Latest / The Financial Freedom Podcast with Fexingo: Quitting Your Job, Living Off Investments, Independence / The Coast FI Number That Changes Everything
Transcript
- Lucas: So there's a version of financial independence that's almost like a cheat code. You don't need to save enough to retire today. You just need to save enough so that time does the rest of the work for you. Luna: You're talking about Coast FI. I've seen it called 'coast financial independence.' It's that point where your existing investments will grow to your full FI number by traditional retirement age, even if you never save another dollar. Lucas: Exactly. And the reason it's so powerful is that it reframes the whole journey. A lot of people hear 'financial independence' and think they need to save a million dollars or whatever their number is right now. But Coast FI says, no, you just need to hit a smaller number earlier, and then you can coast. Luna: So what does that actually look like with real numbers? Because the theory is nice, but I want to know if this is realistic for someone in their thirties. Lucas: Let's pick a concrete example. Say you're thirty years old, and you want to retire at sixty-five. That's thirty-five years. And you estimate you'll need forty thousand dollars a year in today's dollars in retirement. Using a conservative four percent withdrawal rate, that means your target nest egg at sixty-five is one million dollars. Luna: Right, classic four percent rule math. So one million is the full FI number. Lucas: But here's the thing. If you already have fifty thousand dollars saved at age thirty, and you assume an average annual return of seven percent after inflation, that fifty thousand dollars will grow to about five hundred and thirty-three thousand by the time you're sixty-five. So you're about halfway there. But if you want to coast, you need to figure out how much you need today so that it grows to a million without any more contributions. Luna: And the number is lower than you'd think. Let me do the math backwards. To have one million in thirty-five years at seven percent growth, you need about ninety-three thousand seven hundred dollars today. So if you have ninety-four thousand bucks at thirty, you can stop saving for retirement entirely and still hit your goal at sixty-five. Lucas: That's exactly right. And that's the Coast FI number. Ninety-four thousand dollars. That's a lot less than a million. And it's achievable for many people in their twenties or early thirties, especially if they're aggressive savers early on. Luna: But wait, that assumes you work until sixty-five doing something that covers your expenses. Because you still need to live. You're not retiring at thirty; you're just not saving for retirement anymore. Lucas: Right. That's the 'coast' part. You still have to earn enough to pay your bills. But you can take a lower-stress job, switch to part-time, or pursue work you actually enjoy — without the pressure of needing to save for retirement. Your future is already taken care of. Luna: That's a huge psychological shift. I think a lot of people feel trapped in high-paying but soul-crushing jobs because they're chasing that big number. Coast FI gives them permission to downshift. Lucas: And it's not just for the young. If you're forty-five with two hundred thousand saved, you might already be at Coast FI for a sixty-five retirement. It's really about the time horizon. The longer you have, the smaller the Coast FI number. Luna: So the key variable is time. That's why starting early is so powerful. But what about someone who's thirty-five and has only thirty thousand saved? Can they still coast? Lucas: They can, but the number is higher. At thirty-five with thirty years to sixty-five, that same one million target requires about one hundred thirty-one thousand today at seven percent growth. So they have a gap. But they can still aim for Coast FI by saving more aggressively for a few years. Luna: I've also seen people talk about 'Barista FI' as a variation. That's where you work a part-time job that provides health insurance, like at Starbucks, and your investments cover the rest. Coast FI is similar but without the healthcare tie-in. Lucas: Exactly. Barista FI is a specific strategy within the broader Coast FI framework. The key is that you're not fully retired, but you're not a slave to your savings rate either. You have options. Luna: One thing I wonder about though — what if the market underperforms? Seven percent after inflation is the historical average, but it's not guaranteed. If you hit your Coast FI number and then we have a lost decade, your plan could fall apart. Lucas: That's a valid concern. Coast FI is more sensitive to sequence of returns risk because you're not adding money. If the market tanks early in your coast period, your portfolio might not recover in time. A common hedge is to overshoot your Coast FI number by maybe twenty percent, or to keep saving at a reduced rate for a few more years. Luna: So it's not a set-it-and-forget-it plan. You need to monitor and adjust. But the core idea is still powerful: you don't have to save until you drop. You can front-load your savings and then relax. Lucas: Right. And I think that's the appeal. The traditional FIRE