“FIRE” stands for Financial Independence Retire Early. In case you want to learn more about the FIRE movement and financial philosophies in general, there is a “wealth” of information on our blog here at Biglaw Investor and also throughout the internet. To summarize briefly, financial independence is about not needing to work. Retiring early, which builds off of that financial independence, is the decision to no longer work and to live off of passive income.
FIRE comes in many shapes and sizes, and the term “coastFIRE” was adopted by FIRE communities to distinguish a certain kind of FIRE where an investor front-loads the active investing effort. CoastFIRE means that at a certain point, the investor no longer needs to continue to save income and can allow existing investments (the “nest egg”) to grow until the target retirement date, whether that is earlier than or on pace with the traditional retirement age.
Coastfire has its own subreddit but can be found in discussions of most FIRE communities. Other types of FIRE communities will also exist for the likes of leanFIRE (a very frugal retirement), fatFIRE (a very wealthy retirement), and baristaFIRE (working part-time) just to name a few.
What does coastFIRE look like?
An illustration with simple but not unrealistic numbers can help us understand what coastFIRE in action might look like. Biglaw Bob graduated law school with zero debt at the age of 25 and wanted to retire by the age of 45 with $2 million—intending on a 4% safe withdrawal rate—to have a $80,000 per year retirement fund. Biglaw Bob is earning quite a bit of money from the current Biglaw salary scale, but he knows that he probably won’t want to work longer than 5 years grinding away at the long hours. Biglaw Bob wants to make the most out of his high earning potential during the next 5 years and wants to make a heavy dent in his retirement plans.
Biglaw Bob is a bachelor and well-trained in personal finance (because he reads the Biglaw Investor blog), so Bob finds it possible to maintain an impressive savings rate by cutting down on his expenses. Bob placed $500,000 in the stock market—using Vanguard index funds of course—during his first five years and quit Biglaw soon after to find more work-life balance at a lower-salary job, probably something he enjoys doing. Bob’s nest egg of $500,000 can become $2 million in 15 years with a 10% annual compound rate. At the age of 45, Bob can expect his target retirement fund to be met despite not investing any additional cash after he quit Biglaw. Bob coastFIREd!
How to calculate your coastFIRE number(s)
Unlike your conventional FIRE strategy, the final number is not the only number you need to know. Additional variables beyond income and savings rate enter the calculus for coastFIRE compared to regular FIRE. How much is enough money to pull the trigger on coastFIRE will also depend on the income you expect to earn (and spend) once you stop actively investing. Your retirement accounts will grow using only compounding, so it might be wise to estimate expected returns conservatively to avoid disappointment.
Determine values for the following variables and see what comes out with the equation provided below.
- X: Target retirement funds
- Y: Years left until retirement
- Z: Annual rate of return
The equation:
coastFIRE number = X÷(1+Z)Y
Using the equation, Biglaw Bob’s numbers check out, and he even saved more than he needed. $478,784 = $2,000,000÷(1+0.1)15. As a disclaimer, 10% annual growth may be considered optimistic by some, and many would personally calculate closer to 6 or 7% returns. These numbers were chosen for illustrative simplicity.
Take inflation into consideration, both for the U.S. dollar and potentially lifestyle inflation as well when calculating your coastFIRE number. If your living expenses go up, you should adjust your coastFIRE number accordingly.
Once you have your coastFIRE number, it would be simplest to adjust your income to be at or below your retirement’s annual spending. Biglaw Bob could easily become Barista Bob if he could keep and cover his expenses under $80,000. While it isn’t impossible to live below the $80,000/year income until Bob retires, it will be more difficult to reduce annual spending later down the line than it is to embrace higher spending once he retires. Any career or lifestyle that allows Bob to live close to or below his expected annual withdrawal should suffice, and additional income can either be used to speed up the FIRE date or increase withdrawals upon retirement.
Why coastFIRE?
There are various reasons why someone might consider coastFIRE to supplement a general FIRE strategy. One common reason is to downgrade income and to find a less demanding job for less pay. Maintaining a high savings rate for many years can be difficult. Maintaining a high income for many years can also be difficult. Sometimes, compartmentalizing either or both of those to a smaller period of years is a strategic decision that serves other priorities and interests. Having a family life, pursuing other passions, avoiding burnout, travelling, etc. are all reasons why someone might want to front-load their active investing effort.
Sometimes, people don’t want to retire too early and want to have a career but don’t need extra money in their retirement. CoastFIRE can enter the picture and let someone freely spend their income while being fully prepared for retirement later down the line because of their nest egg. Because of the way that compound interest and the time value of money works, saving your money at the beginning of your career will make you richer compared to saving the same money near the end of your career.
However, it is not always about spending income. In a sense, coastFIRE allows you to compartmentalize less of your time rather than more. Instead of retiring as early as possible and doing the things you enjoy then, coastFIRE can simply spread the time, energy, and money around to let you live more of the life you want now and still retire but just a little less early. It all boils down to your values, priorities, and preferences.
The best part about coastFIRE is that coastFIRE works on solid principles. Not only does coastFIRE work, but it is also an added layer of FIRE strategy that does not detract from the general FIRE goals of any investor. CoastFIRE is extra credit and even failing to coastFIRE does not mean that the underlying FIRE journey has failed. People who are pursuing coastFIRE can have an added peace of mind about their financial security.
CoastFIRE for lawyers
A legal career is no small investment. Attaining an undergraduate degree, studying for the LSAT, three more years of law school, and managing various degrees of debt usually does not lead someone to want to do nothing with their degree. Perhaps you want to change the world with your legal training, but you also want to secure your financial future.
Working in Biglaw for a few years could be an ideal coastFIRE strategy. By spending a few years letting your high Biglaw earnings pay off student loans and grow your investment vehicles, you could allow your net worth to grow while you pursue the career that most engages you.
However, Biglaw is not the only coastFIRE method available to lawyers. Because coastFIRE does not relate to any particular level of wealth, any legal job could be part of that process. It might take longer, or you might have a smaller target retirement fund, but the investment of a legal education can still benefit you in other ways.
Lawyers often find themselves capable of entering almost any field of work. Some are more commonly tied to the JD such as investment banking, academia, or politics, but there are a host of alternative career options available. Having a JD will usually help and rarely hurt your prospects at any career path. If you find yourself practicing law but also want to pursue another career later down the line, consider using coastFIRE strategies to pursue that latter career from a position of financial freedom.
Joseph Kim is a 3L at Notre Dame Law School. Joseph grew up in California where he developed an interest in working with music, powerlifting, and bowling. He’s been a member of the FIRE community since before law school and plans to pursue FatFIRE following graduation.
My Coast FIRE number was $3 million. So when I reached it in 2012, I left my job with a severance.
In retrospect, had I stayed, I could have made a lot more money! Oh well.
Sam