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Most Dangerous Early Retirement Strategy To Follow: Coast FIRE

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In 2009, I established my first rule of FIRE: generate enough passive income to cover your basic living expenses. Once achieved, you attain financial independence and the freedom to pursue your desires. Since then, various permutations of FIRE have emerged, one of which is Coast FIRE.

Coast FIRE involves front-loading your retirement savings and then ceasing to save at a certain point, assuming that your investments will grow sufficiently to fully fund your retirement at the traditional retirement age of 60+.

Temporarily pursuing Coast FIRE can serve as a coping mechanism to feel better about your financial progress. However, I cannot, in good conscience, recommend that anybody remain in Coast FIRE mode. Too much is at stake, primarily your livelihood.

5 Reasons Why I Don’t Recommend Coast FIRE

Having embarked on the FIRE journey and encountered numerous unexpected variables, I can share my perspective on why Coast FIRE is not a sustainable retirement strategy. It is the most dangerous early retirement strategy to follow.

1) Too many variables that rely on chance

The formula for Coast FIRE is A / (1+r)˄t, where:

  • A = the amount needed to achieve financial independence (FIRE), which can be calculated as 25X your expenses or 20X your average gross income
  • r = the annual rate of return after inflation
  • t = the number of years investments have to compound

In essence, all the variables are more or less beyond your control. The amount needed to achieve financial independence relies on future expense projections, which are uncertain due to inflation and your changing desires.

Your Coast FIRE number also hinges on your annual rate of return after inflation, a figure that cannot be accurately predicted due to various return assumptions. Moreover, the number of years investments have to compound depends on your financial needs, annual rate of return, and lifespan.

With too many variables dependent on uncontrollable factors, Coast FIRE resembles the plot of the movie Memento, where one incorrect assumption can alter the outcome significantly.

Example of Coast FIRE using the above formula:

Let’s say you are 25 years old and determine that once you stop working at the age of 65 you need $40,000 a year from your retirement account for living expenses. Your expected rate of return is 5% and you hope to reach Coast FIRE by the time you are 45 (in 20 years). Here’s how the formula works for you:

A = $40,000 x 25 = $1,000,000 / (1+0.05)˄20 = $377,358 = Coast FIRE amount. You have 20 years to accumulate that amount, which can be done by saving $1,572 a month. However, given your savings will be helped by compound interest during this time, you likely won’t need to save as much a month.

If you accumulate $377,358 sooner, you can then “coast” for the rest of your life. But let’s be realistic here. In 20 years, the buying power of $40,000 will be more than cut in half thanks to inflation. In other words, by then, you’ll need $80,000+ to live your same lifestyle today.

Further, do you really think you’ll be comfortably taking things down and not saving anymore if you only have $377,358 at 45? Going from $377,358 to your desired $1,000,000 when you’re 65 is a long ways away. Anything can and will happen.

2) Coast FIRE is a mental coping mechanism (good or bad)

Money is psychological, and the narratives we construct play a vital role in shaping our financial destinies. Achieving my version of FIRE is challenging, demanding discipline often sustained over decades. Consequently, many individuals find it daunting to reach.

To alleviate this challenge, alternative FIRE models like Coast FIRE, Lean FIRE, and Barista FIRE emerge, offering a sense of progress or a different lifestyle. This serves as a positive development, motivating individuals to stay committed to savings and investments. However, a potential pitfall lies in lingering too long at Coast FIRE station.

Embracing the Coast FIRE mentality temporarily can be a useful motivational tool. Yet, the danger arises when individuals remain stationed at Coast FIRE. The risk is succumbing to complacency. By the time those wish to rejoin the FIRE journey, they can’t get back on the train because the ticket price has surged significantly.

The things we tell ourselves to cope

Asserting to be Coast FIRE is like attributing your shortness of breath to genetics. The truth is, smoking a pack of cigarettes daily for a decade has harmed your lungs.

It’s comparable to asserting that losing the pickleball match was solely due to your partner’s incompetence. However, a recording would likely reveal that you made an equal number of errors.

