Retirement Savings for Millennials: Is Coast FIRE the New Way To Go?

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FIRE, the acronym for “Financial Independence, Retire Early,” is an aggressive retirement savings option that involves investing and saving a significant portion of your income, generally around 50%, while reducing your expenses to prepare for early retirement.

Social media influencers tout FIRE as a surefire way to live a dream life of travel and leisure. They claim this method has allowed them to retire as early as 30 years old.

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But FIRE may lead to burnout and come with an emotional cost.

Extreme savings and investing over half of your income may not allow you to enjoy the present, and giving up things like brunch with friends or weekend trips may not be ideal for many young people. And living in extreme frugality for over a decade just to retire early can lead to burnout–far before you actually hit your “FIRE number.”

If you’re interested in FIRE without the drastic actions required, Coast FIRE offers an attractive alternative.

What Is Coast FIRE?

Unlike traditional FIRE, which oftentimes requires extreme frugality, Coast FIRE is a slower, less aggressive method of saving for retirement. You don’t need to save millions of dollars in a short amount of time–just enough to retire at a more traditional age.

To achieve Coast FIRE, you’ll front-load your savings and investing, but with a stopping point in your 30s, 40s, or 50s that allows your investments to grow (thanks to compound interest) and fully fund your retirement. This method is less aggressive and offers more freedom in your present-day spending, helping to stave off the burnout that’s typically associated with traditional FIRE.

While FIRE claims that retirement is possible in your 30s or even late 20s, Coast FIRE is intended for later retirement, closer to the traditional age of 65.

If you’re interested in retiring early or financial independence without utilizing extreme frugality — and you’re in the right age and income bracket to start — Coast FIRE provides a lower-stress, viable alternative to traditional FIRE.

How To Calculate Coast FIRE

Calculating how much you need to be officially Coast FIRE requires a few pieces of information, including:

• How much money you need
• The age you want to retire
• Expected rate of return

You’ll first need to figure out how much you need to retire. You can use the 25x rule for retiring early as a benchmark. This means reviewing how much you’ll spend annually in retirement multiplied by 25. So if you plan to spend $50,000 in retirement per year, you’ll need $1.25 Million in retirement.

You’ll then need to choose a retirement age. Many people pursuing Coast FIRE choose age 65 or 67 (current Social Security full retirement age) as a goal. This will let you plan how many years you have left for your money to compound.

Then you’ll need to review your investment approach and find out your expected rate of return. One useful tool is Vanguard’s Asset Allocation Models that shows historical rates of return for certain asset allocations. Past performance does not guarantee future results–but gives you a benchmark to estimate future returns.

You’ll then calculate your Coast FIRE number using this information. The official formula looks like this:

Retirement number / (1 + Rate of Return)^Time

Coast FIRE Calculation Example

Here’s an example of calculating your Coast FIRE number.

Let’s say you want to be Coast FIRE at 25 years old and expect to spend $80,000 per year in retirement–so you need $2 million to retire. You want to retire at age 65–or 40 years from now. You expect a rate of return of 7% on your investments. Here’s how to plug those numbers into the Coast FIRE formula:

Coast FIRE = $2 million / (1 + 0.08)^40

Using this formula, you would need to have $92,081.03 invested at age 25 to be Coast FIRE.

How Much to Save for Coast FIRE

Now that you know how to calculate your Coast FIRE number–you’ll need to start saving toward your goal. The amount you need to save to get there depends on how long you have to save, how much you expect to earn on your investments, and how long you have until you want to hit Coast FIRE.

The best way to calculate how much your money will be worth in the future is to use a compound interest calculator like this one on Investor.gov. You can plug in your current investment balance, monthly contribution estimate, expected rate of return, and how many years to invest.

For example; if you need $200,000 invested by age 40 to hit Coast FIRE, and you’re currently 25 years old with no investments–you’ll need to invest about $625 per month to get there (assuming an 8% rate of return).

