Nic

    Ever dream of retiring early and living life on your terms? I went down the financial independence rabbit hole and stumbled on the FIRE movement (Financial Independence, Retire Early).

    This approach opens the door to leaving the workforce decades ahead of your peers, if you’re willing to pinch pennies aggressively. Then I found Coast FIRE – it divides effort more evenly so you still retire early but also enjoy the journey.

    Through savings and investing, your money can compound over time to give freedom both now and later. I have an interactive Coast FIRE calculator below that you can use to see what works for your situation. Let’s get into the FIRE movement and how you can use the calculator to see where you stand.

    Readers support our site. If you purchase through links on our site, I might receive an affiliate commission at no additional cost to you.

    What is FIRE?

    What is FIRE?

    The FIRE movement, standing for Financial Independence, Retire Early, is a lifestyle and financial strategy gaining popularity among those seeking to achieve financial freedom well before traditional retirement age.

    This movement is built on extreme savings, income growth rate, and investment principles, allowing people to retire far earlier than standard retirement benchmarks (i.e., after age 65).

    As the FIRE age and movement gained popularity, more variations of the FIRE journey evolved.

    Lean FIRE: The original FIRE approach emphasizes minimalism. It involves living frugally, cutting expenses to essentials, and saving a significant income to retire early with a simple lifestyle. It prioritizes financial freedom and simplicity over luxury.

    Coast FIRE: This strategy involves saving enough early so you no longer need to add to your retirement savings. Once your retirement fund is set, you simply earn enough for current expenses, letting compound interest grow your savings until retirement. Coast FIRE offers flexibility in career and work-life balance.

    Barista FIRE: This approach is about saving enough to semi-retire early. For example, you work part-time as a barista to meet current expenses while your savings and investments handle the rest. Barista FIRE balances reduced working hours with the perks of partial early retirement.

    Fat FIRE: Aimed at a luxurious retirement lifestyle, Fat FIRE requires saving a substantial nest egg to sustain or enhance your living standards post-retirement. It involves aggressive saving and investing for early retirement with comfort and indulgence.

    Interactive Coast FIRE Calculator

    This calculator isn’t just another retirement tool; it’s specifically designed for those aiming for the Coast FIRE lifestyle. Standard retirement calculators focus on total savings needed for a completely work-free life. This one is different because it tailors your financial path to a semi-retired state, where your investments do the heavy lifting.

    Coast FIRE Calculator

    Calculated Values

    Annual Income From Current Investments:

    Retirement age (based on savings, other estimates):

    Needed amount to retire:

    Here’s How It Works

    The calculator factors in your current savings and investments, your expected rate of return, and your annual savings rate. But here’s the twist – it also considers the age at which you want to reduce your work hours (‘Coast Age’). The tool then calculates the amount you need to save by this Coast Age, allowing you to rely on the power of compound interest to grow your savings until full retirement.

    By inputting different scenarios, you can see how changes in your savings rate, investment returns, or Coast Age alter your path to financial freedom. This flexibility makes the Coast FIRE Calculator a dynamic tool for planning a retirement that aligns with your personal goals and lifestyle preferences.

    If you don’t like the number you get, then adjust the FIRE calculator and create a plan to achieve your desired numbers. One way is to explore strategies like real estate investing to get you to your magic number sooner.

    The goal of the calculator is to paint a realistic picture of your financial future and when you can achieve financial independence. The key components that you need to input are:

    1. Current Financial Status: Put your savings and investments in the Current Investments Total box.

    2. Expected Rate of Return on Investments: An estimation of your investment’s annual growth rate. Choose a realistic percentage and place it in the Rate of Return section.

    3. Savings Rate: This should be the money you save each year for your retirement funds. Place this in the Additional Annual Investment amount.

    4. Expected Withdrawal Rate: What percentage do you expect to withdraw from your retirement accounts when retiring early?

    5. Current Age: Input your current age.

    6. Yearly Income Needed: The final input is to enter the annual income you think you need to be financially independent.

    7. Retirement Age: This is your targeted age for achieving financial independence — allowing you to “coast” in whatever work you do.

    Once you provide these inputs, this retirement calculator will provide you with how much you need and the age when you will reach FIRE status.

    Your Coast FIRE Numbers

    So now you have your FIRE target age and number. Let’s look at some tips to make sure you get there.

    Financial Capacity

    Considering your Financial Capacity

    Take a look at your current net worth, cash flow, and emergency funds:

    1. Net Worth Assessment: Where do your finances stand today? Calculate your current net worth by adding up all your assets, including your primary residence, rental properties, stocks, and cash, and then minus your liabilities (like mortgages and other debts).