Saying you are Coast FIRE is like blaming your boss for showing favoritism to other employees. The reality is, your colleague who did get promoted has worked far more than your standard 40 hours a week for the past year. He stayed late in the trenches during a crisis while you checked out at 5 pm.

We often craft narratives to boost our self-esteem, but in the end, we’re merely deceiving ourselves.

3) Coast FIRE limits your ability to adapt to the future

One of the benefits of Coast FIRE is the opportunity to lead a more enjoyable life now rather than waiting until you’re much older. I get it; we all want to embrace a YOLO lifestyle. However, such a lifestyle puts you at greater financial risk.

Because Coast FIRE is a coping mechanism to make you feel better about your situation, you may not push yourself to worker or take more risks to boost income and wealth. You may think the idea of purposefully living paycheck-to-paycheck to supercharge your wealth is absurd.

You might get lucky with your investments over the years, but if circumstances change, such as having aging parents to take care of or having kids, Coast FIRE followers will have a much more difficult time adjusting.

4) Coast FIRE forces you to make suboptimal partnership decisions

If you’re in a committed relationship, life is better when both partners have financial freedom to do what they want. However, if you go the Coast FIRE route, one partner might be forced to work for much longer than desired, leading to potential resentment over time.

In the FIRE movement, some men claim financial independence while their wives continue working, covering all living expenses with their incomes. Additionally, these working wives often have retirement and health care benefits.

When these wives eventually consider retirement, they may feel bitterness for working many more years than their husbands. Some have sought my advice on stopping work after reading posts like Achieving The Two Spouse Early Retirement Household. They don’t like their jobs but they feel trapped.

Promoting equality, I suggest wives work the same number of years as their husbands or match the working duration until the husbands retired. When that time arrives, the wives should stand firm and pursue their financial freedom, despite potential pushback.

To address the husband’s concerns, I recommend that wives learn about engineering their layoffs, securing a severance package as they exit. This financial cushion can ease their husband’s worries and provide time for the wives to plan their retirement.

Financial fear can be very hard to overcome. But if Coast FIRE husbands want to not feel like impostors, they would let their wives be free as well.

5) Coast FIRE may delay or eliminate your desire for having kids

Having kids or not is a personal choice, but if one partner desires children, adopting Coast FIRE may instill fear in the other partner. Couples break up all the time due to their inability to agree on having kids or not.

Given the numerous factors that must align for a couple to secure enough money for retirement by traditional retirement age, having kids significantly complicates the path to FIRE.

With college costs projected to surge to $400,000 – $1 million by 2042, alongside increasing healthcare and housing expenses, confidence in not wanting kids is crucial for those pursuing the Coast FIRE route.

Normal working parents already feel strain to provide for their children, especially those living in expensive big cities. The strain to provide will be even greater for Coast FIRE parents, which may more easily lead to divorce.

The irony of human nature is our tendency to change our minds. You might not want kids at 28, but you might at age 38. If you haven’t properly saved, invested, and planned for them, life may become extremely difficult.

Example of a couple that missed out due to Coast FIRE

In 2013, a couple in their early 30s decided to pursue early retirement with a nest egg of approximately $680,000. Both held six figure jobs but chose to live frugally, residing in a studio throughout their entire working lives.

Accumulating $680,000 by the age of 30 is a commendable achievement. Opting for the Coast FIRE approach, they halted their aggressive savings and work routine and decided to go travel. With a 60/40 allocation, they allowed their retirement portfolios, to grow with the market. However, when the wife turned 38 and had a baby, their perspective shifted.

After a year of managing parenthood in a cramped 400-square-foot studio, the couple yearned for a change. The desire for a larger living space, preferably a single-family house with three bedrooms, two bathrooms, and a backyard, became paramount. The hitch, however, was that the properties they now aspired to own ranged between $1.5 million and $2 million!

