Traditional FIRE is about saving as much as you can, as quick as you can, to retire as early as you can.
Coast FIRE is about saving as much as you can, as quick as you can, to reach a point where you can then go off and do whatever you want knowing your future retirement is covered.
Slow FI is about living intentionally while working towards FIRE.
Traditional FIRE (Financial Independence Retire Early) focuses on saving enough in an investment portfolio to be able to fully retire (stop working) and live off the income provided by the portfolio from that point onward. The aim of Traditional FIRE is to start saving as much as possible at an early age to reach financial independence quickly; not surprisingly this requires rigorous saving and a frugal mentality.
What is Coast FIRE?
Coast FIRE is a variation on Traditional FIRE where you aim for an age at which you have enough in an investment portfolio that you no longer need to save or invest for your future full retirement age. The money you have already invested will continue to grow with compound interest to provide a comfortable retirement at the age you choose.
If you save and invest money early in life, your investment portfolio will reach a £number where you can leave the investments to compound over time and grow to be enough to retire at a future retirement age. Once your portfolio net worth value has reached this Coast FIRE £number, you still need to earn income to cover your monthly living costs, but you no longer need to save money for retirement.
Reaching Coast FIRE provides a tremendous amount of flexibility. It is equivalent to eliminating an expense from your life permanently.
The 50/30/20 budget recommends that you spend 50% of your money on essential expenses, 30% on discretionary spending, and 20% on saving. If you reach Coast FIRE, you no longer need to put 20% into savings, which gives you options.
This strategy of "Coasting to FIRE" gives you the freedom to pursue a different job that pays less but you enjoy more, move to working part-time with more free time for ‘lifestyle goals’, or just have more spending money to enjoy life: buy a campervan or take an extended sabbatical. Or you could continue saving and investing, as each additional ££ you invest brings you closer to full FIRE or other lifestyle goals.
How do I calculate my Coast FIRE number?
Coast FIRE number = Traditional FI number / (1+Annual Return Rate) ^ Number of years until retirement
^ is the symbol for ‘to the power’ e.g. 2^3 is 2x2x2.
To calculate your Coast FIRE number (i.e. the amount required in your investment portfolio), you take your Traditional FIRE number and divide it by 1 plus the expected annual return rate to the power of the number of years you have until retirement. This means that you will multiply 1 plus the expected growth rate by itself that number of times.
You can work out your Traditional FIRE Number using The 4% Rule of thumb - twenty five times your annual expenses. For example, if your required annual income is £20,000 you will need a portfolio value of 25 x £20,000 which is £500,000.
The number of years until retirement is the difference between your future chosen FIRE retirement age and your desired Coast Fire age. So if you wish to fully retire at age 55 but coast to FIRE from age 35, the number of years until retirement is 20.
The annual return rate is the percentage return expected on your portfolio taking into account inflation.
For example, Anna wants to Coast FIRE at age 35 and fully retire at age 55 with an income of £20,000 pa. Using the 4% rule of thumb, she would each need £500,000 to fully FIRE.
With a 5% annual inflation adjusted return, to Coast FIRE at age 35, Anna would need to have saved £188,445.
In the second example, Conor wants to Coast FIRE at age 35 and fully retire at the later age of 65 with an income of £20,000 pa. Conor would need to save less than Anna as the Coast FIRE £115,689 has more time to grow through compound interest to £500,000 by the age of 65.
These are still significant amounts of money, but they are quite a bit less than the £500,000 that will eventually be needed. You can play around with the numbers by clicking on the Coast FI Calculator spreadsheet:
If Anna and Conor are both currently 25 years of age and start saving today to reach the Coast FI number in 10 years time at the age of 35:
Anna needs to save approx. £1200 each month in total.
Conor needs to save approx. £750 each month in total.
If this is done in a tax-efficient way through a company pension with the employer matching contributions:
Anna needs to save approx. £480 each month from her income.
Conor needs to save approx. £300 each month from his income.
Delayed Gratification V YOLO
Delayed Gratification – delay spending in the short term in order to enjoy greater rewards in the long term.
