Coast FI

And the Rule of 72

What is Coast FI?  Coast FI is the level of financial independence someone has achieved when they don’t have to put anything towards their investments any longer but will still achieve FI by their expected timeframe based on the investments’ growth.

This is beneficial because the person has flexibility in choice with their money.  They could continue to put money towards their investments to hit FI earlier.  They could stop contributing altogether and put more money towards other things they value.  

How do you find out if you are Coast FI?  You must calculate when you will reach FI if you didn’t contribute anything more.  I use the Rule of 72 for this mostly.  It tells me when my money will double.

The rule of 72 is a rule of thumb used to determine how long it would take to double your money based on your interest rate.  You would take 72  and divide that number by the interest rate, say it’s 10%.  You would take 72/10 = 7.2.  

This is helpful when you take average returns on funds, real estate, etc, to see how many years it may take to do something.  It also helps with CoastFI.  For example, if you expect to retire by age 62 and you’re 52.  You need $ 1 million to retire, and you have $500k.  You could use this rule of thumb to realize you would hit your goal before retirement if you contributed nothing since, based on the calculation above, it would take 7.2 years for your money to double, assuming a 10% return.

Conclusion

This can be helpful, especially when you are in the mucky middle, after the excitement towards discovering FI wears off and you still have a way to go before achieving FI.  I found this extremely helpful these last few years as I am still working towards achieving FI for my family.  We’ve personally taken steps towards FI.  Living off of one income, cutting back expenses, and trying to keep our retirement savings the same despite our income being cut in half.  Realizing that if we didn’t contribute anything and our investments doubled, we would have more than enough for retirement, which is 14 years, is like a huge weight being lifted off my back. I can always speed it up, of course, but knowing that if I didn't do anything, I could retire is amazing!

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This article is informational; it should not be considered Health, Financial, or Legal Advice. Not all information will be accurate. Consult health, financial, or legal professionals before making any significant decisions.

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Updated 12/5/23