This article explains the concept of CoastFIRE and lets you calculate when you can achieve CoastFIRE.
Summary:
We introduce the concept of CoastFIRE, which means that an individual has saved enough to retire early but has not yet reached their traditional retirement age.
We explain how to calculate CoastFIRE and how to achieve it in India, assuming certain variables such as annual expenses, target retirement corpus, years to retirement, and average equity and debt return post-tax.
We also discuss what happens after CoastFIRE is reached and how it can be extended to other financial goals such as children's college education.
FIRE = FI (Financially Independent) + RE (Retired Early)
FI = you do not need income from a job or profession since your investments generate enough to sustain your lifestyle
RE = retiring early before the traditional retirement age
What is CoastFIRE?
You have accumulated enough as a FIRE corpus so that you do not need to invest further for traditional retirement. For example, your retirement target is that at age 58, you need a corpus of ₹5 crores and will stop working.
If you have accumulated enough money by age 50, which will grow to ₹5 crores in the next eight years, you are now CoastFIRE capable.
This article shows why CoastFIRE is an important milestone for your retirement plan.
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How to reach CoastFIRE?
When you start earning in your 20s, your retirement corpus is zero, and the time the corpus will last in retirement is also zero.
A year later, let’s say you have accumulated ₹6 lakhs that will now support some months of expenses in retirement. So now you can put a date on your retirement. To explain the concept, we will assume zero real return on your lifetime retirement corpus for simplicity’s sake.
So if your retirement lifestyle costs ₹25,000/month, you now have 6 lakhs / 25,000 / 12 = 2 years of retirement corpus saved.
Once you have saved, say, 18 lakhs in some more time, and your retirement lifestyle costs ₹30,000/month, you now have 18 / 30,000 / 12 = 5 years of retirement funded.
This way, as you accumulate more and more in your retirement corpus, it will last longer and longer. Eventually, it will reach a figure equal to your life expectancy in retirement, say 40 years. You must get to this figure before your retirement date.
Once you reach this particular value, you no longer need to invest any more for retirement since the corpus you now have will grow on its own without you needing to invest monthly for it. This is the process of reaching CoastFIRE. The name comes since you can now coast to retirement, like a skier moving downhill due to gravity, without doing much extra on their own.
We use the Arthgyaan Goal-based investing calculator to formulate the investment model with all the above assumptions and goals. There is a link to download a pre-filled copy of the Google sheet via the button below.
Important: You must be logged into your Google Account on a laptop/desktop (and not on a phone) to access the sheet.
Once you get your sheet, you can access video tutorials in the howto tab.
Base scenario: 22y left, 25lakhs assets, 6L/year retirement expenses
We see that the SIP requirement is now negligible which means that there is now no need to contribute fresh investment to the retirement goal. CoastFIRE has been reached.
The interesting part happens next. If you keep investing, there is now more money invested in the retirement corpus. If we assume that life expectancy does not change, the start of retirement date can now be moved forward. Eventually, with further investment and increases in retirement corpus, today’s date and the start of retirement date become the same. Astute readers should now realise that Financial Independence (FI) has been reached.
Can we extend CoastFIRE to other financial goals?
Retirement is just one of the financial goals of any investor. Another typical one is children’s college education. If the college goal also reaches Coast status along with the retirement goal, there is now no need to save for that goal as well. As more and more goals reach this Coast, or more accurately fully funded status, there is no longer any need of having the usual 9-5 job. This is the point, if so desired, Early Retirement (RE) can start.
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This post titled What is CoastFIRE? How to achieve CoastFIRE in India? first appeared on 19 Feb 2023 at https://arthgyaan.com