    2. Cash Flow Analysis: What are your current monthly income streams besides your W-2? What must you do to make more money or reduce monthly expenses? I’ve found that finding ways to increase my cash flow is more proactive and effective than being fixated on reducing expenses.

    3. Emergency Fund Status: Are you prepared in case something unexpected happens? Ensure you have an easily accessible fund to handle emergencies so you don’t have to take out a loan or file for bankruptcy. You’ll want to have six months of your expenses in your fund.

    Investments, Savings, and Retirement Plans

    Evaluating your investments, savings and retirement plans

    If you want to live the Coast FIRE lifestyle, you should also optimize your investments, savings, and retirement plans. It helps you get an idea of how these align with your overall financial independence strategy.

    1. Investment Portfolio Review: What’s in your current portfolio, and what are you making on it? Do you own property? Index funds? REITs? Bonds? Review everything to see if you have the best mix for your needed return rate.

    2. Savings Rate Analysis: How much are you saving each year? Do you need to save more? Are there adjustments you can make to your annual spending that will get you closer to the retirement age you want?

    3. Retirement Plan Assessment: What has been the past performance of your retirement savings accounts like IRAs and 401(k)s? Do you need to make a change in strategy for better future returns?

    Real Estate and Coast FIRE Number

    Incorporating real estate investment into your Coast FIRE strategy can be a way to help move faster. Real estate investing offers unique advantages that align well with the objectives of Coast FIRE. Here’s how:

    1. Stable Cash Flow: Rental properties can provide a consistent and stable source of income. This cash flow can be particularly valuable during your coasting period, where you might be working less or pursuing lower-income activities. The rental income can cover your living expenses, reducing the need to withdraw from your investments, allowing them to grow unimpeded.

    2. Leverage and Appreciation: Real estate allows you to leverage your investment – using a relatively small amount of capital to control a valuable asset. Over time, as the property appreciates and the mortgage is paid down, your equity grows. This increase in equity can significantly contribute to reaching your Coast FIRE number faster.

    3. Tax Benefits: Real estate investing offers several tax advantages like deductions for mortgage interest, property taxes, operating expenses, depreciation, and repairs. These benefits can help maximize your cash flow and reduce the taxable income from your investments.

    4. Inflation Hedge: Property values and rental incomes generally keep pace with inflation. This makes real estate a good hedge against the eroding effects of inflation on your purchasing power, a critical consideration for long-term financial independence.

    5. Diversification: Real estate adds diversification to your investment portfolio, reducing overall risk. Because real estate is not directly correlated with stock market ups and downs, it provides stability in different economic conditions.

    By including real estate in your Coast FIRE plan, you’re not just investing in an asset; you’re investing in a source of ongoing income that supports your lifestyle while your other investments continue to compound and grow.

    Coast FIRE Number With Rental Income

    There are a few retirement calculators out there. One way to find your FIRE number is to base it on the fact that you’ll need 25 years of your current annual expenses saved, and you can spend 4% or less of your savings to pay for your costs per year without depleting it.

    The 4% Rule

    The 4% Rule is a widely referenced guideline used in retirement planning, suggesting that retirees can withdraw 4% of their retirement portfolio annually without risking running out of money. This rule is based on historical data and is intended to create a sustainable balance between preserving capital and providing a steady income stream during retirement.

    To calculate your FIRE number, you can reverse engineer this rule.

    For instance, if your annual expenses are $40,000, your 4% Rule FIRE number would be $1 million (since $40,000 is 4% of $1 million). This rule is just a starting point — you should adjust it based on your individual factors, such as your investment strategy, expected lifespan, and risk tolerance.

    Step by step instructions for Real Estate investoris

    The Rule of 25

    This rule means you need to save a minimum of whatever your annual spending is and be able to pay it for 25 years.

    Here’s an example:

    Let’s look at an example of calculating a Coast FIRE number using the above rules.

    Data

    • Age: 40 years old

    • Planned Retirement Age: 60 years old

    • Current Savings: $200,000

    • Annual Expenses/Retirement Spending: $50,000

    • Annual Rental Income: $30,000

    • Value of Real Estate Investments: $500,000

    • Expected Return on Investments (including real estate): 7% annually

    • Inflation Rate: 3% annually

    Steps

    1. Assess Your Financial Data: Review all the details listed above.

    2. Adjust Your Annual Expenses: Deduct your rental income from your annual expenses. Adjusted Annual Expenses = $50,000 – $30,000 = $20,000.

