfolio would grow to your full FI number by age 60 without another dime of savings. Luna: But that is a big 'in theory'. Because you have to assume a consistent 7 percent real return every year for 25 years. And we know that markets do not work like that. Lucas: That is the critical caveat. Coast FI depends heavily on your return assumption. If you use a more conservative 5 percent real return, the Coast FI number jumps to about 443,000 dollars. So with 400k, you are actually short. And if you use 9 percent, it drops to 194,000. The range is huge. Luna: So the first thing someone should do if they are considering Coast FI is get very honest about their expected real return. And maybe plan for multiple scenarios. Lucas: Exactly. And the second thing is to acknowledge that Coast FI does not mean you stop working. It means you stop saving for retirement. You still need to cover your living expenses from now until retirement. So you need a job, or a business, or some income source that pays your bills. But you no longer have to funnel 30, 40, 50 percent of your income into investments. Luna: That is a huge psychological shift. The accumulation phase is often the most stressful part of early retirement. You are grinding, living frugally, watching every dollar. Coast FI gives you permission to ease up. Lucas: It does. And that is why it has become popular in the FIRE community, especially among people in their thirties who have been saving aggressively for a decade and are feeling the burnout. The question becomes: can you find work that covers your expenses and is less stressful than the job you had while saving? If yes, Coast FI might be a great middle ground. Luna: But there is a risk here that I do not think people talk about enough. Sequence of returns risk applies even during the coast phase. If you hit a bad bear market early in your coast period — say at age 36 or 37 — your portfolio could drop by 30 or 40 percent. And since you are not adding new money, it might not recover in time to hit your target. Lucas: That is a very real concern. Let us say you have 400k at age 35, and the market drops 40 percent in the first two years, leaving you with 240k. To still reach 1.5 million by 60, you would need a compound annual return of about 8.5 percent real for the remaining 23 years. That is higher than the historical average. So you might have to extend your coasting period, or start saving again. Luna: Which means Coast FI is not a set-it-and-forget-it plan. You have to monitor your progress and be willing to adjust. It is more of a mindset shift than a hard mathematical rule. Lucas: Right. And that is actually how I think about it. Coast FI is a way to recalibrate your relationship with work and money. It acknowledges that the accumulation phase is finite and that once you have enough momentum, you can shift your focus to other things — health, relationships, hobbies — while still letting the market do its thing over the long term. Luna: It is also a good framework for people who are not on the traditional FIRE path but still want to retire early. If you have a decent nest egg by age 40, Coast FI tells you that you do not need to max out your 401k every year. You could switch to a part-time job you enjoy and still be on track. Lucas: Exactly. And that brings us to the practical side. How do you actually calculate your Coast FI number? There are online calculators, but you can also do it yourself. You need three inputs: your target retirement age, your target portfolio size, and your assumed real rate of return. Then you use the future value formula backward. Luna: So for anyone listening who wants to try it: take your full FI number, divide it by one point zero seven raised to the power of the number of years until retirement. That gives you the present value needed. If you have more than that, you are coasting. Lucas: And Luna, I think it is worth noting that this is not just theoretical. In mid-2026, with the S&P 500 having had a strong run over the past few years, many people's portfolios are larger than they might realize. A lot of 35-year-olds who have been saving for a decade could be at or near their Coast FI number right now. Luna: That is a great point. And if you are one of those people, the question becomes: what would you do with your extra income if you did not have to save it? Would you travel more? Upgrade your living situation? Or maybe work less? Lucas: And that is the conversation I think Coast FI opens up. It is not just about the math. It is about designing a life that is sustainable and enjoyable during the accumulation phase, not just after it. And if today's conversation helped you think about that, I will mention that the reason we can do these deep dives without ads is listener support. If this show has been useful to you, consider buying us a coffee at buy me a coffee dot com slash fexingo. No pressure at all, but it helps keep the podcast ad-free. Luna: Yeah, it is a small way to keep these conversations going. And we really appreciate everyone who has supported us so far. Lucas: Alright, back to the numbers. One more risk with Coast FI I want to highlight: inflation. We have been talking about real returns, which already account for inflation. But if you assume a 7 percent nominal return and forget to subtract inflation, your Coast FI number will be way too low. So always use real returns. Luna: And that is where a lot of people get tripped up, especially when they look at historical averages. The S&P 500 has returned about 10 percent nominal since 1926, but after 3 percent inflation, you get 7 percent real. If you use 10 percent in your Coast FI calculation, you will think you can coast with much less money, but you will end up short. Lucas: So a good rule of thumb is to use a real return between 5 and 7 percent, depending on how conservative you want to be. And if you are heavily tilted towards bonds in your portfolio, you should use a lower number, maybe 3 to 4 percent real. Luna: I also think Coast FI works best for people with a longer time horizon. If you are 50 and want to retire at 55, the compounding period is too short. You would need a very large portfolio today to coast. But if you are 30 and targeting 60, the power of compounding over 30 years makes the Coast FI number much lower. Lucas: Great point. The younger you are, the more powerful coasting becomes. And conversely, if you are older, you might need to keep saving or adjust your target retirement age. But the framework still helps you understand your progress. Luna: So for someone listening who wants to take action today, what would you recommend? Should they calculate their Coast FI number and then potentially adjust their savings rate? Lucas: I would say: first, calculate your full FI number using your annual expenses and a safe withdrawal rate. Then, use the Coast FI formula to see where you stand today. If you are above your Coast FI number, you have the option to reduce your savings rate, but you do not have to. The important thing is to be intentional. If you decide to coast, make sure you have a plan for what you will do with the extra cash flow — and that you are comfortable with the risk of lower returns. Luna: And if you are below your Coast FI number, do not despair. It just means you need to keep saving for a bit longer. But seeing the number can motivate you to increase your savings rate or find ways to boost your income. Lucas: Exactly. Coast FI is not a destination, it is a milestone. It marks the point where compounding becomes your primary wealth-building engine. And once you hit it, you can relax a little. But you still have to manage risk and monitor your progress. Luna: So bottom line: Coast FI is a useful mental model that can reduce financial stress, but it is not a guarantee. Use it as a guide, not a rule. Lucas: Well said. And if you want to dive deeper into the math or run your own numbers, check the show notes. We will link to a simple Coast FI calculator. That is it for today. See you next time. Luna: Take care, everyone.