Money Vault - Coast Fire

0:00Hello and welcome to the Money Vault and new weekly Wednesday show where we think into the archives to give you one of our classic episodes from back in the day so don't you welcome back how you do it. I'm good Andy and it was great to hear the feedback from the first episode of the Money Vault so do keep your feedback coming in. Also let us know if there are any topics you want to hear covered on the Money Vault and we'll dig into the archives to find the topic covered on the podcast previously. Now this week we are going to be talking about coast fire so that is the financial independence retire early movements but version of it that is slightly easier. I'm very keen on this concept and I'm trying to teach my kids about it because it harnesses the power of compounding to make you wealthy later in life. And so let's get straight into that episode so it was from episode 446 originally recorded back in January 2024. So Damien we're going to be talking about the fire movement well not quite the fire movement so if you remember we've talked

1:01about it on the podcast before financial independence retire early it's got quite a lot of fans but it also has its skeptics but there's a different type or a sibling to the fire movement and you're going to explain what it is. Yeah so just to give a recap to people who are not fully aware what the fire movement is now this is a way of trying to become financially independent so you have the choice of whether you want to work going forward and that's hence why you've got the retire early part. You'll see different ways to describe but really there's four pillars to it so it will be you try and earn more you spend less so that's the frugality part of it and then you invest the difference wisely and then you need to know when enough is enough so that's kind of the four pillars. So you will have seen people probably in articles and newspapers very popular thing to write about and you may have seen blogs for example and you will see different types of people who have done it and different last thousand. One of the criticisms that often expressed

2:03about the fire movement is that it seems that people are almost denying themselves and so they leave living incredibly frugal lives to be able to save away as much money as they can so therefore they don't have to go to work have the choice whether they want to go to work. I mean of course working is optional and generally speaking they're trying to aim for a lump sum that is 25 times what the annual income they want to generate so it's really living by that 4% rule you're able to withdraw 4% a year and be able to live on that and your money hopefully not run out over the long term and that's meant to be a sustainable rate. We've done podcasts which will link to that discusses the withdrawal rates and the debate around the 4% rule. I mean there's an argument it should be lower if you want it to sustain going forward and particularly if you want your income to grow with an in excess of inflation perhaps. So the fire movement has a lot of fans and there are people who have successfully retired early using it but for a lot of people who may be looking at it they might

3:04start down the journey of the fire movement and then find that it's quiet onus and they find themselves feeling almost deprived because I'm going to put as much money away they're not able to do the things that they want to do. So one of the things about the fire movement that does come to mind is that it is particularly flexible. I mean some people who do follow it are able to overcome nice curve balls things that go wrong they mean that you can't put away as much money as you want to and you're having to use money I don't know maybe something that happens financially that you need to take the money you've saved to be able to put it to all something. So an alternative to the fire movement it's been different versions of it and it's one that I've seen called the backfire and that's where you aim for a really luxurious retirement and there's one that's called the lean fire movement which is where you're going for a minimalist approach and I think the issue is that most people think that the lean fire as it's described is actually the standard version because they're the people that you've sometimes seen articles but there's another version I just want to quickly touch upon that I quite like the sound of it it's

4:05something that's probably what in line what I aim to be doing or trying to do with my own money and it's called coast fire and the idea behind coast fire is that what you do is instead of trying to retire early it's less intense than the traditional fire movement because it allows people to stop saving once they reach a certain point and that point isn't necessarily the point they're going to retire and what they do is they will save aggressively early it's particularly useful for people who may be in their 20s and 30s and then they use the power of compounding to grow the pot of money that they managed to save up to achieve a sum that is going to allow them to retire when they want so let's give a hypothetical example let's say somebody was hoping to retire by the time they were 35 or 40 you know having to aggressively save up now to get a pot of money that might be say a couple of million by the time they reach that a so they can have the choice to therefore not work and they can withdraw

