Podcast Summary
Coast FI calculation: To achieve financial independence (Coast FI), calculate the amount needed for retirement with a 6% annual return and 4% safe withdrawal rate.
Financial independence, or "Coast FI," is a concept where your investments generate enough income for you to retire without needing to continue saving. To calculate Coast FI, you can use a compounding returns calculator with a conservative 6% annual return and your desired retirement age. If the calculated amount is enough to cover your desired lifestyle with a 4% safe withdrawal rate, then you have reached Coast FI. It's important to remember that this doesn't mean you have to stop saving, but rather that you have the financial freedom to do so. Additionally, taking care of yourself and investing in comfortable bedding can contribute to overall well-being and productivity.
Coast Five Number: The Coast Five Number is the amount of money you would not need to add to in retirement to maintain your current lifestyle, calculated by estimating historical average real returns and using a compounding returns calculator.
Determining your "coast five" number can help you understand if your current investments are enough for you to retire comfortably. To calculate this number, consider the amount of money you have invested in the stock market and estimate the historical average real returns (around 6%). Input these numbers into a compounding returns calculator to determine how much your assets will grow over time. This number, known as your "coast five" number, represents the amount of money you would not need to add to in order to maintain your current lifestyle in retirement. However, keep in mind that lifestyle changes and inflation can impact this number. By using a post-inflation growth rate and being conservative with your assumptions, you can ensure a more accurate representation of your future purchasing power. Ultimately, knowing your coast five number provides a sense of stability and financial security as you plan for retirement.
Retirement number: A clear retirement number provides direction and motivation, but it's important to view it as a flexible tool rather than a definitive answer, and adjust plans accordingly to uncertainties and unexpected expenses.
Having a clear financial goal, such as a retirement number, can provide a sense of direction and purpose for our savings and investments. It can help us gauge our progress and motivate us to stay on track. However, it's important to remember that this number is not set in stone and there are many uncertainties that can impact our financial situation in the future. Therefore, it's essential to view this number as a helpful tool rather than a definitive answer. It can give us peace of mind and allow us to take calculated risks, knowing that we have enough saved to support our desired lifestyle in retirement. But we should also be prepared for unexpected expenses and adjust our plans accordingly. Overall, having a retirement number can be a valuable guide for our financial journey, but it requires ongoing effort and flexibility to adapt to changing circumstances.
CoastFi and retirement anxiety: CoastFi can help reduce retirement anxiety by providing insight into savings progress, but unexpected expenses and open communication about financial goals are crucial for successful retirement planning
CoastFi can serve as a psychological backstop for individuals looking to understand their financial progress and plan for their future, but it's important to remember that unexpected expenses and changes in circumstances can impact savings goals. CoastFi can help alleviate anxiety around retirement and savings, but it's crucial for couples to have open conversations about their financial goals and timelines. The focus should not only be on saving versus spending, but also on the freedom and power to work less and enjoy more free time. CoastFi can be a useful tool in determining if an early retirement is feasible through a test run of taking time off work.
Retirement Implications: Consider what one will do with extra time in retirement, test retirement with part-time work, and keep financial documents up-to-date to avoid unnecessary complications and fees.
It's important to consider the implications of early retirement, including what one will do with the extra time and the potential impact on physical and mental health. Part-time work can be a good way to test the waters and ensure that retirement is truly desired. Additionally, keeping financial documents up-to-date and in order is crucial, as illustrated by a cautionary tale shared by a listener whose mother's estate took nearly three years to settle due to outdated documentation. The story underscores the importance of addressing legal matters promptly to avoid unnecessary complications and fees.
Estate planning, aging parents: Have open and honest conversations with aging parents about their wishes and seek professional help when needed to navigate the complex process of managing a relatively small estate
Estate planning and dealing with the affairs of aging parents can be a complex and confusing process, even when the value of the estate is relatively small. It's important to have open and honest conversations with parents about their wishes and to seek professional help when needed. Unfortunately, many people find themselves navigating this process for the first time during a difficult and emotional time, and it can be a major headache. While it's not a pleasant topic, it's crucial to be prepared and to understand the potential challenges that come with managing an estate. For more information, check out our episode on aging parents, estates, and inheritances. We'll provide a link in the show notes.