You Hit Coast FI. Now What?

Defining Coast FI [00:00:51]

• Coast FI is achieved when an investment portfolio is large enough to grow and fund retirement without further contributions.
• The core assumption is that investments will grow sufficiently to support retirement withdrawals using standard rates.

  "So, Coast Fire is when you reach a portfolio size that is projected to grow to a standard or later retirement age so that you can withdraw from it using any standard withdrawal rate."

Personal Coast FI Goal [00:01:28]

• A personal goal is to reach $500,000 by age 30, projected to grow to $5 million by age 65.
• This target aims to generate $200,000 annually in inflation-adjusted retirement income based on a 7% real growth rate and the 4% rule.

  "My goal personally is to reach $500,000 by age 30, to have that grow to $5 million by age 65, using a 7% real growth rate assumption there."

The Interim Period [00:01:48]

• The period between reaching Coast FI (e.g., age 30) and retirement age (e.g., 65) presents choices.
• Potential uses for freed-up savings include travel, purchasing a home, or other lifestyle enhancements.

  "What are you going to do between 30 and age 65? That's a good question. And I would say I'm not 100% sure."

Post-Coast FI Decisions [00:02:26]

• A key decision is whether to stop contributing to retirement accounts or continue investing.
• The choice depends on the margin built into the Coast FI plan and the conservatism of assumptions.

  "Once you hit Coast Fi, should you then stop contributing to retirement accounts, keep investing, and continue to move along the scale or do something else like buy that house, for example?"

The Struggle with Trade-offs [00:03:19]

• Many in the financial independence community struggle with the trade-off between accelerating full financial independence and making lifestyle changes, such as buying a house.
• Purchasing a house can significantly delay or alter the timeline for achieving traditional financial independence.

  "The overwhelming, I think, challenge in the Fi community for people who are not yet Fi is that they are in this concept of Coast Fi and are struggling with a trade-off decision about whether or not to accelerate true financial independence or make some kind of lifestyle change, like buy a house."

Reallocating Coast FI Funds [00:04:24]

• Reallocating Coast FI funds, such as for a down payment on a house, fundamentally changes the financial trajectory.
• This reallocation means stepping away from the path toward traditional financial independence.

  "But you're right that there is a point where maybe you reach Coast Fire and you reallocate that money to something that's a liquid, like a house. And, you know, that $3,300 a month that I'm investing now is now going towards a house and you have stepped away from the path towards financial independence."

Circular Problems in FI [00:05:07]

• The financial independence space presents "circular problems," such as the interplay of taxes and ACA benefits.
• Decisions about income levels can create cliffs that necessitate further planning to manage increased taxes or healthcare costs.

  "Another great circular problem is this concept of, of taxes and ACA benefits and those types of things, right?"

Coast FI as an Option Generator [00:06:10]

• Coast FI is viewed as a way to save money to create options, even if true financial independence is a distant goal.
• It offers significantly more options at age 30 compared to a standard financial path.

  "What you're really doing, I think, I argue you're saving money to create options in here. And true financial independence is very far targeted, but I can wake up at 30 and have many more options here by making the sacrifices I'm making today."

Coast FI as a Milestone [00:07:08]

• Coast FI is considered a significant mathematical step toward financial independence, providing a tangible level of optionality.
• It can be likened to purchasing a pension, offering a sense of security.

  "I would argue that Coast FI is probably the first most notable mathematical step on the way to financial independence, where you really have built some level of optionality that you can rigorously prove that you will have."

Personal Coast FI Strategy [00:08:30]

• The speaker allocates income from a social media platform to a brokerage account, considering mega backdoor Roth contributions.
• The philosophy emphasizes building liquidity to deploy on opportunities, acknowledging the trade-offs of different investment strategies.

  "As I have started to earn money on my short form Instagram page, my my social media platform, that money has been allocated currently to a brokerage account."

Probabilities for Future Actions [00:11:50]

• The most likely path at age 30 is pursuing an entrepreneurial venture (50% probability).
• Other possibilities include continuing on the current path to pull retirement forward (30%) or complete uncertainty (20%).

  "I think that the most likely path is that I will use the optionality bought and paid for by my Coast Fire journey to pursue some entrepreneurial venture."

Strategic Deferral and Liquidity [00:14:23]

• If the primary goal is liquidity for entrepreneurial pursuits, it may be strategic to forego some tax-advantaged accounts.
• This approach accelerates the availability of funds for high-probability goals, betting on better returns from active investments.

