Everyone Loves COAST FIRE… But Don’t Make This Mistake

Added: 2026-05-05

[00:00:00]One of the most beloved concepts in all of personal finance is coastfire. And when people hear about it, they tend to think of the idea that once you hit a certain savings target at a certain age, that's it. You're done. You don't have to keep saving and investing if you don't want to. And on the one hand, that sounds amazing, but on the other hand, sometimes that does not paint the full picture. So that's exactly what I want to do today. Hey guys, what's up? I'm Aaron and welcome back to the channel.

[00:00:27]Coastfire doesn't mean you're financially independent, and it doesn't mean you're necessarily retiring early.

[00:00:34]Here's what it means. You're conditionally independent based on a set of assumptions that may or may not hold true. So, today I want to walk you through a more precise and more flexible and yes, more realistic way to use Coastfire so it actually holds up in the real world. Let's start with what Coastfire actually is. The traditional definition is simple. It's the point where you've saved enough that compounding alone will get you to retirement. The idea is that you save aggressively in your 20s or your 30s until you hit a certain number. Maybe it's $100,000, maybe it's $200,000, maybe $300,000, and then if you just leave that money invested and let compounding do the rest of the work, you don't necessarily need to add anything else to your investments. And if you allow it to grow until say traditional retirement age, maybe 60 or 65, this alone would grow into what you need to fund your full retirement. So in other words, you're sort of passing the baton.

[00:01:32]Compounding will carry you the rest of the way. And your contributions are no longer essential to your long-term success. And psychologically, this is why Coastfire is so appealing because it takes the pressure off your shoulders.

[00:01:44]You no longer have to contribute saving.

[00:01:47]you no longer have to keep saving at such a high rate. For example, let's say you're 20 years old and you want to hit your Coastfire number by the age of 35.

[00:01:57]So, you no longer need to keep investing. Your goal is to have $2 million by the age of 65 when you plan to retire. You assume you can capture a 7% annual rate of return. So, you would need roughly $260,000 invested by the age of 35. Now, theoretically at that point, once you have $260,000 invested, you would no longer need to continue saving and then this money should just grow to the $2 million you want in 30 years time. At this point, your income is only essential to covering your living expenses. It's not necessary for you to continue contributing to your investments, and that should create a great sense of freedom today. Now, people love Coastfire because it creates a great sense of freedom. you don't have to save aggressively for 30 or 40 or 50 years. Or maybe it allows you to have flexibility with your career. Maybe you step down to part-time work. Maybe you decide to start a business. You explore entrepreneurship. Or it allows you to step into a lower paying field that perhaps you're more passionate about.

[00:03:02]For many people, it really gives them the sense that they can enjoy their money earlier in life, knowing that that savings box is fully checked and it can reduce the sense of burnout. Or maybe it allows you to exit this lifelong feeling of grind mode. Now, I think there's a better way to think about Coastfire.

[00:03:18]Rather than thinking about it as if I'm fully done saving forever, I don't like the idea of saying I'm completely done.

[00:03:26]Rather, I like to think of it like this.

[00:03:28]You've simply reached a point where your current assets, if left untouched, could potentially fund your future liabilities. I think that's a very different approach and a much more useful way to think about it. Because here's the part that often gets overlooked. Coastfire does rely on the market cooperating. It relies on historical patterns continuing. It relies on long-term growth panning out as planned. It relies on inflation staying within a set predictable range.

[00:03:59]Now, yes, we can stack the deck in our favor by using more conservative assumptions, but at the end of the day, it does require things going reasonably well over time because underneath the numbers, Coastfire makes a lot of assumptions that people may not be aware of. Number one, it requires stable return assumptions. Most projections require something like 7 or 8% real rate of returns, but markets don't move in straight lines, and sequence of returns still matters. We often say that the market gives us something like an average of 10% a year, but it certainly doesn't give us 10% every single year.

[00:04:35]And if you're banking on that assumption, it's unlikely that you're going to hit your target. Let's walk through a really important example. From 2000 through 2025, the S&P has averaged an 8.1% nominal return. Let's say you start with $100,000. You earn 8.1% per year over 26 years. The math says this would grow to $760,000.

[00:05:00]And honestly, that's pretty incredible.

[00:05:02]But remember, you don't get a smooth 8% every single year. Instead, here's what you actually get. A dot crash, a financial crisis, COVID volatility. So, when we apply the actual sequence of returns from 2000 to 2025, $100,000 grows to about $670,000.

[00:05:21]Now, that's still incredible because over a 26-year period, this $100,000 has still grown to 6.7 times what we started with. And that's across very volatile markets. But notice that we're about $100,000 off our original projection.

[00:05:37]And that $100,000 matters because over time that gap has a way of magnifying.

