‘Coast’ into retirement while still enjoying life as you save

Who doesn’t like the idea of being completely prepared for retirement? The thought of it is liberating.

Late in the 1990s, when I was a teen, the financial independence, retire early (FIRE) movement started. These people were obsessed with early retirement and were willing to sacrifice just about anything to contribute significant sums of money to their nest egg as quickly as possible so that they could quit their jobs generally before age 50 and start to “live.”

For many, this meant going without vacations, eating beans daily and just being a cheapskate. The theory was that the nest egg would produce steady income for that person for the rest of their lives — say, for example, $4,000 per month generated by a nest egg of $1 million until age 85.

I have two major issues with the concept. Firstly, the lifestyle of ultra-frugality is not appealing. Secondly, banking many thousands of dollars every month throughout your 20s, 30s and 40s is pretty unattainable for most people living in just about any city in Canada. The cost of living and debt are major preventative barriers.

Also, who retires at 50? You could have a whole other life, career and so on at that age!

Enter now the newer and more relevant Coast FIRE movement that everyone is talking about on reddit, social media and finance blogs.

This concept emphasizes the financial independence part, but rather than retiring early and not working another day in your life, you “coast” into retirement still having an income and significantly better balance.

To achieve Coast FIRE, you steadily build up your nest egg until it reaches a point where it can grow independently through the power of compound interest and reinvested returns to the ultimate nest egg size you want, without you having to save another dime after you get to that initial savings point.

So, once you reach the point where you no longer need to add another dollar to your retirement portfolio, you can have loads more freedom to do what you want like — work part-time or at a different job you like better, enjoy more cash flow for vacations and fun because you no longer have to tuck away 20 per cent of your income into your RRSP and TFSA.

The other nifty part of the concept is that it’s more balanced because there’s less of a rush. Sure, it takes longer to sock away all that money to reach the initial savings point, and it assumes you keep earning an income until your ultimate retirement date, but on your journey you can still have a life.

Your role in Coast FIRE is twofold.

First, you need to put your retirement nest egg to work through investing well and keeping up with at least the long-term market rate of return (in other words, don’t underperform the market.)

Second, you need to decide when you want to retire and the approximate size of your nest egg you want. By the way, this is what a financial plan includes and if you don’t have a plan yet, you should probably get one. Those with a written financial plan are two to three times more likely to achieve their goals. I get that visions change, and that’s OK, but being relatively clear on your retirement date and amount is key to your Coast FIRE calculation. And, here’s my pro tip: assume you need more money than less.

There are many Coast FIRE calculators out there for you to Google and play around with and I encourage you to do so. Here’s what you’ll need for the calculation:

Current age, desired retirement age, a safe withdrawal rate (I recommend four per cent), an inflation-adjusted growth rate (I recommend five per cent) and what your annual expenses in retirement are projected to be (I recommend assuming 70 to 80 per cent of what you spend today).

The calculator will give you your Coast FIRE number and that is the number you need to save towards. Once you hit it, you get to “coast” the rest of the way into retirement so long as your investments keep growing.

If you like this concept of “coasting” into retirement, my best advice is to pace yourself so that you can still enjoy your life, because that’s what financial independence is really about.

This article was originally published in The Star. Lesley-Anne Scorgie is a Toronto-based personal finance columnist and a freelance contributing columnist for the Star.