Ways to Invest for Coast FIRE

To get to Coast FIRE–and to ensure your investments grow enough to retire someday–you’ll want to pick smart investments that will grow. Some investments perform better than others–but it’s important to make sure you understand the risks involved as well. Here are a few types of investments that can help you reach Coast FIRE:

1. Stock Index Funds

Index funds are a popular investment that allows you to buy hundreds (or thousands) of stocks within a single fund. Popular index funds include S&P 500 index funds, total market funds, and Nasdaq 100 index funds. These funds can be bought as mutual funds or ETFs–and typically come with very low fees. 

2. Real Estate

Although it takes some upfront capital to buy real estate–it is one of the best performing asset classes of all time. Smart real estate investors find deals on properties, improve them, and rent them out for passive income. Investors also benefit from home price appreciation and tax advantages as well. 

3. Target Date Funds

A target date fund owns several types of investments, including stock market index funds, bond funds, and other assets. It is designed to rebalance over time, starting out more aggressive (for growth) and gradually becoming more conservative as you approach retirement. These funds are a “set-it-and-forget-it” way to invest–and typically come with low fees as well.

4. REITs

If you don’t want the headache (and cost) of owning physical real estate, you can invest in a Real Estate Investment Trust (REIT) instead. These investments can usually be purchased just like a stock or ETF and hold commercial and residential real estate investment properties inside them. REITs offer regular income (from rents or mortgage payments) and offer exposure to the real estate market without having to own any property.

5. Alternative Investments

Outside of traditional markets, you can choose some alternative investments to add to your portfolio. This may include more speculative investments like crypto or art, or commodities like Gold or Silver. Alternative investments can help your portfolio grow and spread your risk to assets that are not correlated with traditional markets.

What Are the Pros and Cons of Coast FIRE?

If you’re still unsure if Coast FIRE is right for you, it might help to consider some of the pros and cons:

Pros

• Financial security, once your retirement is fully paid for.
• The Financial freedom to work less and avoid high-pressure, high-stress jobs.
• Reasonable frugality.
• Lower savings goal.

Cons

• You’ll need a high income to pay your expenses and save enough.
• If you have debt, you won’t be able invest aggressively
• Must start in your 20s or early 30s
• High risk if market performs poorly or too many unexpected expenses come up after you hit your Coast FIRE number.

5 Tips for Achieving Coast FIRE

Getting to Coast FIRE is easier than retiring early–but still requires financial discipline and investing a big chunk of your income for a while. Here are a few tips to help you achieve Coast FIRE:

1. Increase Income

There’s no way around it–to get to Coast FIRE, you’ll need to have a higher income. This means you’ll need to pursue raises, promotions, and job hop as needed to increase your income. This won’t be easy, but increasing your income is one of the fastest ways to get to your number.

2. Lower Expenses

In addition to earning more–you’ll want to spend less (much less) than you make. This requires evaluating your current spending and finding ways to lower your expenses.

This can be small cuts–such as switching insurance companies, getting a cheaper cell phone plan, or cutting out monthly subscriptions. But it may also include bigger cuts–such as moving to a lower cost-of-living area or selling your newer car in favor of a paid-for used car.

3. Invest Consistently

The key to hitting Coast FIRE (or retirement) is to invest as much as you can over a long period of time. This means choosing the right investments and investing in them month after month. An easy way to make this happen is setting up automatic investments through your workplace retirement account. And you can also set up recurring investments into an individual retirement account (IRA) as well.

Investing each and every month with at least 20% of your income will help you start moving toward Coast FIRE. But to get there within a decade or less, you may need to invest even more–possibly up to 50% of your income.

4. Save on Taxes

To maximize your return on investment–it’s a good idea to protect your income from taxes. This is especially true as you increase your income. One of the best ways to do this is to invest in tax-advantaged retirement accounts. Maxing out your 401(k), for example, can lower your taxable income by $23,000 (as of 2024). You can also put up to $7,000 into a traditional IRA to lower your taxes further.

Paying less in income tax means having more money to invest–compounding your efforts and speeding up your path for Coast FIRE.

5. Work With an Expert

While some investors may feel comfortable choosing their investments –it can be a good idea to work with a financial expert to help you put together an optimized investment plan. Choosing a fee-only financial advisor or (even better) an hourly financial planner can help you build an investment portfolio, lower your taxes, and come up with projections on your path to Coast FIRE. Just keep an eye on the fees.

Jacob Wade contributed to the reporting of this article.

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