Coast FI vs. Slow FI: Do You Need to Slow Down?
Financial independence (FI) is a term that’s gained popularity in recent years and for good reason. The idea of achieving financial independence and being able to retire early is incredibly enticing. Slow FI vs. Coast FI: Two approaches that involve purposefully getting to FI more slowly in order to enjoy the ride.
What is Slow FI?
Do you love the idea of FI but know you’re not willing to eat lentils and rice to get there faster? Are you’re a dedicated Swiftie who will not miss out on an opportunity to see Tay Tay if she plays within a 500 mile radius of your home? Slow FI might be right for you.
Slow FI is all about enjoying the journey. Many people seeking FI treat it like a race, aggressively slashing expenses and eating bananas for lunch like Jacob from Early Retirement Extreme. They start side hustles, seek promotions in their careers and do whatever it takes to increase the gap between what they make and what they spend (savings rate). Slow FI worries less about how fast FI happens and more about enjoying the journey. This means having a lower savings rate and therefore longer FI journey.
What is Coast FI?
Are you so burnt out on your 9-5 that you daydream about doing literally anything else including shoveling elephant shit or being a human alarm clock? You might be a prime candidate for slowing down, especially if you’ve already put in some good work up to this point on the road to FI. Or maybe you and your partner have been saving like crazy for years and you’re getting the itch to spend every penny that you earn to go live in NYC or just blow it all on massages or pedicures. As long as you’re not dipping into your savings, you’re still making progress. Another prime candidate for coasting!
Coast FI, also known as Barista FI or Semi-FI, is a strategy where you save and invest enough money in your early career so that you can stop contributing to your retirement fund and let it grow on its own until you’ve got enough to stop working. Essentially, you’ve saved enough to coast until you’re ready to fully retire.
Let’s introduce a couple FI concepts to help us think about Coast FI:
The 4% rule
The 4% rule tells us how much money we need to retire by assuming that you can safely withdraw 4% of your investment portfolio each year. So if you have 1 million dollars you can safely withdraw $40,000 per year. More conservative investors may shoot for a 3.5% rule or even a 3% rule to sleep better at night, thus avoiding the need for a human alarm clock.
For example, the 4% rule tells us that if your living expenses are $50,000/year, you’ll need 1.25 million dollars to retire. You can also reverse the equation to arrive at your FI number by multiplying your annual expenses by 25:
$50,000×25=$1,250,000
The Rule of 72
The rule of 72 tells us how long it will take for investments to double. You take the number 72 and divide by the rate of return (for 10% you would use the number 10, not .10).
For example, if the stock market returns around 10% per year, take 72 and divide it by 10:
72/10=7.2 years
Applying the Rules
OK, let’s use what we’ve learned above to think about a Coast FI example. If your living expenses are $50,000 and you need $1.25 million to retire, once you reach half of $1.25 million you are Half FI! Once you are Half FI ($612,500), you can expect that in 7.2 years your investments will double to $1.25 million and you’ll be REAL FI!
So how does this work? As long as you make enough money to cover your living expenses each year, you can expect your investments to grow, coasting your way to FI. You don’t have to wait until you’re Half FI to start coasting. The sooner you start coasting, the longer it will take to make it to FI, and the later you start coasting, the sooner you’ll make it to FI.
The Benefits
Coasting may allow you to quit a stressful job and start a business with the goal of only covering living expenses. It might mean dropping down to part time at your job, or choosing a new career that pays less but is more meaningful/easier/more fun. It might also mean deciding to donate any additional money that you make that you don’t spend. The possibilities are limitless.
So when are you Coast FI? Whenever you have enough money invested that you’re comfortable with covering your expenses for the time that it takes for them to grow to full FI. Everyone’s Coast FI number will vary based on both their expenses and their comfort with the timeline for their investments to grow to Full FI.
The best thing that we have experienced from reaching Coast FI is a decrease in stress, knowing that we’re still making progress to FI on a timeline that we’re comfortable with as long as we’re covering our living expenses. This mindset has allowed Mr. Mint to quit a job that was toxic and for Ms. Mint to begin a transition to businesses that she is more excited about than her current cash-cow.
Which approach is right for you?
The answer to this question depends on your personal goals, lifestyle, and priorities. Coast FI requires more upfront saving and investing, while Slow FI requires a longer-term commitment to chugging away like a turtle. Ultimately, the key is to find an approach that aligns with your values and helps you achieve the life you want to live.
