What Utah families should know about "Coast FIRE"

You've likely heard of FIRE, an acronym that stands for "financial independence, retire early." This money movement, which encourages aggressive saving and frugality to retire before the typical retirement age, has gotten increasingly popular over the last decade. As it's grown in popularity, it's led to a handful of variations like "Lean FIRE," "Barista FIRE," and the topic of this post, "Coast FIRE," which has become one of the more popular flavors.

Let's break down the meaning of Coast FIRE (aka Coast FI), whether it's a worthwhile goal, and how it can help frame financial planning for high income families in Utah (and beyond).

The many flavors of FIRE.

At its most basic, FIRE is all about identifying a dollar amount that can sustain your ideal lifestyle during retirement, then aggressively saving to achieve that goal earlier than the typical 65-ish retirement age. There are a number of online FIRE calculators and formulas that can be used to calculate "the right" numbers, which depend upon your retirement age, lifestyle, and projected life expectancy. For example, one formula suggests that a 35-year-old can retire in 20 years on $60K per year if they are able to sock away $1.5 million.

For fully-fledged FIRE, the dollar amount can sometimes feel overwhelming, especially for those who are earlier in their career. Even though it might make sense intellectually, the actual execution of saving $2K per month for twenty years can feel daunting. Another challenge to FIRE is the fact that while 55 is a better retirement goal than 65+, the thought of grinding away in corporate America for 35 years doesn't always seem very appealing.

Enter Coast FIRE.

Sprinting it out

Rather than extending your savings goal all the way to retirement, Coast FIRE front loads your retirement savings and lets compounding do the rest. If the same 35-year-old in the example above is able to save aggressively (often referred to as the "sprint phase") and achieve $832K of savings by age 45, then the compounding can take over for the next 10 years and they can end up at the same place (the numbers are illustrative, and there are several assumptions baked into them like inflation rate and average growth).

Since Coast FI is powered by the magic of compounding, this approach can be very appealing to those who are just starting out in their careers. To hit the same rough numbers from the example above, a 25-year-old would only need to achieve a retirement savings balance of $380K. For many people, that seems much more achievable than setting a goal of $1.5M over the next 30 years.

The coast with the most

Once someone achieves their goal number, that can then free them up to, yes, coast. For many Coast-FIRE-ers, that doesn't mean full retirement, but downshifting their job in terms of hours, intensity, and stress. With retirement savings taken care of, a rewarding job that seemed untenable because it didn't pay enough is now a possibility. And if you're able to pursue a vocation that's more fulfilling and sustainable, hustling like crazy to reach retirement early might become a less important goal.

This is where the appeal of Coast FIRE really makes sense. If you are Gen X, a millennial, or older Gen Z, you were likely affected by the Great Financial Crisis of 2008-2009. Other macroeconomic factors have impacted the stability of the job market, and eroded the likelihood of spending a 40 year career at just two or three companies. Rather than bouncing between jobs every few years, pulling the ripcord early seems like a more logical plan.

But then what? We all need a purpose, and for many of us it's not about wanting to avoid work, it's about wanting to work on our own terms. Many who embrace Coast want to spend their 40s and 50s in a "soft retirement," doing things they truly enjoy, rather than simply enduring work to collect a paycheck. That sounds like a pretty appealing middle ground.

Why Coast FIRE doesn't work for everyone

Sounds great? Ready to get started? Well the actual savings rate required to achieve Coast FIRE can still be discouraging. Yes, a 25-year-old might only need to achieve $380K, but at the beginning of their career, a starting salary might only be $60K. Rent is expensive, a busy schedule means more money goes to eating out, and you might be spending additional money looking for Mister or Miss Right. Every dollar saved in your early twenties can be worth $4 (or more, depending on inflation and return) 25 years later. That return is substantial.

But you will never be 25 again. And time is the number one thing that money can't buy more of. So the opportunity cost of scrimping and saving shouldn't be dismissed. Like everything in financial planning, Coast FI is rooted in trade-offs, and everyone's financial life is unique.

For Utah families, Coast FIRE can be even more challenging. Raising kids can be sooo expensive, and budgeting for high income families with children is no easy task. and also heighten the feeling that you're choosing retirement savings over memories. Kids grow up fast, so why not take the trip to Disneyland/buy the ski pass/pay for the travel baseball team? The pressures of parenthood—amplified by Utah's larger families—can make the decision to save less easier to justify. (On the flip side, a soft retirement at 45 could unlock more time with the kids, albeit when they are in high school rather than kindergarten.)

Gettin' squishy with it

If Coast FI has captured your imagination and you're ready to start running numbers, best of luck! But if you, like a lot of other people, like the idea of it without feeling ready to commit to a 60% savings rate, I'd like to suggest a modified approach: Squishy FIRE. (Yes, this is an invented term.)

Squishy FIRE is a little more philosophical than quantifiable. It embraces the principle of aggressive saving when you are young in order to compound your way to retirement, without causing you to feel guilty for going slightly over your grocery budget. Your thirties and forties are the absolute best time for Squishy FIRE, since your earning power has likely grown beyond what it was when you were just starting out. Your expenses have become a little more predictable, and you're less likely to be spending as much time "out of the home." But you also still have decades left before retirement for compounding to work its magic.

Knowing that every dollar you save for retirement can be worth $4 a few decades later is a huge motivator, and it can help you stay locked into a higher-paying job, since a percentage of every paycheck has the potential to chip a little bit of time off the time before retirement. This mindset can help you feel like you're making progress rather than just grinding away and wondering where your income is going every month. But unlike full FIRE, you don't need to stress about only saving 90% of your goal for a couple months or hitting a defined retirement target age.

Squishy FIRE requires a decent understanding of cash flow planning, which a local financial planner can help you navigate if you need a hand. But the good thing is, assuming your employment and income stays relatively consistent, proper cash flow planning can unlock a "set it and forget it" approach for Squishy FIRE saving.

It's a win-win

If you have the means, here's one more argument for at least dipping your toe in the water of Squishy FIRE: you can always stop. If your job situation changes, or you need to unlock some funds for a house down payment you can always dial back the amount you are saving. And the bonus? You're still ahead of the game thanks to the compounding of the money that you've already saved. It's a pretty solid win-win, sort of like the financial version of Pascal's wager. If you're interested in trying it out, here are some next steps to consider:

1. Audit your current retirement savings, and do some quick math to figure out how much it might grow given different return numbers like 5-7%. (Remember to include projected inflation, which is one of the primary killers of retirement savings).
2. Log which methods for retirement savings are available to you and your spouse. Include workplace plans, IRAs, and, if available, HSAs. Review the last 3-6 months of cash flow to determine your current savings rate, and what you might be able to increase it to.
3. Automate savings as much as possible by updating deferral percentages and direct deposit amounts.
4. If you get stuck, consider enlisting the help of a financial planner in Salt Lake City, Utah, or wherever is close to you. Even getting some professional help for a few hours can help you feel a lot more confident about your approach.

Disclosures: Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.