How to Calculate Your Coast FIRE Number

Coast FIRE represents a financial strategy where individuals save and invest a sufficient amount of money early in their careers. This initial sum is designed to grow independently through investment returns, ultimately accumulating into a substantial retirement fund. The approach allows for a less aggressive savings rate in later working years, offering flexibility. It contrasts with traditional retirement planning by front-loading savings and leveraging the power of compound interest over an extended period.

Key Variables for Calculation

Determining your Coast FIRE number requires careful consideration of several financial variables and assumptions. Understanding these components is foundational to calculating a personalized Coast FIRE target.

Future annual retirement expenses are the estimated yearly costs you anticipate incurring during your retirement years, adjusted for inflation. To estimate this, individuals can review their current spending habits and project changes in retirement, considering desired lifestyle, travel, and healthcare costs. A common starting point is to estimate needing between 55% and 80% of your pre-retirement income to maintain your lifestyle.

The estimated annual investment growth rate represents the average yearly return your investments are expected to generate between reaching your Coast FIRE number and your chosen retirement age. A conservative rate, ranging from 5% to 7% after accounting for inflation, is suggested for long-term planning. This rate depends on your asset allocation, with a diversified portfolio of stocks and bonds being a common assumption.

Inflation rate accounts for the gradual increase in the cost of goods and services over time, which erodes purchasing power. Incorporating inflation is important for long-term financial planning to ensure your future retirement funds can cover future expenses.

Your current investment portfolio value includes the total sum of all investment accounts designated for your retirement. This encompasses funds held in tax-advantaged accounts like 401(k)s and IRAs, as well as taxable brokerage accounts.

The retirement age is the specific age at which you intend to stop working and begin drawing from your accumulated retirement funds. This age directly influences the compounding period for your investments. Your current age, subtracted from your target retirement age, determines the total number of years your investments have to grow without further contributions.

Steps to Calculate Your Coast FIRE Number

Calculating your Coast FIRE number involves a series of sequential financial projections that account for future expenses, investment growth, and the time value of money. This process translates your long-term retirement goals into a specific savings target that, once reached, allows your investments to grow autonomously.

The initial step is calculating the future value of your annual retirement expenses. This involves projecting your estimated annual spending at your chosen retirement age, considering the impact of inflation over the intervening years. For instance, if you anticipate needing $50,000 per year in today’s dollars and your retirement is 30 years away with a 3% annual inflation rate, your future annual expenses would be significantly higher. This calculation ensures your projected income in retirement maintains its purchasing power.

Next, determine the total retirement nest egg needed at your retirement age. A common guideline for this is the “4% rule,” which suggests you can safely withdraw 4% of your retirement portfolio in the first year of retirement. To find the total nest egg, divide your future annual retirement expenses by this safe withdrawal rate, 0.04 (4%). For example, if you project needing $121,363 annually in retirement, your total nest egg needed would be approximately $3,034,075 ($121,363 / 0.04).

The calculation then involves determining the future value of your current investments. This step projects how much your existing investment portfolio will grow by your target retirement age, assuming your estimated annual investment growth rate. The formula for future value is: FV = PV \ (1 + r)\^n. For example, if you currently have $100,000 invested and expect an 8% annual growth rate over 30 years, your investments would theoretically grow to approximately $1,006,266 ($100,000 \ (1 + 0.08)\^30).

Finally, to derive your Coast FIRE number, you work backward from the total nest egg needed at retirement to determine how much you need to have saved by a specific “Coast FIRE age.” This is essentially a present value calculation. The formula for present value is: PV = FV / (1 + r)\^n. If you need $3,034,075 at retirement in 30 years, and you want to hit Coast FIRE in 10 years (meaning 20 years for the money to grow), with an 8% annual growth rate, your Coast FIRE number would be approximately $650,915 ($3,034,075 / (1 + 0.08)\^20).

Adjusting Your Coast FIRE Plan

After calculating your initial Coast FIRE number, you might find it is higher or lower than anticipated, prompting a need for adjustments. The Coast FIRE plan is a dynamic strategy that can be modified based on your financial situation and life goals, allowing for strategic planning.

Adjusting the key variables can significantly impact your Coast FIRE number. For instance, aiming for a higher estimated annual investment growth rate, perhaps by adjusting your asset allocation towards a slightly more aggressive portfolio, could reduce the amount you need to save initially. Conversely, a more conservative growth rate would necessitate a larger initial savings amount. Similarly, reducing your future annual retirement expenses or delaying your target retirement age would also lower the required Coast FIRE number.

Once you have a clear Coast FIRE number, several strategies can help you reach it more efficiently. Increasing your current savings rate allows you to hit the Coast FIRE number sooner. Optimizing your investment strategies for targeted growth, such as diversifying across various asset classes or rebalancing your portfolio periodically, can help maximize returns within your risk tolerance. Re-evaluating your retirement expense assumptions periodically also ensures that your target remains realistic and aligned with your evolving lifestyle preferences.

Coast FIRE is not a one-time calculation but requires ongoing monitoring and re-evaluation. Life circumstances, market conditions, and personal goals are subject to change, necessitating periodic reviews of your plan. Regularly checking your progress against your Coast FIRE number allows you to make timely adjustments to your savings rate, investment strategy, or retirement timeline. This continuous assessment ensures your path to financial independence remains on track and adaptable to unforeseen events.