So I’ve seen a few instagram posts recently that mentioned various stages of FIRE and where different people rank on this climb to total financial freedom.
One of the major milestones (in my eyes anyways) is “coast FIRE” which in my opinion is the first step of financial freedom not counting just being debt free.
Coast FIRE is when you have enough money invested to no longer have to invest money into retirement accounts or to be saving for the day you quit your job.
Below we’re going to talk through a few of the calculations involved with this as well as our thoughts.
Let’s first take a look at a future value calculation of what would happen to our investments if we never made another contribution:
The assumptions used above are that we have about $275,000 invested at the moment, and that we round up to being 32 years old. The last assumption is that we receive 8% returns on our money over this time and there you have it! Well over $3.5 million dollars by the time we reach 65 – traditional retirement age in Canada.
Now the first thought may be that $3,500,000 is an excessive amount of money and overshooting the goal posts a bit but there’s another step in this calculation that is critical.
The next thing someone our age must realize is that inflation is real. And it eats away at your funds without you seeing a transaction in your accounts. It really is a silent killer of sorts to any retirement plan. If we want to see what this $3,500,000 is in todays dollars we’re going to calculate using a 3% rate of inflation – a seemingly fair number.
So as you can see that “huge” sum of money we should have at retirement really isn’t that spectacular at all considering most people would aim for at least this $1.3 million in investments/savings if they were planning to retire in 2020/21.
For those people who abide by the 4% rule – or accumulating 25x annual spend depending on which way you look at it this works out to a little bit over $52,000 in annual income we could safely withdraw.
$52,000 is right in line with our desired income at retirement especially if a paid off house is there as well.
We can therefore safely say that we have in fact reached coast FIRE!
That’s a nice feeling for sure, if we decided to move or pick up new jobs all we’d have to cover is our month to month expenses- roughly $6,000 after tax per month between two of us which is very doable and drops if we move to a lower cost of living location. So is this an option? In short… no.
While coast FIRE is a nice milestone, that’s all it is for us, a marker on our path.
Our true goal is having the option to quit work entirely and reach true financial freedom, key word being the “option” to quit work. We want to get to a point where we know we’re pursuing jobs and our career progressions out of ambition and fulfillment and not out of chasing money to pay bills.
At our current rate of accumulation this true form of financial freedom is likely ~7 years away depending on how our lifestyle progresses between now and then but needless to say we’re hunkered down for the long haul still.
Anyways, that’s all I have to say on this topic for today but if you could do me a favour and leave your thoughts on the topic and maybe even where you’re at either below in the comments or over on our Instagram @FindependenceCanada we’d love to hear from you and we’ll be sure to respond.
Thanks for stopping by,
FIC.