    3. Apply the 4% Rule and the Rule of 25: FIRE Number = $20,000 (adjusted expenses) × 25 = $500,000.

    4. Analyze the Outcome: You’ll need a retirement portfolio of $500,000 to retire at 60, adding in your rental income.

    5. Factor in Current Savings: Subtract your existing savings from the required amount. In this case, $500,000 – $200,000 = $300,000 still needed.

    6. Refine and Reassess: Adjust your calculations if the stock market has major adjustments, your real estate investments appreciate or rental income changes.

    7. Considerations: You have to try to anticipate changes in the economy.

    • Investment Returns: The growth rate of your investments influences the growth of your savings and contributions. For example, with an annual return rate of 7%, your current savings of $200,000 would grow to approximately $773,937 over 20 years.

    • Inflation Rate: With a current inflation rate of 3.1%, it’s essential to factor in how much more you’ll need in the future compared to today’s costs. For example, considering a 3.1% annual inflation rate, the required FIRE number of $500,000 today would need to be around $920,753 in 20 years to have the same purchasing power.

    Sensitivity Analysis and Planning

    Sensitivity Analysis and Planning in FIRE calculations

    Sensitivity analysis involves looking at how changes in various financial variables can impact your financial independence plan. You should review possible scenarios to see the impact of your FIRE strategy under different economic conditions.

    1. Variable Adjustments: Consider the impact of changes in key variables like investment returns, inflation rates, and real estate market fluctuations. By adjusting these factors, you can see how changes might affect your ability to reach financial independence.

    2. Scenario Planning: This process helps create ‘what-if’ scenarios, such as a downturn in the real estate market or lower-than-expected rental yields. It prepares you for various potential future states and helps formulate contingency plans.

    One-Time Future Expenses, Buffers, and Base Assumptions

    The Assumptions Behind the Calculator

    One-time future expenses are significant expenses that might happen once but impact your finances. Examples are major home repairs, children’s education, or significant medical expenses.

    1. Buffer Calculations: Consider adding a buffer for these expenses since they’ll impact the amount you need to save.

    2. Base Assumptions: Situations change, so you should regularly review and adjust your assumptions to ensure they remain accurate and relevant to your situation.

    Real Estate in FIRE Strategies for Investors

    Consider if real estate investing will help to improve your FIRE situation. Start by deciding if you want to be an active or passive investor.

    Active: This is where you directly own rentals. Even with property management, there are components of receiving a real estate income that will require your involvement.

    Passive: If you want to invest in real estate to get to FIRE faster but prefer a passive income, check out SparkRental’s Co-Invest Club. It’s a way to passively invest in real estate, collaborate with other club members, and learn how to start investing in commercial projects.

    Conclusion

    Getting a grip on your Coast FIRE number now can seriously speed up your journey to financial independence.

    I’d start by doing a no-nonsense assessment of where you stand financially. Then, why not use a Coast FIRE calculator to map out your financial needs? It’s a great way to give yourself a better idea and roadmap of what you need to do to achieve financial freedom.

    While you can still work in the Coast FIRE setup, having a real estate investment to help your Coast FIRE numbers will help lower your FIRE age and target dollar amounts. However, don’t put all your eggs in one basket. It’s a good idea to diversify your assets which can include a mix of rental and investment income.

    At the end of the day, you want your investments to work for the life you want to live. Here’s to making financial independence your reality sooner rather than later!

    Coast FIRE Calculator FAQs

    Here are the most asked questions I get about FIRE.

    How do you calculate your Coast FIRE amount?

    To calculate your Coast FIRE number, you typically use the 4% rule, multiplying your anticipated annual expenses in retirement by 25. This rule assumes a 4% yearly withdrawal rate from your savings, providing a rough estimate of the nest egg required to sustain your lifestyle without running out of funds during retirement. You can then subtract your income from rental properties or your part-time job.

    What is a good FIRE number for a single person?

    A good FIRE number for a single person is often calculated using the 4% rule, multiplying expected annual expenses in retirement by 25. For example, aiming for a $40,000 annual budget would suggest a target FIRE number of $1 million.

    Can you Coast FIRE on 500k?

    It depends on your lifestyle, anticipated expenses, rental income, employment income, and the duration of your coasting period. If your expected annual expenses are within the 4% rule of your $500k savings, and you have a strategy for healthcare and unexpected costs, it is possible.