5:06money it may be 4% a year that means they will be able to have the income that they want throughout the rest of their life then the coast version of that is that what people do in this particularly relevant so that the people who maybe are in their 20s and 30s is that they will save up an amount of money aggressively to the point that they say maybe hit 35 and that sum of money they will therefore invest and allow the power of compounding for that to grow and they may decide to therefore delay their retirement to say 55 so what they will do is they will choose to continue to work but they may decide to do a job that's less pressured they're stressful because they've built up a pot earlier they've allowed the ability of compounding for that to grow and it's say if you pick a number out the essay 7% a year and compounds but by the time they get to 55 they've got the big pot there therefore they can retire and 55 is obviously generally speaking quietly to retire for most people so the idea of coasting comes from that you do the hard work is almost like going up a hill for a limited period of time you therefore

6:09no longer save because you build up this pot that's much smaller than the pot that you would have done under the traditional fire route then you allow that to compound by investing over time you then coast downhill into your retirement and you do a job that you probably prefer because you haven't got to keep saving for an extended period of time very aggressively so that's the idea of the coast movement and it is something that is probably more reflective of what I do in my finances now I would like to get to a point where I have enough money in my pension at a point soon where I would hopefully be able to allow that to be investing in compounding over time that lump sum so that by the time I get to maybe the age that I'd like to retire I'd have more than enough in that pinch of pot so rather than looking at the Everest hill that I've got to get to I'm sitting there thinking if I look at the small amount I have to do it more aggressively for shorter period of time and then allow that to compound now like I said this is particularly relevant to people who are in their 20s and 30s so if you are in that age group then it is something I think that's worth looking at because the numbers that you'll be having to save

7:09are going to be much smaller of course people in that age group you've got to realise also wants to buy a house so they're going to have to be considering that at the same time building up deposits but the benefits of the coast method is it's more relaxed version of the more additional fire movement and it supposedly allows people to enjoy their social lives a little bit more you can have a little bit more of a diverse lifestyle I mean I'd love to hear from anybody who's done it or who's doing it who's achieved it and then there's probably people who are trying to do it but anyone who's used the coast method and actually achieve financial independence so to sum up it's probably a more balanced approach to reaching financial independence going forward and it's probably going to be another version of the fire movement where people don't actually ever retire so they actually carry on working or plan to work doing something for a much longer period of time which is probably where we're going to head up with retirement anyway the idea that people just stop but if you are listening to this and you're thinking I like the sound of this so how much do I need now I can't give you a figure of the top I had for everybody but what we will do is put a link in the notes of this show to a calculator that we've

8:13built where you can put in the amount of money you have now you can put in any regular match you want to put in and then what it will do is you can compound that up to see what you will have by it at a certain point in the future so you can play around with that calculator to sit there and see right okay let's say you're 25 you might decide well how much do I need to have at 35 so I can stop saving so that I could retire early at 55 what you need to do is work out what the amount of money that you want to have at 55 if you're using the fire method times up by 25 to give you the big lump sum and then you've got a reverse engineer that you work out well 35 to 55 that's 20 years what sum of money do I need to have to compound so it will compound at growth rate which you can set let's say you pick 7% you get to that large sum call it one and a half million by age 55 and therefore you know right if you're 25 I've got 10 years to try and get to that sum and it's a different way of doing it but I think it will be more appealing to some people and even if you aren't in your 20s or 30s don't forget that the pension limits have gone up so people are now

9:17able to pump their pensions that little bit more so you could put up to 60,000 pounds depending on your earnings you get tax release into a pension each year and so at the moment that means across two years either side of a tax year you could actually put 120,000 pounds into a pension pot if you're fortunate enough to have that money and there will be people out there who can but it does mean therefore that you could start to do that even if you're in your 40s see if you could try and pump your pension quickly and it's particularly relevant for people who do our businesses who may be able to do something like that and dictate their pension contributions be able to pump it sooner and then allow it to compound over time and be able to choose the time at which they retire okay so there we go that is coast fire we're nearly done for the poll cars as Damien said at the start of this week's poll cars please do make sure you comment tell us know about future episodes what you want to hear about because we have probably covered it in a previous episode so we're happy to dig into the archives and create a money vault sometime in the future