Dreaming of Retiring Early? The Coast FI Strategy May Be Right for You

Meet Mark and Lisa

Mark and Lisa were like many young couples, juggling demanding jobs, student loans, and the pressure to save for the future while still enjoying their lives. They often felt stuck, wondering how they could ever balance their dreams of traveling and spending time with family with the need to save for retirement.

The constant worry about whether they were saving “enough” was exhausting. One night, after another stressful conversation about money, they discovered a strategy that changed everything. By focusing on what mattered most and taking a smarter approach to saving, they found a way to enjoy today while still building a secure future. Here’s how they made it work—and how you can too.

Introducing Coast FI (Financial Independence)

Coast FI starts with the end in mind. The goal of the Coast FI strategy is to maximize your savings at an early age and let compounding interest (the “8th wonder of the world” – Albert Einstein) do its magic.

Here’s an example of what the Coast FI strategy looks like:

Let’s say you want to retire at 65, and your goal is to have $2,000,000 saved for retirement. Additionally, you don’t want to make any more contributions to this goal past your 45th birthday.

You would need to have saved roughly $520,000 in investment assets by age 45 (assuming an average investment growth rate of 7% per year). This is easier said than done but helpful to look at as a mental exercise.

This also assumes that you maintain your investment allocation to earn an average investment return of 7% per year from age 45 to 65 and don’t take any distributions from your portfolio before 65.

“Have $500,000 saved by 45, and I’ll have $2,000,000 by 65? Sounds great, right?” The reality is it’s easier said than done. Life often gets in the way. Having kids, changing jobs, relocating, etc., all have a major impact on your life, which makes sticking with the strategy difficult. I like to say it’s current pain for future gain. And it’s not right for everyone.

Coast FI vs. FIRE (Financial Independence Retire Early)

Coast FI is a spin-off of the more popular FIRE movement that rose to prominence in the 2010s.

The idea of FIRE is to save as much money as possible to reach retirement as soon as possible. For some people, it’s great.

The problem is that reaching complete financial independence at an early age is tough if you don’t:

1. Make a good living already

   
   

2. Have the discipline to save upwards of 50-70% of your income needed to make the numbers work long-term.

   
   

Additionally, what some may think of as their “ultimate dream” of not needing to work anymore may quickly become their own self-engineered prison.

For better or worse, our careers give us a sense of purpose, not to mention the social engagement and support that comes along with them. Many retirees soon find themselves isolated, which can lead to a whole host of unintended consequences.

Pros of Coast FI

One of the biggest reasons I like the Coast FI movement is that the focus of the movement is on flexibility rather than retiring. The idea of Coast FI is to be able to save enough money and have it working for you so that you don’t need to worry about saving in the future.

Perhaps you want to reduce your working hours or take on a new job that pays less but is more fulfilling. The Coast FI strategy can help make this a reality.

At the end of the day, we want freedom but also purpose, and the Coast FI strategy allows for that.

Cons of Coast FI

Up until this point, the Coast FI strategy sounds awesome, right? Unfortunately, the Coast FI strategy doesn’t come without its problems and risks. Two big problems with the Coast FI strategy are:

1. You don’t know how your investments will perform over time

   
   

2. It’s hard to predict the nest egg you’ll need 20, 30, or 40 years from now in retirement

We do have a general understanding of how investments perform over time, but past performance does not guarantee future results. Additionally, predicting your budget in retirement and accurately accounting for inflation in your nest egg projections can be extremely difficult.

Underestimating your income needs in retirement can be detrimental to your plan. That’s why Coast FI, in my opinion, is not a passive approach to retirement. You can’t just set a nest egg number and never think about it again. Why?

• What if your nest egg number didn’t include accurate spending estimates?

  
  

• What if inflation runs hotter than you projected?

  
  

• What if your investment return is lower than expected?

With the Coast FI strategy, you need to be able to adjust as you go. Maybe you need to work longer to give your assets more time to compound. Maybe you need to restart your retirement savings for a period of time, etc.

Evaluating these decisions can be very difficult, which is why, for many, it may make sense to enlist the help of a financial planner, tax professional, etc., to help you make these decisions.

Wrap-Up

At the end of the day, determining if the Coast FI strategy is right for you will be a personal decision. It can be stressful, and it won’t be right for everyone. However, for those who can navigate the challenges of the strategy, it can be extremely rewarding.

If the Coast FI strategy is something you’re interested in exploring but don’t want to do it alone, I’d encourage you to book a Free Introductory Call where we can help evaluate the viability of the Coast FI strategy for you!

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About The Author

Caleb Pepperday, CFP®, ChFC® provides Fee-Only Financial Planning and Investment Management Services for medical professionals. Advanced Practice Planning, LLC is based in Missoula, MT, but primarily works with clients in a virtual capacity nationwide. As a CERTIFIED FINANCIAL PLANNER™ and fiduciary, Caleb Pepperday works to create financial plans for medical professionals with their best interest in mind. As a Fee-Only financial planner, Caleb Pepperday is only compensated through the investment management or financial planning fees that you pay him directly and never earns a commission. Caleb Pepperday primarily focuses on helping mid-career and pre-retiree Physician Assistants/Physician Associates retire with confidence.

Disclosures:

The information provided in this article is for educational purposes only and is not intended as financial, legal, or tax advice. No content within should be construed as such. The material presented is based on general financial principles and concepts, and individual financial and tax situations may vary.

Readers are strongly encouraged to consult with a qualified financial advisor, tax professional, or legal expert for personalized advice regarding their specific financial, tax, or legal circumstances. Any actions taken based on the information in this article are at the reader’s own discretion and risk.

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