What if you could save aggressively for retirement while you’re young, then simply stop and let the power of compound growth do its thing while you pursued careers and businesses you loved?
That’s what reaching coast level retirement savings is all about.
When I chose to leave investing to grow the blog, financial independence took a back seat. Five more years in that career and I would never have needed to work again. But those years would have meant missing some huge milestones in my boys’ lives. And since we had been preparing for FI, we had frontloaded our retirement.
What does that mean? Well, if we don’t add another penny to our retirement savings, we can early retire when I’m 45. The only money we need to earn is our current living expenses. When it comes to retirement, we’re coasting. And that opens up a lot of options.
Frontloading Your Retirement Savings
The idea of frontloading your retirement is saving early. And in large amounts. Then invest that money where it can grow, with low fees, for years to come.
Personally, we saved 50% to 70% of our income since I graduated. I made a high income and we chose a house well within our means and didn’t pick up expensive hobbies or tastes. It meant being careful not to fall for others expectations of ‘normal’.
While it took planning, the ability to frontload your retirement is a privilege. It requires having a sufficiently high income early in life so that you can live well within your means and save large amounts when you’re young. Can people making $50,000 to $60,000 a year do it? Absolutely. But they will have to make much more significant sacrifices.
However, if you can do it, frontloading allows you to take greater career risks. You can take a lower paying job in a career you love, as long as it covers today’s expenses. You can start a business with your measure of “success” being significantly lower. Or you can take time off to make memories with your family.
For us, choosing to coast means I can work a job that allows us the freedom to live where we want, travel, and ultimately find a homestead. I don’t need to be tied to major city centers for a job. I can work where ever my laptop is.
Setting a Frontloading Goal
Our original target was financial independence, but understanding coast level was easy from that perspective. We knew how much we wanted to spend in retirement. And how much we would need in assets to support that spending at my conservative 3.0% withdrawal rate.
So, instead of thinking about how to achieve that number, we started to think about when I might want to be truly retired. The FI/RE movement (financial independence, retire early) has a bit of a bad rap for calling oneself retired when you’re actually still working. I knew I wanted to build my own business and would likely work for some time. But when might I want to be completely done?
For us, that age was around 45. Jeremiah would be 51, the boys would both be off to college. We would still be plenty young to enjoy the freedom of travel and I might be done with the stress (and rush) of entrepreneurship.
If I could earn, at the minimum, our living expenses from blogging and freelance writing, what would our assets be worth when I was 45? I did a quick calculation in Excel, and Chris from Keep Thrifty helped me transform it into the calculator below for you to check your own numbers.
If You Coasted Today
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For us, that calculator showed us that we already had enough. I could take a step back. But what if you weren’t already preparing for financial independence? What if you wanted to set a savings target to make a career change or chase a dream?
The calculator below lets you set your target coast age – when you stop actively saving for retirement – and your target retirement age. Input how much you expect to spend a month in retirement. Then discover how much you need to havesaved by your coast age.
Making the decision to take a step back in your career is a tough one. Most people who have the option are naturally high achievers and walking away from a high salary is a difficult thing. Especially when colleagues and friends don’t understand the choice to earn less through an alternative career, making space for family, or taking the risk of entrepreneurship. But when you have confidence that you’ve already protected your future self and your family, it is easier to make that leap. And your early saving efforts can give you more years of passion-focused work.
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What do you think about coast level retirement savings? Would you be able to leave a high-income career before being completely financially independent? Drop a note in the comments and let me know!
The “coast” part means that you keep working after you attain your target savings amount. At that time, however, you reduce your work hours so you earn just enough to meet your living expenses while letting your savings and other retirement resources grow until they can finance a full retirement.
According to the $1,000 per month rule, retirees can receive $1,000 per month if they withdraw 5% annually for every $240,000 they have set aside. For example, if you aim to take out $2,000 per month, you'll need to set aside $480,000. For $3,000 per month, you would need to save $720,000, and so on.
To calculate your Coast FIRE number, divide your FIRE number by (1 + annual rate of Return)^(Time). “Annual rate of return” is the average percentage you expect your investments to grow each year, and time is the number of years you want this interest to compound before you retire.
The 4% rule says people should withdraw 4% of their retirement funds in the first year after retiring and take that dollar amount, adjusted for inflation, every year after. The rule seeks to establish a steady and safe income stream that will meet a retiree's current and future financial needs.
More? Financial planners often recommend replacing about 80% of your pre-retirement income to sustain the same lifestyle after you retire. This means that if you earn $100,000 per year, you'd aim for at least $80,000 of income (in today's dollars) in retirement.
You can retire at 50 with $500,000; however, it will require careful planning and budgeting. As the table above shows, if you have an annual income of either $20,000 or $30,000, you can expect your $500,000 to last for over 30 years. This means you will run out of retirement savings in your 80s.
The “coast” part means that you keep working after you attain your target savings amount. At that time, however, you reduce your work hours so you earn just enough to meet your living expenses while letting your savings and other retirement resources grow until they can finance a full retirement.
To calculate your FI number, track your yearly spending and multiply it by 25 or divide it by 4% (the safe withdrawal rate) to estimate the amount needed in your investment portfolio.
You're not alone if your retirement account balances are far from the $1 million mark. While many people may aim for that goal, most don't reach it. Employee Benefit Research Institute (EBRI) data estimates that just 3.2% of Americans have $1 million or more in their retirement accounts.
For example, if you have retirement savings of $1 million, the 4% rule says that you can safely withdraw $40,000 per year during the first year — increasing this number for inflation each subsequent year — without running out of money within the next 30 years.
Specifically, those with over $1 million in retirement accounts are in the top 3% of retirees. The Employee Benefit Research Institute (EBRI) estimates that 3.2% of retirees have over $1 million, and a mere 0.1% have $5 million or more, based on data from the Federal Reserve Survey of Consumer Finances.
What are the average and median retirement savings? The average retirement savings for all families is $333,940, according to the 2022 Survey of Consumer Finances. The median retirement savings for all families is $87,000. Taken on their own, those numbers aren't incredibly helpful.
The short answer is yes, $500,000 is enough for many retirees. The question is how that will work out for you. With an income source like Social Security, modes spending, and a bit of good luck, this is feasible. And when two people in your household get Social Security or pension income, it's even easier.
$300,000 can last for roughly 26 years if your average monthly spend is around $1,600. Social Security benefits help bolster your retirement income and make retiring on $300k even more accessible. It's often recommended to have 10-12 times your current income in savings by the time you retire.
But if you're past that phase of your life, setting realistic retirement expectations and moving to an affordable home can put you on track to a nice lifestyle while keeping your living costs below $3,000 each month.
Retiring on a fixed income can seem daunting, but with some planning and commitment to a frugal lifestyle, it's possible to retire comfortably on $2,000 a month. This takes discipline but ultimately will allow you to have more freedom and happiness in your golden years without money worries.
Introduction: My name is Rueben Jacobs, I am a cooperative, beautiful, kind, comfortable, glamorous, open, magnificent person who loves writing and wants to share my knowledge and understanding with you.
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