CoastFIRE and leanFIRE are very different in nature, and I’ll cover them separately, and then you decide which camp you fall under.
LeanFIRE
This financial independence retire early approach takes a “leaner” way of lifestyle to save enough money and retire as soon as possible. Mostly, you will choose to live very, very minimally and save/invest the rest, and your retirement will be more frugal overall. This gets you to retire earlier than most (late 20s or 30s) BUT you trade-off with a smaller investment portfolio due to less time involved.
LeanFIRE approach may mean that the passive income from your portfolio may not allow you lavish lifestyle (so no expensive cars / holidays / spendings) ie retire earlier frugal lifestyle.
The average number to calculate leanFIRE is to take your annual expenses and multiply that by 25.
So if your monthly spend is $3000, then annually you spend $3000 x 12 = $36,000. 25x of this will be $900,000. Assuming you
- save and invest $1,000 a month into 6% returns per year stable assets
- reinvest that 6% every year
You can reach your target $900,000 in 28.5 years.
This is a common strategy for people who are wired to retire earlier and/or have overall lower spending expenses than other households for example people who have no kids / single, senior citizens, living in tiny homes / vans etc.
LeanFIRE is generally about being willing to live simpler in retirement, and people who follow this approach usually try to live on less than $50,000 per year or lesser. They would be okay / willing to
- move to a lower cost of living area
- spend less on travel or experiences
- cut back or simplify food and transport expenses
CoastFIRE
Financial independence, retiring early can be very tough for young people to save a large chunk of money upfront, especially when cost of living is higher now no matter where you go. LeanFIRE can take many, many years to achieve (even the example above is a good 28.5 years). CoastFIRE on the other hand, is another alternative.
The difference between coastFIRE and normal FIRE is that with normal, traditional fire, you have more than enough passive income from your passive income investments to cover your daily expenses. You’re “there”. CoastFIRE is more about the beginning or earlier journey of FIRE, and you focus on
Frontloading your coastFIRE number which will let you achieve FIRE in X years.
I gave an earlier coastFIRE example with Jake here.
The two top principles of coastFIRE are:
- you will still need to work to cover the basic living expenses BUT
- you no longer have to worry about saving money and investing for retirement
Because you frontload the coastFIRE investment amount as early as possible AND let compounded investment return work hard for you over a period of time (usually the time you choose to retire).
Example, say 25-year old Jane has saved $100,000 and wants to retire at 55. Assuming Jane doesn’t spend much, around $2,800 a month (total $33,600 per year) and Jane’s money grows at 6% per year, she will have $574,349.12 by 55. 6% of $574,349 is $34,460.94. Jane would have achieved her coastFIRE number at age 25.
If I’m 35 want coastFIRE and retire with $1 million at 65, and say I’ve $200,000 to invest. Assuming annual returns of 6%, with the 6% reinvested over 40 years, I would have achieved it
within 28 years, by then I’ll be 63 years old. 2 years early.
Thing about this coastFIRE approach is that I will still have to work to cover living expenses as my investment work its compounding over time, but I will be on point for retirement without needing to add any extra savings – this is what it means to
coast into retirement
Of course, knowing myself, I will want more buffer, so I will top up / add in additional monies over the years to grow the principle more, and this will lead to
- shaving off the years to hit $1M but more importantly
- I’d have a larger (and more defensive) amount above $1M for buffers
What I like about coastFIRE is that it takes a lot of mental stress away from the get-go, and I can choose to work simpler or less hours at my work, knowing and having confidence that I can retire at X amount and years which is working for me. This is the biggest benefit in my opinion. To add on to that, secondary benefits are less sacrifices upfront:
- no longer have to be stressed by counting dollars for vacations or big spends or small spends
- dont have to choosing higher yielding projects with a lot more stress or tolerate rubbish people at work
- even if I lose my job, I can choose a simple low paying job to pay the daily expenses and I’ll “still be okay”
This allows me to enjoy the journey of life more.