What if there was a single number that could tell you when you’ve saved enough for retirement? A formula going around the internet promises to do just that.
It is called Coast FI. The FI stands for financial independence, since it is an offshoot of the Financial Independence, Retire Early movement that encourages extreme saving early in your career. But instead of retiring early, it marks the point at which you can coast on what you’ve saved.
Coast FI is when you have enough in investments to fund your full retirement without any more contributions. The idea is that reaching Coast FI early frees you up to, say, take a lower paying job, take time off from work or try to start a business.
It is pleasing in its simplicity, but it also comes with lots of risk, especially if reality doesn’t line up with your calculations.
“It’s great to start early,” said Matt Coursen, a certified financial planner and relationship manager at Plante Moran, a wealth-management firm based in Detroit. “But just understand that life happens, things change. Your circumstances are going to change.”
Here’s how it works.
Say your goal is to have $1.8 million by the time you retire at 65 and want to see how much you should have invested by the time you’re 35. Assuming a rate of return of 7%, your Coast FI number would be around $239,600. A 35-year-old that never added another dollar could conceivably allow compound growth to get them to their retirement nest egg goal three decades later.
The exact formula is:
Coast FI = Retirement savings goal / (1 + r)ᵗ
where:
r = rate of return on investments
t = number of years until retirement OR (retirement age – current age)
Jessica Fick found out at age 31 that she and her husband had reached their Coast FI milestone, with $300,000 in savings. She eventually created her own spreadsheet to calculate it. Fick and her husband have since quit their nonprofit jobs and started a business promoting concepts like Coast FI. They haven’t added to their investments since 2023.
Coast FI has been around for a while, and it is well-known among people who subscribe to the retire-early movement. Fick wrote about it on her blog in 2019. But interest has recently been growing across social media, as younger Americans worry about how new technology like artificial intelligence will affect their careers, and ponder the uncertain future of Social Security.
Google search interest in the topic has grown 50% from last year. Financial influencers on TikTok garner hundreds of thousands of views talking about Coast FI. There are online calculators that help people calculate their Coast FI numbers.
In a recent survey of about 1,000 Americans by TIAA, 15% of respondents said they were actively pursuing Coast FI. The same survey found 64% of Gen Z said they felt very or somewhat confident that they will be able to retire comfortably by a traditional age, down from 77% last year.
The simplicity of Coast FI makes it both appealing and difficult to rely on. The younger you are when you calculate your Coast FI number, the more time there is for economic and personal circumstances to change, financial advisers say.
“Inflation is the number one killer of retirement success,” said Jon Zetlmaier, founder of Zetlmaier Wealth Management based in Seattle. It is difficult to predict how much one dollar will be worth decades from now and how the market will behave in a given year. That makes it difficult to predict how much you actually need for a retirement that is decades away.
Young adults may calculate their Coast FI number before they get married, have children or buy a house.
“Those are all tremendous costs which probably aren’t going to allow you to save 50 to 75% of your income,” Zetlmaier said.
It is also difficult to predict future stock market returns. If the market tanks in the first few years after you stop contributing, it could greatly reduce how much you have in retirement years.
Still, Coast FI has inspired some early career adults to give priority to retirement saving.
Teena Singh moved back home to live with her parents in Georgia after graduating from college, despite having a full-time job. That enabled her to save most of her take-home pay. She took advantage of workplace retirement matches and maxed out her Roth IRA every year. She put all her bonus money toward the effort. Stock-market rallies in recent years helped to accelerate her progress, she said. By age 27, she had $1 million in savings.
“Seeing that number in my bank account was definitely very freeing,” said Singh, now 28.
In 2022, she left her six-figure job as a software engineer due to stress and took a pay cut at a new job. Last year, she quit and decided to pursue online content creation. Singh is single and doesn’t know if she will have children or a spouse when she reaches retirement age.
One reason it is so hard to predict how much someone will need in a far-off retirement is that healthcare costs, caring for aging parents and other major expenses can drastically affect future budgets, financial advisers say.
“I know what my budget is today, I don’t necessarily know what I’m going to need to live on in 15 years or in 25 years,” said Doug Ornstein, senior director at TIAA Wealth Management.
Fick doesn’t expect that everyone pursuing Coast FI aims to quit their job and stop contributing. She sees it more as a checkpoint that gives people permission to make changes in their life if they want to.
“If you’re saving in any way, shape or form, it’s going to put you in a better spot,” she said.
Write to Oyin Adedoyin at oyin.adedoyin@wsj.com