[00:05:42]And why did this happen? Well, it comes down to sequence. In this example specifically, right out of the gate, your $100,000 ran into three straight negative years. And that early damage had a long-term outsized impact on the final outcome. Even though our average return ended up being similar in this situation. Now, if we take a moment and zoom out and look at the stock market over, say rolling 20-year periods, we should have some level of reassurance because over a 20-year rolling period, we don't have any situations where market returns are negative. But if you zoom in, there are years and even multi-year stretches where the market is negative. And these drops can be sort of gut-wrenching. And this is why sequence matters. Number two, behavioral changes.

[00:06:29]And this is where coastfire becomes very real. Because if your plan depends on the market cooperating long-term, when you're actually living through some of these moments and watching them unfold, they will absolutely test you. Over five or 10 or 20 year periods, there will absolutely be moments that test you where it feels like things are not going according to plan or things are worse than expected. And in those moments, behavior tends to follow. It might push you to change your allocation, to rebalance more aggressively, or even shift back to the idea of save more, work more. But here's the assumption Coastfire is making, that you're consistent with your allocation, that you don't touch your portfolio. Really, in theory, that's what makes the math work. But in real life, people may struggle to behave that way because if the best plan requires you doing nothing, you will find that there are times where doing nothing is incredibly hard. And number three, no lifestyle inflation. This idea also assumes that your future spending stays aligned, that your idea of retirement doesn't change.

[00:07:33]But over time, things tend to shift. And if your income increases meaningfully, often we see that spending does as well.

[00:07:41]And more importantly, it assumes you know exactly what your life is going to look like 20 or 30 years from now. But honestly, life has a way of evolving. I thought I knew for certain what I wanted my life to look like longterm at the age of 20. By the time I got to 30, again, I thought I knew exactly what I wanted my life to look like, but I had a very different picture than what I was originally looking at at 20. And now, as I hone in on 40, that picture has changed again. So often, I find it hard to believe that I can confidently say I'll know exactly what I want my life to look like at 50 or 60. I can make a rough plan, but it's really more of a generic projection. As you change, your lifestyle, your priorities, your definition of what a good life is changes, and your financial life will need to evolve with that. Number four, no major disruptions. And finally, Coastfire assumes no major health disruptions, no major career disruptions, no major family obligations that pull you in a different direction, and no divorces. It also assumes you don't need to touch this money that you can leave it compounding uninterrupted.

[00:08:48]So that means you need a stable income to fund your life and very few life disruptions that would otherwise cause you to touch your investments. But sometimes real life doesn't work like that. Sometimes life happens and things get a little bit messy. So when we look at Coastfire, it often works far more mathematically than it does behaviorally. So, here's the subtle risk that I want to warn about with Coastfire. It shifts your mindset from I'm building toward a goal to I've already made it. But the reality is you've really reduced your margin for error, but you haven't completely eliminated it. Because what happens if everything doesn't go according to plan?

[00:09:28]What happens if all of these factors outside of your control don't go as you expect? That's why falling into the mindset of I've already made it can be dangerous. A better way to think about it is, I've done the vast majority of the heavy lifting, but I'm not done yet.

[00:09:44]Because risk can re-enter the picture when you fully stop contributing, when you are fully dependent on compounding, and you have less ability to course correct if something goes wrong.

[00:09:56]Coastfire has a way of increasing your dependence on the market while reducing your personal control.

[00:10:04]This is where I think we need to rethink coastfire entirely because most people treat it as I've hit coastfire or I haven't. But real life doesn't work like that. Financial independence doesn't work like that. Financial independence is a spectrum. It's not I've made it or I haven't. It's really looking at it from the perspective of how much margin do I have? Because that margin determines how much flexibility you really have, how much risk you need to take, how dependent you are on everything going perfectly according to plan. One more example. Let's say you're 30 years old. You want to coast at 40.

[00:10:38]Your goal is 2.5 million by age 65. And you assume 7% annual return. That means you would need about $460,000 invested by age 40. Traditional co-fire would have you saying, "Hey, once I hit $460 at 40, I'm completely done." But let's pause for a second. Let's look at the mindset it took to go from $0 invested at the age of 30 to almost $460,000 invested just 10 years later at the age of 40. You would need to save roughly $27,000 per year. That's over $2,200 a month.

[00:11:15]For most people, that's aggressive. This is a person who's willing to grind, to find a way to increase their income and cut back their lifestyle and do that for a full decade. This is almost never the same person who says, "Okay, I've hit my number. I'm done saving completely."

[00:11:31]Going from saving aggressively for a decade to saving nothing at all, behaviorally, we just don't see this that often. Let's say this individual had a savings rate of 40%. Going from a 40% savings rate to a 0% savings rate, that's pretty dramatic. What if instead this person went from saving 40% down to saving maybe 10% or 5%. So they created a lot of breathing room within their budget. With this plan, you're still letting compounding do most of the work.

