Wouldn’t it be amazing to say you don’t have to contribute to your retirement savings ever again? It would take such a burden off your shoulders, right?
It may seem impossible, but I’m here to tell you it’s easier than you think. You may even be able to turn in your resignation letter.
In July 2019, I quit my stressful 9 to 5 job and focused on what I really dreamt of – being an entrepreneur. It was all possible because we reached what they call CoastFI. In other words, we’ve achieved a financial goal that sets us up for retirement.
At this point, everything we contribute to increase our savings only makes early retirement closer. We just need to ‘coast by’ to let compound interest and stock market gain further our financial independence.
What’s your coastFI number?
Here’s where it gets personal. Our CoastFI number probably isn’t the same as yours. Your FI number is the number you’re comfortable achieving for a traditional retirement.
Once you reach your number, you may be able to stop working your traditional job and focus on ways to make money that bring you joy.
What are your annual expenses?
Look at your annual expenses and forecast what you’ll need for retirement. Do you see your expenses staying about the same, increasing or decreasing? This is the foundation of your FI number.
Let’s say you spend $30,000 a year and expect to spend that in retirement too. That’s your foundation. Now think about your withdrawal rate. What percentage are you comfortable withdrawing each year from your retirement funds?
Consider how long you plan to be retired. Is it 30 years, 40 years, or more? This will determine your Safe Withdrawal Rate. If it’s 30 years, most people withdraw 4% from their retirement fund each year. If you plan to retire early, you may want a lower (aka safer) withdrawal rate.
Let’s use the $30,000 expenses and a 4% withdrawal rate.
$30,000 x (1/.04) = $750,000
Reaching your FI goal
This all begs the bigger question – how do you reach your FI goal?
It all starts with a number or goal. Determine your risk tolerance and timeline, and you can create a portfolio that accounts for each of these factors.
If you use a robo-advisor, they’ll do the allocations for you. But if you’re more of a hands-on investor ready to reach your goals with your own efforts, look at different ways to diversify your portfolio with stocks, bonds, and index funds.
Putting it all together
Once you reach your FI goal – the world is at your fingertips. Think about what you want to do. You aren’t quite financially independent to the point that you can FIRE yet, but you are well on your way.
At this point, it comes down to time and compound earnings growing your retirement funds until you reach the point that you feel financially independent.
No two people have the same definition of financially independent. You must decide what you’re comfortable with, but it all starts with CoastFI. Maybe you find that CoastFI is perfect for you because you can pursue your interests, and rest assured that your retirement is covered.
Whatever the case may be, have fun, and enjoy the journey. It’s one filled with ups and downs, as we can attest, but in the end, it’s well worth the effort to say you are financially independent and can do what you love.
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