Latest / The Financial Freedom Podcast with Fexingo: Quitting Your Job, Living Off Investments, Independence / The Coast FI Number That Changes Everything
Transcript
- Lucas: So you save for retirement for ten years. Then you stop. Completely. And you still retire comfortably at sixty-five. That is the Coast FI promise, and it sounds too good to be true until you actually run the numbers. Luna: And it's not a trick. It's just the math of compound growth over a long time horizon. Lucas: Right. Coast FI stands for 'Coast Financial Independence.' The idea is you save aggressively early on, build up a nest egg that—if left untouched—will grow to your target retirement number by a certain age. After that, you don't need to save another dollar for retirement. You just let it ride. Luna: So the 'coast' part means you can take a less stressful job, reduce your savings rate, or just spend more now, because the heavy lifting is already done. Lucas: Exactly. Let's make it concrete. Say you're thirty years old and you want to retire at sixty-five with one million dollars in today's money. Assume a seven percent real return—that's after inflation. How much do you need in your portfolio right now to hit that million? Luna: I'm guessing it's lower than most people think. Lucas: It's about one hundred and thirty-one thousand dollars. That's your Coast FI number at thirty. If you have that saved today, you never have to add another penny to retirement savings. Thirty-five years of compounding at seven percent turns that into a million. Luna: That's a big if. Most thirty-year-olds don't have one hundred and thirty-one thousand dollars saved. Lucas: No, they don't. But the strategy isn't just for people who already have a pile of cash. You can also think of it as a target: 'I need to get to X by age Y to stop saving.' For a thirty-year-old starting from zero, saving five hundred dollars a month for ten years gets you to about one hundred and thirty-one thousand, assuming the same seven percent return. Then at forty, you stop saving for retirement entirely. Luna: So you work another twenty-five years without putting anything into a 401 or IRA, and the money you already have grows to a million by sixty-five. Lucas: That's the plan. And it's mathematically sound as long as your assumptions hold. The two big assumptions are your rate of return and your time horizon. If returns are lower, you need more saved. If you want to retire earlier, you need more saved. But the framework is powerful because it decouples your working life from your saving life. Luna: I like that framing. Most people think they have to save for retirement until the day they retire. Coast FI says, no, you can front-load the saving and then spend your paycheck on whatever you want. Lucas: Exactly. And that changes how you think about your career. If you've hit your Coast FI number, you can take a job you actually enjoy even if it pays less. You can start a business without worrying about the 401 match. You can move to a lower cost of living area. The financial pressure eases. Luna: But there is a catch, right? Sequence of returns risk. Lucas: That's the biggest one. If the market tanks right after you stop saving, your portfolio might not recover in time to hit your target. Say you hit your Coast FI number at forty, then the market drops forty percent and stays flat for five years. That one hundred and thirty-one thousand becomes seventy-eight thousand. You'd need higher returns afterward to catch up. Luna: So you're essentially betting on the market behaving historically over the long run. But the exact timing of when you stop saving matters a lot. Lucas: Right. One way to mitigate that is to keep saving a little bit even after you've hit your number. Or to set a more conservative Coast FI number based on a lower expected return, say five percent instead of seven. That gives you a buffer. Luna: Let's talk about the assumptions more. Seven percent real return after inflation—that's roughly the long-term average of the S&P 500, but it's not guaranteed. And thirty-five years is a long time. Lucas: It is. But even with a more conservative five percent real return, the Coast FI number for a thirty-year-old targeting one million at sixty-five is about two hundred and thirty-six thousand. So it's higher, but still achievable if you save aggressively in your twenties and early thirties. Luna: And what about inflation? You said 'in today's money.' So the one million at sixty-five would actually be a much larger nominal number, but you're adjusting for purchasing power. Lucas: Yes. The seven percent real return already accounts for inflation. So the one million is in today's dollars. At sixty-five, you'd have something like three or four million nominal, but it buys what one million buys today. That's the standard approach. Luna: I think a lot of listeners might be wondering: okay, but what if I don't want to retire at sixty-five? What if I want to retire