The Coast FIRE Calculator helps individuals determine how much they need to save and invest early in life so that their savings can grow to a sufficient amount by the time they reach traditional retirement age. This approach allows people to “coast” financially, relying on the growth of their investments rather than continuous savings to achieve financial independence.
Formula of Coast Fire Calculator
To calculate the amount needed for Coast FIRE, follow these steps and formulas:
Steps and Formulas:
- Determine Annual Expenses:
- Annual Expenses = Yearly amount you plan to spend in retirement.
- Determine Safe Withdrawal Rate (SWR):
- A common SWR is 4% (0.04).
- Calculate Total Required Retirement Savings:
- Total Required Retirement Savings = Annual Expenses / SWR.
- Calculate the Future Value (FV) of Current Savings:
- FV = Current Savings * (1 + Annual Growth Rate) ^ Number of Years Until Retirement.
- Calculate the Required Initial Savings (Current Savings):
- Rearrange the FV formula to solve for Current Savings:
- Current Savings = Total Required Retirement Savings / ((1 + Annual Growth Rate) ^ Number of Years Until Retirement).
Detailed Formula:
- Current Savings = (Annual Expenses / SWR) / ((1 + Annual Growth Rate) ^ Number of Years Until Retirement).
Where:
- Annual Expenses is the amount you plan to spend each year in retirement.
- SWR (Safe Withdrawal Rate) is the percentage of your savings you plan to withdraw each year in retirement (typically 4% or 0.04).
- Annual Growth Rate is the expected average annual return on your investments (expressed as a decimal, e.g., 7% return is 0.07).
- Number of Years Until Retirement is the number of years from now until you reach traditional retirement age.
Table of General Terms
Here’s a table of general terms commonly associated with Coast FIRE:
| Term | Description |
|---|---|
| Coast FIRE | A financial strategy where savings are made early and allowed to grow without further contributions until retirement. |
| Safe Withdrawal Rate (SWR) | The percentage of savings withdrawn annually during retirement, typically 4%. |
| Annual Growth Rate | The expected average annual return on investments. |
| Future Value (FV) | The value of an investment at a specific point in the future. |
Example of Coast Fire Calculator
Let’s consider an example to illustrate how the Coast FIRE Calculator works:
- Annual Expenses: $40,000
- SWR: 4% (0.04)
- Annual Growth Rate: 7% (0.07)
- Number of Years Until Retirement: 30 years
Calculate Total Required Retirement Savings:
- Total Required Retirement Savings = $40,000 / 0.04 = $1,000,000
Calculate the Required Initial Savings:
- Current Savings = $1,000,000 / ((1 + 0.07) ^ 30) = $1,000,000 / (7.6123) = $131,319
In this example, you would need to save $131,319 today, allowing it to grow at an annual rate of 7% over 30 years to reach your Coast FIRE goal.
Most Common FAQs
Coast FIRE involves saving enough early on so that your investments grow to support your retirement without further contributions. Traditional FIRE involves continuous saving and investing until you reach a substantial retirement fund.
The Safe Withdrawal Rate is the percentage of your retirement savings you withdraw annually. The 4% rule is based on historical data, suggesting it is a sustainable rate for a retirement lasting 30 years or more.
You can increase your chances by starting to save and invest early, maintaining a high savings rate, and investing in a diversified portfolio with a good expected return.