The FIRE (Financial Independence Retire Early) movement has a common desire for financial independence, but it is on early retirement that opinions differ. I notice on many blogs and podcasts that the acronym FIRE is beginning to be replaced by FI. It’s often the same story. People usually don’t like the idea of stopping work altogether. Working is healthy, they say. They prefer to dismiss the concept of retirement. Fair enough. To each their own battle. I’ve already shared my personal thoughts on this in my previous article on the importance of finding your why.
This seems to bring people to come up with all kinds of alternative concepts. There’s something for everyone: Lean FI, Flex FI, Slow FI, Barista FI, Coast FI, and so on. In addition to setting aside the early retirement portion, I notice that these concepts all have more moderate methods than the traditional FIRE movement. This probably makes it more accessible.
Among these many concepts, Coast FI particularly caught my attention. Although it’s not my goal, I was surprised to realize that I would already be in a position to do it.
What It Means
The Fioneers explain the concept like this:
Coast FI is when you have enough invested for a comfortable traditional retirement if you don’t touch it until then.
When someone reaches coast FI, this means that they only need to cover their actual costs of living until they retire.
So I understand that reaching Coast FI means no longer touching your portfolio and let compound interest work its magic by itself. In the meantime, there’s no need to save a single penny.
You’d need to earn an income only to cover your annual expenses. No need to put money aside for retirement anymore, since that’s already taken care of. You certainly don’t need a DB pension plan. Pretty amazing, right?
Of course, you need to have already accumulated a certain amount of money, to then let it grow and never touch it again until you retire later in life.
Let’s see if it’s realistic with my current numbers. To start, I need to determine how much money I would need when I turn 65, in 2056. I need several things to make that calculation.
First, I need to estimate my annual retirement expenses in 2020 dollars. Theoretically, I’m aiming for about $15,000.
Second, I need to take inflation into account. The $15,000 I would spend now would not have the same purchasing power in 2056. The Bank of Canada aims to keep inflation at 2%. So I’ll take 2% for my projections. A quick calculation using the SmartAsset calculator projects my annual expenses at $30,598 in 2056 dollars.
Third, I’ll use the 4% rule (25 times our annual expenses) to obtain the invested amount needed to cover my annual expenses in 2056:
$30,598 * 25 = $764,950
I will therefore need $764,950 at age 65 to cover my annual retirement expenses at a safe withdrawal rate of 4%.
Now that we know that number, we need to consider my current portfolio and see if it could appreciate enough until 2056 to cover my future expenses.
As of today, I have $120,000 invested. If I really were to do Coast FI, then I would leave my current job and take my DB Pension Plan commuted value into a LIRA. I estimate a minimum value of $24,000 as of today. So, that’s a total portfolio of $144,000.
For my projections, I will use a hypothetical return of 6% until 2056, or for 36 years.
Considering all of this, can I do Coast FI until I turn 65, and never save another dollar until then?
With the help of the Get Smarter About Money Compound Interest Calculator, I get:
Amazing, isn’t it? The magic of compound interest at work. This is a clear example of how important it is to save massively, as early as possible, then let the money work for you afterwards.
I would therefore have $1,173,204 invested at age 65, which is more than enough for my retirement, without even considering QPP and OAS.
Moreover, these calculations are based on a 6% return. Imagine if the returns were higher? Considering that my portfolio is almost entirely made up of stocks, it would then be realistic to expect more than 6%.
So, just for fun, let’s calculate 7% :
Or 8% :
And that’s without adding a single dollar to my portfolio between now and age 65! Compound interest truly is the eighth wonder. 🙂
Wait, There’s More!
You may have noticed that even with conservative projections at 6%, I am well over the $764,950 required at age 65. This suggests that I’ll be able to retire even before the conventional retirement age. I put all the necessary data in a spreadsheet. Now, let’s see where the point of intersection really is:
The blue line represents the amount needed to pay for my expenses, which increases with inflation (2%) over the years. The red line represents my portfolio, which grows at a hypothetical rate of return (6%).
This graph shows that the point of intersection is at age 54. Therefore, with my portfolio as it is now, growing over time and without adding a single dollar to it between now and then, I could retire at age 54. That is 25 years from now.
Indeed, my annual expenses of $15,000, adjusted for inflation (2%) over 25 years would be $24,609 in 2045. Multiply that amount by 25 and I get $615,225 needed for retirement.
Next, let’s calculate my current portfolio of $144,000 over 25 years at a 6% return:
That’s it! My portfolio will have grown enough for a 4% withdrawal to fully cover my expenses at age 54.
It’s amazing what saving at an early age can do. 🙂
Again, this is considering a 6% return. If we consider 7% or 8%, retirement age gets even closer!
On a sad note, I find it distressing to think that many people spend every dollar they earn, and miss out on the best years of their lives to invest. They turn their backs on the magic of compound interest, and they’ll have a really hard time making up for it, unfortunately.
Coast FI Reached! What Do We Do?
So there you have it, the numbers don’t lie. I can officially say that I’ve reached Coast FI. My retirement at age 54 is already secured by my current portfolio. That’s without even considering that I would be eligibile to receive QPP only 6 years later!
This means that from now on, I could never save another dollar for retirement and earn the minimum amount necessary to cover my expenses until I retire. With annual expenses of $15,000, it wouldn’t be terribly difficult to do.
So, just imagine the scenario: I wouldn’t have to work full time or all year. I could work here and there, and enjoy life the rest of the time. I could be a digital nomad and work a little online, from another country, whenever I want.
It’s ironic to think that I’d even be considered below the poverty line in the eyes of the taxman. I’d get the maximum reimbursement from the GST/HST Credit and the Solidarity Tax Credit. Canadian taxes at its best! 😉
I would have no interest in choosing an employer in favour of another based on a pension plan, since I’d have no need for a pension plan.
While this is a very nice scenario, it’s not my goal. I aspire to reach the conventional FIRE. I want to never again have to depend on a salary to provide for my needs. I want to be completely self-sufficient. And if I decide to work anyway? Well, it’ll be for my own pleasure. Because I want to do it.
Appreciate the Journey
This brings us back to a similar conclusion to my previous post.
Sometimes the finish line can seem very far away. We put a lot of strategies in place, and once we have a well-oiled machine, well, we just need to wait. However, I find it particularly rewarding to stop for a while and appreciate how far I’ve come. After all, it’s not the destination that matters, it’s the journey. That’s what they say!
So, doing this little exercise really gave me a new perspective on my journey. I’ve already accomplished a lot. I haven’t reached FIRE, but it’s starting to feel a lot like freedom, don’t you think?
No matter what happens, I already have secured my retirement. Everything I add to my portfolio from now on only brings my retirement date closer. All that’s left to do is to move it from 54 to 35 now. 🙂
What about you? Have you reached Coast FI? Do the math, you might be surprised! Please do not hesitate to share. 🙂