Yahoo Finance Retirement Savings for Millennials: Is Coast FIRE the New Way To Go?
Millennials are known for adopting social media trends with ease, looking for what’s new and what can help them invest, earn and save money.
Learn: 11 Signs You Will Be Able To Live Off Your Retirement Nest Egg
More: 7 Bills You Never Have To Pay When You Retire
FIRE, a popular retirement savings movement, has taken social media by storm. But what is Coast FIRE, FIRE’s less intensive counterpart?
What Is FIRE?
FIRE, the acronym for “Financial Independence, Retire Early,” is an aggressive retirement savings option that involves investing and saving a significant portion of your income, generally around 50%, while reducing your expenses to prepare for early retirement. “FIRE at its core is having enough money invested that you can live off interest for the rest of your life,” said John Liang, a popular personal finance influencer, in this TikTok video.
This trend has exploded on social media, with many influencers touting FIRE as a surefire way to live a dream life of travel and leisure. FIRE, they claim, has allowed them to retire as early as 30 years old. But FIRE may lead to burnout and come with an emotional cost.
Extreme savings and investing over half of your income may not allow you to enjoy the present, and giving up things like brunch with friends or weekend trips may not be ideal for many millennials. Money.com stated, “There’s plenty of online chatter indicating that savers are giving up on FIRE due to the extreme measures often required in the penny-pinching lifestyle.”
If you’re interested in FIRE without the drastic actions required, Coast FIRE offers an attractive alternative.
How Coast FIRE Differs
Unlike traditional FIRE, which oftentimes requires extreme frugality, Coast FIRE is a slower, less aggressive method of saving for retirement. An article published in TIME Magazine defined it this way: “Coast FIRE takes a slower route to retirement and requires less intensive saving and investment than FIRE. Your goal is to save the amount necessary to generate full retirement over time.”
To achieve Coast FIRE, you’ll front-load your savings and investing, but with a stopping point in your 30s, 40s, or 50s that allows your investments to grow (thanks to compound interest) and fully fund your retirement. This method is less aggressive and offers more freedom in your present-day spending, helping to stave off the burnout that’s typically associated with traditional FIRE.
While FIRE claims that retirement is possible in your 30s or even late 20s, Coast FIRE is intended for later retirement, closer to the traditional age of 65.
Coast FIRE Pros
If you’re still unsure if Coast FIRE is right for you, it might help to consider some of the pros.
First, it offers peace of mind once retirement is fully paid for, as well as offering a sense of financial security. “After you reach your goal with Coast FIRE, you have the freedom to make life choices without the pressure of saving for retirement,” TIME stated.
Second, once your retirement is fully funded, it is possible to work less or enjoy a part-time job that provides health insurance. It alleviates the pressure for a high-paying, high-stress job. Additionally, for those who have trouble budgeting, Coast FIRE can be a helpful tool to jumpstart a mindset of frugality. Having a plan and sticking to it can be one of the most difficult components of budgeting and saving.
Coast FIRE effectively helps keep people on track, likely due to its highly appealing promise of a comfortable retirement.
Coast FIRE Cons
Like most budgeting plans, there are cons associated with Coast FIRE, and for some people, it may not even be feasible.
TIME advised that “If you are not in a position to save and invest a significant portion of your income (up to 50%) early in your career, Coast FIRE probably isn’t for you.” This is likely because Coast FIRE, similar to traditional FIRE, involves having a high enough income to cover daily expenses while still saving and investing.
If half of one’s income needs to go to rent or food, it may not be the best idea to implement Coast FIRE now. The same applies if you have a lot of debt. You might want to consider paying your debts down first before working towards Coast FIRE.
Since this savings plan involves investing and accruing interest over time, it’s recommended that you start in your 20s or 30s. If you’re in your 40s (or older), this may not be the best option.
If you’re interested in retiring early or financial independence without utilizing extreme frugality — and you’re in the right age and income bracket to start — Coast FIRE provides a lower-stress, viable alternative to traditional FIRE.
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This article originally appeared on GOBankingRates.com: Retirement Savings for Millennials: Is Coast FIRE the New Way To Go?
