What is Coastal FIRE? New strategy for pre-retirement savings

If you’ve come across any Financial Independence, Retire Early (FIRE) influencers on social media, you’ve probably noticed similar themes: Escape the 9-to-5 grind. Travel to exciting places. Said Until we meet again to “Sunday fears” because there is no work week to worry about.

Some influencers say they have successfully retired in their 30s or 40s thanks to the FIRE movement. “I thought I would have to work hard until I was 65 and then I could finally retire,” FIRE enthusiast Catie the Millennial Money Honey said in a popular TikTok video. “Then I discovered financial independence and early retirement. I realized I could actually retire when I was 35.

In the background, a video montage shows her eating fancy seafood dishes, hiking a flower-filled hill, boating with her friends, and drifting lazily in a lake on an inflatable unicorn, all in dreamy locations very different.

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I hate to break it to you: but this probably won’t reflect your FIRE journey. Well-curated lifestyle videos on social media belie a very difficult period of austerity and belt-tightening required to achieve an early retirement that, frankly, most people are not cut out for.

While it’s actually possible to follow the FIRE guidelines and retire early in comfort, it’s extremely helpful if you have a six-figure income, naturally frugal habits, or perhaps some seed capital to get started — or ideally all of the above. Many early retirement hopefuls don’t have these benefits, however, so it’s understandable that there’s a lot of online chatter indicating that savers are forgoing FIRE because of the extreme measures often required in the penny-pinching lifestyle.

But from the ashes of FIRE, a new iteration of the movement is taking shape: Coast FIRE, a less intense and more sustainable method of retirement savings that allows participants to enjoy their lives more while saving.

What exactly is FIRE (financial independence, early retirement)?

The FIRE savings method is a popular path to retirement long before you go gray, but it’s not for everyone. The early retirement strategy focuses on saving and investing much of your income during the prime of your career while living well below your means. The goal is to stop working at a young age.

“There are different forms of FIRE, but the general idea is to save as much as you can, about 50% of your income,” says Randall Watsek, a financial advisor at Raymond James who advises some FIRE savers. Then invest your savings heavily, for example, maxing out your 401(k), individual retirement account and health savings account.

Tracing its roots to a 1992 book titled Your money or your life, written by couple Vicki Robin and Joe Dominguez, the FIRE movement has been around for decades. But early retirement and financial freedom have been a part of the American psyche for much longer, Watsek says, dating back to the days of Benjamin Franklin. The path to wealth published in 1758.

It wasn’t until the pandemic, however, that interest in FIRE Truly it started to, well, catch fire. The r/FIRE and/financialindependence subreddits boast more than 2.5 million members combined, with membership more than doubling since 2021. The peak of popularity in FIRE communities roughly coincides with the Great Resignations, when workers fed up and exhausted they leave their jobs in droves in search of greener pastures. Many have been drawn to the FIRE movement as an attractive alternative to the traditional prospect of coping with the daily grind into their 60s or 70s.

Warning: FIRE can cause burnout

A number of recent articles and forum posts suggest that many FIRE savers are burning out due to the frugal lifestyle it often requires. This probably shouldn’t be a surprise.

Watsek likes to compare FIRE to crash diets. Some people, he said, are naturally gifted for this. They can easily make drastic lifestyle changes and keep up. Likewise, naturally frugal people may be more likely to retire early after strictly limiting their spending. But for most people, following an extreme diet, as well as saving money, is not easy.

Another important detail that is often overlooked in initial FIRE proposals is that many successful FIRE savers are already high-income earners. The movement is particularly popular, for example, among software engineers and doctors.

Watsek says his successful FIRE clients tend to be those already making “hundreds of thousands of dollars.” After all, it’s much easier to save a substantial portion of your income if you earn, say, $250,000 a year.

But for average workers, saving up to half their income can be burdensome if not impossible.

“Let’s say your after-tax income is $40,000. You’re saving $20,000 and only spending $20,000,” says Watsek. “That won’t even get you a studio apartment in New York.”

Sure, you can live in a low-cost area. But the reality, he notes, is that you may have to find a group of roommates or live with your family for an extended period of time. You will likely have to cook meals at home and also limit travel expenses, missing out on many social activities and adventures because they cost too much.

“Unless you have a pretty high income, you have to make a lot of sacrifices,” Watsek says.

Likely resulting from that wave of newcomers to the FIRE pandemic, we are now starting to see an increase in reported burnout cases among FIRE savers who want to be able to enjoy life before retirement.

Fortunately, the “Coast FIRE” trend may offer some solutions.

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What is Coast FIRE?

As the name suggests, Coast FIRE is like a less intense brother to the regular FIRE. With Coast FIRE, the emphasis is on sustainability. Instead of resorting to drastic lifestyle changes, participants prudently save in advance and “proceed” smoothly into retirement.

According to the r/CoastFIRE subreddit, which launched in late 2019 and has already gained 51,000 members, “Coast FIRE is when you have enough savings and investments so that, without additional contributions, your net worth will increase at compound growth to support a traditional retirement”.

The key components of Coast FIRE are time, rate of return and compound interest.

While Coast was not explicitly created as an alternative to FIRE burnouts, some traditional FIRE savers now find themselves coasting. Unlike regular FIRE, where people race to retire decades earlier than normal, Coast FIRE is about advancing your retirement savings by investing as early and often as possible in your career to reach your “Coast FIRE” savings goal . (Savings calculators can help you determine the amount you need to save each month to reach your goal, which is based on how much money you’d like to live on in retirement.)

Watsek says the key to Coast FIRE is getting to a point where the average return on your nest egg is greater than the amount you could realistically save in a given year. For example, let’s say your goal is $500,000. Once you reach that number, helped by compound interest along the way, you can stop saving for retirement.

“If your average return is 6%, you’re talking about a $30,000 addition to your savings,” he says, “which is far more than the amount you could actually save.”

As your nest egg begins to grow on its own, you take on an easy job or passion project to cover your basic living expenses based on the quality of life you’d like to have before officially retiring at a more traditional age, like at 60 years old.

Although an offshoot of FIRE, the emphasis with Coast FIRE is less on early retirement. Instead, you’re jeopardizing your retirement savings early, which allows you to take your foot off the gas much sooner and enjoy life in the meantime, all while moving closer to a comfortable retirement.

“The difference is a shorter saving period but a longer working period,” says Watsek. “So, for people who are susceptible to burnout, the Coast FIRE method is more likely to work.”

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