Should have bought the Vancouver property back in 2013

Despite their current net worth of approximately $1,000,000, securing a 20% down payment for a home would necessitate selling $300,000 – $400,000 worth of stocks. Consequently, this liquidation could lead to a decline in their estimated $40,000 passive income by $12,000 – $16,000. Raising a child on an annual income of $24,000 – $28,000 in Vancouver would pose significant challenges.

They would essentially have retired early to live in near poverty. And who really wants that after years of living so frugally?

Had they not embraced the Coast FIRE lifestyle, they would have continued to aggressively save and invest for the future. They would have purchased a two-bedroom property in 2013 for $500,000, which would now be valued at over $1 million. With a 20% down payment, their $400,000 mortgage would amount to approximately $1,700 per month.

Moreover, they would have accumulated over $900,000 in equity, putting their net worth closer to $1.6 million, compared to their current $1,000,000. Factoring in savings and investing for eight more years, their net worth could potentially approach $2.5 million.

In essence, due to adopting Coast FIRE, the couple finds themselves at least 60% poorer and grappling with higher living expenses. If they bought a $1.5 million house today with a $1.2 million mortgage at 5.5%, their monthly mortgage payment would be $6,442.

Canadian real home prices vs disposable income
Click the image for more comparison between U.S. and Canadian real estate

Temporarily Enjoy Coast FIRE, Then Move On To Real FIRE

If you’re feeling fatigued or contemplating giving up on your financial independence journey, consider adopting the Coast FIRE identity temporarily. It’s nice to run the numbers and see how large your investments could grow with reasonable assumptions.

Although Coast FIRE isn’t fundamentally different from a regular person working a day job with retirement savings, identifying as Coast FIRE can provide a psychological boost regarding your progress.

However, it’s essential to bid farewell to the Coast FIRE identity once you’ve derived the psychological benefits and return to a more active financial approach. I recommend limiting the duration of identifying as Coast FIRE to one year. Beyond that, there’s a risk of becoming too complacent, and your once-healthy financial habits may deteriorate to a point where recovery becomes challenging.

Instead of completely easing off on saving and investing, consider finding a job that brings you genuine enjoyment. While it may not match your previous income, it can imbue your life with a sense of purpose and meaning.

Yes, absolutely go see the world and take that RV around the country during your temporary Coast FIRE phase. However, do not stop saving for your future. As someone who lived abroad for 13 years and has traveled over 60 countries, travel will eventually get old.

Coast FIRE Is Better Than No FIRE Mentality

The reality is, for many knowledge workers, the need to achieve Financial Independence and Retire Early is becoming obsolete. Post-pandemic, there is more work flexibility and opportunities to make money online than ever before.

For example, I’m part of a WhatsApp pickleball group filled with individuals in their 20s and 30s who play pickleball every day at 3:30 pm or 4 pm. They all work in tech and make between $150,000 – $300,000 a year. If I had the option to enjoy such activities while working, I could have easily continued working for another 5-10 years without any issues.

If you have the flexibility in your work, Coast FIRE might not be as risky of an early retirement strategy. As long as you persist in saving and investing for the future, your retirement is likely to unfold favorably.

Always bear in mind that you are the only one who gets to live your life. Plan ahead and be ready to adapt when circumstances shift. Be transparent about your financial situation. Your future may well unfold differently than you anticipate!

Reader Questions

Do you believe Coast FIRE is a coping mechanism? What are some of the narratives we tell ourselves to make us feel better about our progress? Why have so many different types of FIRE emerged since 2009?

If you aspire to retire early, consider getting a copy of How To Engineer Your Layoff. In this bestselling ebook, you’ll discover strategies for negotiating a severance package and achieving financial freedom.

Having a financial cushion provided me with the confidence to permanently leave my finance career and change my life for the better. If you plan on quitting your job anyway, there is no downside in trying to negotiate.

Use the code “saveten” to save $10 at checkout.

How to engineer your layoff - learn how to negotiate a severance package and be free

If you’re looking for a free tool to plan for retirement, check out Empower. I’ve been using Empower to track my net worth and run retirement cash flow scenarios since 2012. The free tool helps keep me on track. Simply link up all your financial accounts so you can get a great overview of your finances.

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