movement sometimes feels like a sprint. You live on fifty percent of your income for fifteen years, then you're done. But Coast FI is more like a marathon with a long, pleasant middle section. Luna: I like that analogy. It's less extreme, more sustainable for people who don't want to live like a miser in their twenties just to retire at forty. Lucas: Exactly. And it's not a new idea. The math has been around forever. But it's gained more attention recently because of podcasts like this and blogs that break it down. The term 'Coast FI' was popularized by the financial independence community maybe five or six years ago. Luna: So how does someone calculate their own Coast FI number? Walk me through it step by step. Lucas: First, figure out your annual spending in retirement. Let's say forty thousand. Multiply by twenty-five for the four percent rule — that gives you one million. That's your full FI number. Then, decide your target retirement age, say sixty-five. Then, calculate how many years until then. If you're thirty-five, that's thirty years. Then, using an assumed real return, like seven percent, calculate the present value of one million thirty years from now. The formula is one million divided by one point zero seven to the thirtieth power. That gives you about one hundred thirty-one thousand. Luna: So if you have one hundred thirty-one thousand invested at thirty-five, you're at Coast FI for a sixty-five retirement with forty thousand annual spending. That's the number to aim for. Lucas: Right. And you can adjust the assumptions. If you want to retire earlier, say fifty-five, you have less time for compounding, so the Coast FI number is higher. If you expect lower returns, the number is higher. If you can live on less, the number is lower. Luna: What about inflation? Is that baked into the seven percent real return? Lucas: Yes. A seven percent real return means after inflation. So you're comparing apples to apples. Your forty thousand today is in today's dollars, and the target is in today's dollars. It's consistent. Luna: I think one of the biggest benefits of Coast FI is the psychological freedom. Once you hit that number, you know that your retirement is secure regardless of what job you do. That's huge for mental health. Lucas: Absolutely. And it changes how you view your career. Instead of climbing the corporate ladder for the paycheck, you can choose work that aligns with your values. You might take a pay cut for more flexibility, but since you don't need to save, that's fine. Luna: There's also the tax advantage. If you're working a lower-paying job, you're in a lower tax bracket, so you might pay less in taxes on your investment gains when you withdraw. That's a bonus. Lucas: Good point. And if you're in a lower bracket, you can also do Roth conversions more cheaply, moving money from traditional accounts to Roth accounts at a lower tax rate. Luna: So Coast FI isn't just about the math. It's about lifestyle design. It's a way to opt out of the rat race without fully retiring. Lucas: Exactly. And it's accessible to more people than the traditional FIRE number. A thirty-year-old making fifty thousand a year can plausibly save ninety-four thousand by thirty-five if they're disciplined. That's about fifteen thousand a year for five years. That's a thirty percent savings rate. Doable. Luna: But let's be real. Not everyone can save that much. Life happens. Kids, student loans, medical expenses. The Coast FI number might feel out of reach for some. Lucas: That's fair. But even if you don't hit the exact number, getting close gives you a lot of optionality. Maybe you hit fifty percent of your Coast FI number. That means you only need to save half as much going forward. That's still a huge improvement. Luna: I think the key takeaway is that financial independence is a spectrum, not a binary. You can be partially free. Coast FI is one milestone on that spectrum. Lucas: And it's a milestone worth celebrating. Once you hit it, you've essentially bought yourself the freedom to work on your own terms for the rest of your career. That's a powerful feeling. Luna: So for our listeners, here's a challenge. Figure out your Coast FI number this week. Use the simple formula we discussed. It might be lower than you think. Lucas: And if it's not, don't despair. You can always increase your savings rate or extend your time horizon. The point is to have a target that gives you hope, not stress. Luna: I'm actually going to calculate my own Coast FI number after this episode. I've been saving aggressively, but I never thought about when I could stop. Lucas: Let us know what you find. I think a lot of people will be surprised by how close they are. And that's the whole point. Financial independence isn't just for the ultra-rich. It's for anyone who uses time and compounding wisely. Luna: Alright, that's the Coast FI concept. Next episode, maybe we can talk about how to actually invest to hit that number efficiently. Lucas: Good idea. Low-cost index funds, asset allocation, tax efficiency — there's plenty to cover. But for now, go calculate your Coast FI number. You might be closer to freedom than you think. Luna: Thanks for listening, and we'll see you next time on The Financial Freedom Podcast.