[00:11:59]You're taking the pressure off. You're creating flexibility in your life. Maybe you decide to work less, or maybe you're just creating more space in your life for the things you value more. But at the same time, you're still building in a margin of safety because now if returns are lower than expected, you're still contributing. If life changes, you still have flexibility. If the markets struggle early on, you are not fully exposed to this risk. Dynamic coastfire is about changing how much effort is required to keep going forward. If you want to frame it simply, you could think of it like this. Around $460,000, you are technically able to coast. But above that, you gain flexibility. Well, above that, you gain durability.

[00:12:43]Continuing to save, even modestly, not aggressively, not going all out, gives you more options. It makes it so you're not as reliant on compounding. And maybe you find that you just give yourself more options along the way by continuing to save a modest amount. Maybe instead of retiring at 65, you find you're able to retire at 60. Maybe you decide to take a sbatical or mini retirement, or maybe just work less along the way. I really like the idea of moving away from black and white thinking to really embracing the gray because that gives you options. You don't have to look at Coastfire and draw a hard line in the sand and say, "I've made it. I'm completely done." I like to think of it differently. It's okay to give yourself permission to say, "I've worked incredibly hard to get here and now I get to enjoy what I've built." Not to enjoy your money someday. Start now.

[00:13:30]Enjoy it today. It makes no sense to put off enjoying your life and your money until retirement. you should enjoy your money along the way. And on a personal note, I'm a huge fan of Coastfire. It aligns very well with how I think. When I was in my 20s and my 30s, this is a path I clearly followed. At that point in life, it was very easy to make sacrifices. I didn't have a family yet, and I knew working hard and saving aggressively meant that in the future.

[00:13:57]When I did have a family, we could all enjoy having a better life. And honestly, when I look back on those years, I'm grateful I had those hustle years, but I'm also grateful they're behind me. I don't want to continue working and saving at that pace that I did forever.

[00:14:14]So, remember, if we want dynamic cofire, we want to be strategic. First, you want to reduce the pressure. Just like we said before, you don't need to continue saving 40, 50, or 60% forever, but you also don't need to drop it down to zero.

[00:14:30]Saving a modest amount continuing forward gives yourself great options.

[00:14:35]Second, make sure to embrace the flexibility you've given yourself. This is really where you give yourself permission to enjoy life. Maybe you shift to a career you enjoy more. Maybe you just work fewer hours. Maybe you take your foot off the gas. Heck, maybe you fully love your job and you have no plans on changing, but you just want to give yourself permission to spend more and inflate your lifestyle a little bit.

[00:14:57]There's no wrong way to do this, but the goal is to enjoy your life and your money you've worked so hard for. Third, make better decisions. You can take calculated risks. Once you have a strong foundation, that's an ability you have.

[00:15:11]But remember, you don't want to gamble unnecessarily. You want to protect what you've built.

[00:15:17]Now, let's be very real for a second.

[00:15:19]Coastfire is a great concept, but it is not the right fit for everyone. In fact, for some people, trying to coast too early can be a major mistake. If you're a late starter, maybe you simply don't want to save a massive percentage of your income. If your savings rate is still relatively low, if your income is highly unpredictable, or if you expect to need a more expensive lifestyle later on, Coastfire might not be for you. And it might give you a false sense of security before you really have the margin. And if you try to coast too early, you're putting a lot of pressure on the market to carry you the rest of the way without giving yourself enough time or enough of a cushion to recover if things don't go as planned. Coastfire really only works if you've built enough margin. Otherwise, you're trading effort today for more risk tomorrow. But remember, Coastfire is not a finish line. It's a checkpoint. It can give you more flexibility. It can help you avoid burnout. and it can give you permission to enjoy your money earlier on before retirement. But if you use it too early or too rigidly, it can increase your stress and it can increase your risk.

[00:16:28]So, what are your thoughts on Coastfire?

[00:16:30]And more importantly, what are your thoughts on dynamic coastfire? I'd love to hear. Leave them in a comment down below. I post new videos every single week. If you got anything at all out of this one, please give it a like. If you're new here, please consider subscribing. Or if you know of someone who might get something out of this type of content, please consider sharing.

[00:16:46]I'll see you soon. Bye. Maybe.

[00:16:50]Oh jeez. Frick. Sorry. Tripped over extension cord.

[00:16:57]Was behind the thing. You didn't see it.

[00:16:59]But man, I almost fell in my face. Hey, Peanut. Bubba. It was just a truck and it drove by. You're good. Yes, it's Monday and the garbage truck is coming.

[00:17:10]So, we're going to wait. It's also spring and the birds are outside my window. I don't know what's more annoying. Do you think like a leaf blower is more annoying or birds chirping right outside your window?