at fifty? Lucas: Then the Coast FI number goes up, because you have fewer years for compounding. For a thirty-year-old wanting to retire at fifty with one million in today's dollars, assuming seven percent real return, the Coast FI number is about three hundred and fifty-seven thousand. That's a much bigger hurdle. But it also shows the power of time: the earlier you want to retire, the more you need to save upfront. Luna: So Coast FI is really a tool for people who are okay working into their sixties, but want to reduce the intensity of saving. Lucas: Correct. It's not for everyone. If your goal is to retire at forty, Coast FI probably isn't your path. You'd need a much higher savings rate and a more aggressive strategy. But for someone who wants a balanced life, who doesn't want to sacrifice everything today for a far-off future, Coast FI is a compelling middle ground. Luna: One thing I find interesting is how Coast FI changes the conversation around 'enough.' Most people think about retirement savings as a binary: either you're on track or you're not. Coast FI gives you a specific number you can hit and then relax. Lucas: That's the psychological benefit. Once you hit your Coast FI number, you've essentially won the retirement game. Everything after that is bonus. You can take career risks, you can work part-time, you can pursue passion projects. The fear of not having enough for retirement is gone. Luna: But you still need to cover your living expenses from your job. Coast FI doesn't mean you can quit working entirely. It means you don't have to save for retirement. Lucas: Right. You still need income to pay the bills. But that income can come from a job you actually like, even if it pays less. That's the freedom part. Luna: I want to circle back to the numbers for someone starting from scratch. What's the practical takeaway? Lucas: First, calculate your target retirement number. Let's say it's one million. Then use a compound interest calculator to find out how much you need at a given age to reach that number by sixty-five. For a thirty-year-old, it's about one hundred and thirty-one thousand at seven percent. If you're forty, it's about two hundred and sixty-two thousand. If you're fifty, it's about five hundred and eight thousand. The later you start, the more you need. Luna: And the earlier you start, the less you need. That's the magic of time. Lucas: Exactly. So if you're in your twenties, even modest savings now can put you on a Coast FI trajectory. If you're in your forties, you might need to save more aggressively or adjust your target. Luna: Let's talk about the risks again. Market volatility, sequence of returns, inflation higher than expected. How do you plan for that? Lucas: Two things. One: use conservative assumptions. If you assume five percent real return instead of seven, you build in a cushion. Two: don't stop saving cold turkey. Even if you've hit your Coast FI number, keep saving something—even ten percent of your income—to protect against bad timing. That way, if the market drops, you're still contributing and buying low. Luna: That's sensible. It's like having a guardrail. Lucas: Another guardrail: diversify beyond just stocks. A portfolio with some bonds or international exposure might have lower expected returns but less volatility. That can reduce the sequence of returns risk. Luna: So the Coast FI number isn't a finish line you cross and then ignore. It's a milestone that lets you ease up, not stop entirely. Lucas: That's the best way to think about it. It's a shift in mindset from 'I have to save as much as possible' to 'I have saved enough that the rest will take care of itself.' And that shift can be incredibly freeing. Luna: I think for a lot of people, the hardest part is just getting started. Coast FI gives a clear, achievable target for the early years. Lucas: Yeah. And it makes the math work in your favor. The first ten years of saving are the most powerful because of compounding. Coast FI exploits that. Luna: Alright, I'm going to calculate my own Coast FI number tonight. Lucas: Do it. And let us know if it changes how you think about your savings rate. Luna: Definitely. Before we wrap, one more thing: if this episode was useful to you and you want to keep it ad-free, buy me a coffee dot com slash fexingo helps. Lucas: Yeah, listener support really does keep the lights on. No pressure, but if you got value, that's the place. Luna: So, Lucas, what's your Coast FI number looking like these days? Lucas: Honestly, I think I'm close. But I still save because I like the safety margin. And because I might want to retire earlier than sixty-five. Luna: There you go. Even the hosts aren't perfect. But the framework is solid. Lucas: It really is. Next time we'll talk about another FI variation: the Barista FI strategy, where you work part-time to cover expenses while your investments grow. Luna: Looking forward to it. Lucas: Until then, keep crunching those numbers.