You Only Live Once – make the most of the present moment without worrying about the future.
How should a Gradragstoriches advocate balance saving money to invest, against spending to enjoy life? This is the conundrum for most of us when it comes to balancing enjoyment versus saving for the future, but this is especially true for young people (If you are in the unfortunate position of not being able to save or have little discretionary spending, you will need to focus on budgeting and increasing your income).
Young people have an enormous advantage when it comes to saving and investing — time and the magic of Compound Interest.
If Anna and Conor wish to retire at age 55 with a £500,000 investment portfolio and Anna starts saving at age 20 whilst Conor starts saving at age 25, Anna will have to save £440 per month, whereas Conor will have to save £600 per month - just because he waited 5 years to start.
If he didn’t start until age 30, the amount goes up to £840 per month.
That is the power of compound interest.
Unfortunately, it can be very difficult for young people to both save and enjoy life. Not every 20-something makes enough money to pay for rent, student loans, food, petrol, etc, and also be able to afford to save and still have the ability to travel, party, and discretionary spend.
The starting point is to know your budget, have a financial plan, and spend intentionally: these subjects are all covered in earlier blogs. If necessary, start small, saving just £40 a month (£10 a week) into a low cost global index fund. Save where you can and regularly increase that amount, and slowly but surely as your income increases the amount you save will increase. If it is done automatically by direct debit it becomes habit.
You might choose to live in a small apartment in your first few years out of college rather than upgrading to a nicer, newer apartment that would cost £x00 more per month. When you don’t make that much money these are the trade-offs that are required. That £x00 can be saved or spent on a social life….or you may prefer to live in nicer surroundings? The choice is yours if you spend intentionally.
It is important to enjoy your life when you’re young. Gradragstoriches is not going to tell you to make your own clothes and eat noodles every night so you can save every penny. That’s no way to go through life. You’re going to regret it if you don’t have fun in your youth. You just have to be mindful of the trade-offs involved, spend intentionally, and at least get the ball rolling when it comes to developing good savings habits.
What is Slow FI?
Slow Fi is a term coined by The Fioneers and focuses on intentionality. Slow FI supporters are intentional with their money and focus on living a life that is aligned with their values. They do this without sacrificing their long-term financial stability.
Slow FI emphasises a simple tradeoff: A longer path to FIRE in exchange for a more enjoyable path to FIRE;
The journey should be as remarkable/exciting/enjoyable/important as the destination.
The higher your savings rate, the shorter your journey to FIRE, but for many people, it is simply not feasible to maintain a high savings rate, and for others, it involves holding down a job that offers high income but makes them miserable. Slow FI is focused on working less or doing something enjoyable to generate income, and spending more time on the things they enjoy and value.
According to Ramit Sethi, spending money intentionally means that you are clear about your values and you align your spending to those values. If you truly value something, being intentional could mean that you choose to spend extravagantly:
“Spend extravagantly on the things you love, and cut costs mercilessly on the things you don’t.”
Lifestyle and finance always have trade-offs, this is why it’s important to determine what you don’t value so you can “mercilessly cut costs” on those items. Ramit calls these money dials and depending on what you value, you get to choose which money dials to turn up and which ones to turn down: Convenience/Travel/Health/Experiences/Freedom/Relationships/Generosity/Luxury/Social Status/Self-Improvement.
Slow FI supporters know they don’t need to wait until they retire early to do these things; Financial Independence is not all or nothing. We only get one life and we want to take full advantage of every opportunity. We do this by achieving incremental financial freedom along the way.
This quote is from a USA Slow FI convert:
We still save mindfully for retirement, but we want to have a life we love now, in our 40s. We took a sabbatical in 2019 and traveled around the US with a teardrop trailer, we both work less than full-time, and next month we’re gearing up to rent our house out for a couple of years so we can try living in some new places.
I will continue to work part-time, but my husband will use some of our FU money to take a break from working as an arborist for 20 years and think about what he might want to do next.
We know too many people who are older than us who are having health issues, have passed away early, etc. We’re not taking that chance.
We’re living it up now, while also living beneath our means, having a healthy savings account, and continuing to save for retirement.