  "The implicit bet is that the returns on that path are going to have a better combination of financial gain and impact and lifestyle benefit that you like than the, the traditional retirement savings path."

Building Liquid Assets [00:15:48]

• A current approach involves building a liquid portion, aiming for one to two years of spending.
• This is done while continuing to invest W-2 income towards the Coast FI goal.

  "My goal is to get to currently like a year's worth of spending, maybe two years worth of spending, and then continue to invest using my W-2 income towards that Coast Fire goal."

Tax Bracket Considerations [00:16:18]

• Mechanics of financial planning shift with income tax brackets and life events like marriage.
• Valuing optionality over tax efficiency can be a strategic choice, especially when the cost of that optionality is low.

  "The valuing of optionality over a little bit of tax efficiency in that period in certain conditional paths. And then the sophistication to understand when and where those trade-offs are cheapest."

Certainty vs. Uncertainty in FI [00:17:15]

• Certainty about future plans (e.g., fully retiring) dictates whether to max out retirement accounts.
• Uncertainty about future desires or a spouse's work preferences may favor optionality over strict tax deferral.

  "If you were said, no, my plan is at 30, I want 500,000 in my retirement accounts and I never want to contribute another dollar. And I look up from there and figure that out. Then you max out the retirement accounts."

Age and Coast FI Certainty [00:18:32]

• Older individuals reaching Coast FI (e.g., at 45) may have more certainty about their future life plans.
• Younger individuals reaching Coast FI (e.g., at 30) face greater uncertainty projecting decades into the future.

  "The people that I have seen that are certain on their Coast Fire journey are people who are a little bit older. And so they're reaching Coast Fire, maybe at 45 for age 65 or 65."

The "Coasting" Challenge [00:19:56]

• It's difficult to truly "coast" after reaching Coast FI, as income or expenses often fluctuate.
• Most individuals find it impossible to maintain a strict 0% savings rate, leading to a hybrid approach.

  "I think that people who actually achieve CoastFi will find it impossible to coast. They will either generate more income than they need to survive on without touching their retirement assets or they'll generate less."

Realizing Coast FI Options [00:21:34]

• Upon reaching Coast FI, individuals can choose to spend more, earn less, or pull their retirement age forward.
• Earning less can involve cutting back at work, taking an easier job, or starting a business.

  "When you reach CoastFire, I think that you could spend more, you could earn less, or you could choose to pull your retirement year assumption forward."

Designing for "Earn Less" [00:22:40]

• The "earn less" strategy requires careful consideration of account structure, potentially deviating from maxing out 401(k)s.
• Self-employment or entrepreneurship, while offering flexibility, introduces risk and may necessitate a balance of account types.

  "The 'earn less' bucket in particular, I think that what you want to do there, what that means specifically is changes how you design the portfolio in your early twenties and the early part of the accumulation phase towards that goal."

The "Barista FI" Fallback [00:24:26]

• The concept of "Barista FI" (taking lower-paying service jobs) is a challenging fallback for high-income white-collar workers.
• The reality of such jobs can be physically demanding and less desirable than working an extra year or two in a primary career.

  "Well, if you're a pencil pusher, like I was, you know, at a desk job, this is a really big wake-up call. This is not like a job that you go to and earn 20 bucks at and it's nice and cushy."

Strategic Account Structure [00:26:31]

• For younger individuals with entrepreneurial goals and lower tax brackets (e.g., 12%), deferring beyond the employer match in a 401(k) might not be optimal.
• Building liquidity and considering account structures that align with potential future income streams is crucial.

  "I would not be deferring under the 22% tax bracket if I'm in the 12% tax bracket, I would take my employer match and I would not defer at that point with that goal and that probability assigned to it."

The "One More Year" Syndrome [00:29:13]

• The "one more year" syndrome, common in traditional early retirement, also applies to Coast FI.
• Each additional year of saving can significantly accelerate retirement timelines, making it a compelling choice.

  "There's something about that third category. Of course you could tell that's what appealed and appeals to me is not just zero work for the next 30 years from age 36 to age 65."

Evolving FI Perspectives [00:30:54]

• The speaker's perspective on financial independence has evolved, incorporating more balanced decisions based on increased information.
• This evolution reflects a more nuanced understanding of achieving financial goals and enjoying life.

  "I stand on the shoulders of giants. Well, nice. And yeah, and, and it'll be, it's fun. So thank you for joining us and for the thought provoking discussion here, Evan."