Knowing you need to save enough for retirement and actually doing it are two different things. Today’s economy has left younger generations struggling to determine how to navigate a financially tricky present while also setting something aside for the future. Along the way, many are hoping to catch a break, and maybe even enjoy themselves a little.
This conundrum has led to the rise of Coast FI (short for Coast Financial Independence). The aim of this financial planning approach is to set aside enough for retirement that, assuming reliable investment growth, people will have some room in the future to just “coast,” so to speak.
What is Coast FI?
This retirement savings strategy is a subset of the FIRE movement, which stands for Financial Independence, Retire Early. But instead of the goal being early retirement, the Coast FI philosophy aims for just the former: achieving financial independence.
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Without the focus on retiring as soon as possible, Coast FI “encourages a focus on a different question,” said Kiplinger. “How much would you need to have invested, such that if you didn’t touch your nest egg, it would grow to support your future retirement spending needs?”
Coast effectively refers to the point at which you have saved enough that you can breathe a sigh of relief. In other words, “Coast FI is when you have enough in investments to fund your full retirement without any more contributions,” with the idea being that “reaching Coast FI early frees you up to, say, take a lower paying job, take time off from work or try to start a business,” said The Wall Street Journal.
What is the appeal of Coast FI?
For many, the promise of freedom and flexibility. While it requires saving aggressively for retirement until you hit your target number, there is then the chance to pump the brakes. That could “free up money to travel or invest for other goals, like a down payment,” said NerdWallet. You may alternatively decide to leverage that freedom to “shift to more fulfilling, perhaps even part-time, work instead.”
Given its recent rise in popularity, having these options on the table is likely reassuring. “Younger Americans worry about how new technology like artificial intelligence will affect their careers and ponder the uncertain future of Social Security,” said the Journal.
Are there any risks to the Coast FI approach?
Despite its allure, it is important not to let Coast FI lull you into a false sense of security. “The core principle hinges on the market performing how you expect it to,” said NerdWallet, and there are, of course, no guarantees when it comes to investing. “If the market tanks in the first few years after you stop contributing, it could greatly reduce how much you have in retirement years,” said the Journal.
Estimating “how much you’ll spend in retirement and your withdrawal rate (factors that go into calculating your Coast FIRE number) can also be hard to figure if you’re decades away from retirement,” said the Journal. This raises the risk of miscalculations, depending on what kind of twists and turns your life takes.
