What does retirement mean to you? For most of us, it means 40-plus years of working before finally getting a taste of sweet freedom. But there are other options! In fact, one type of semi-retirement called Coast FIRE has been gaining a lot of traction lately. In our Coast FIRE vs. traditional retirement showdown, we explore the pros and cons of both types of retirement.
Then, you can see which type of retirement plans you might want to make!
Coast FIRE vs. Traditional Retirement – What Is It?
Before we can compare the two types of retirements, let’s find out exactly what Coast FIRE and traditional retirement mean.
What is Coast FIRE?
Coast FIRE is a type of financial independence. Think of it as a scaled-back version of FIRE, or financial independence / retire early.
Coast FIRE Definition
When someone is Coast FIRE, it means that they have enough saved for retirement to stop making retirement contributions. Instead, they work to cover their current expenses only. That means that their future self is already taken care of!
Key Elements of Coast FIRE
Like traditional FIRE, Coast FIRE is marked by a period of aggressive savings. However, once your retirement goal is hit, you do not fully retire. Instead, people who are Coast FIRE often switch to part-time work. They may also explore solopreneurship or other jobs that are more fulfilling. That’s because they only need to earn enough income to cover their current expenses.
Coast FIRE looks different for every person. However, the common denominator is that the focus is no longer on retirement savings.
How it's different than traditional retirement
Coast FIRE is different than traditional retirement because someone who is pursuing Coast FIRE may only save for retirement for a decade or two. However, the amount that they might save is generally more than average. For instance, someone working toward Coast FIRE may aim to save 30-50% of their income (or more!).
Conversely, people on the traditional retirement path tend to save until they reach retirement. The amount they save may fluctuate, though it is almost always significantly less intense than someone pursuing Coast FIRE. Common suggestions include saving between 10% and 15% of your pre-tax income.
Traditional Retirement: The Way It's Been
Traditional retirement refers to the concept of leaving the workforce at or around the age of 65. At that time, the retiree lives off of Social Security and retirement savings. While we typically think of retirees as living a full-time life of leisure, some retirees also engage in part-time or volunteer work. Still, their main sources of income no longer come from the job market. Instead, they rely on their retirement accounts.
Traditional Retirement Planning
When someone plans for a traditional retirement, they attempt to determine how much money they will need to live off of for the last few decades of their life. With the average American lifespan of 78 years, people need to plan to have enough retirement savings to support the last decade or two of their lives.
Steps that people typically take during traditional retirement planning include:
- Determining your retirement age
- Estimating a retirement budget
Key Elements of Traditional Retirement
To reach traditional retirement, people commonly aim to save between 10% and 15% of their pre-tax income. There are many retirement rules of thumb people might follow to see if they are on track for retirement.
Key elements of traditional retirement include savings for retirement while you are working and making a full departure from the workforce between the ages of 65 and 72. During this time, retirees may access their investment accounts penalty-free, and they may also receive Social Security payments.
Typical Retirement Age and Lifestyle
Typically, the traditional retirement age is defined as 65. However, people who were born in 1960 or later need to retire at age 67 in order to access their full Social Security benefits. As a result, the traditional retirement age is creeping upwards.
The conventional retirement lifestyle usually means that someone has left the workforce entirely, and they live off a combination of retirement savings (pensions, IRAs, Social Security, and so on). Traditional retirement tends to be a time to pursue hobbies and travel.
Coast FIRE Vs. Traditional Retirement – Pros and Cons
Before you can choose Coast FIRE vs. Traditional Retirement, it’s important to understand the pros and cons of both types of retirement.
Coast FIRE Pros
Perhaps the biggest benefit of Coast FIRE is that you no longer have to save for retirement after reaching Coast FIRE. That means that your budget opens up quite a bit. You can allocate that money toward any of your other financial goals, such as buying a new house or saving for college.
Additionally, many people use this as an opportunity to shift to part-time work or entrepreneurship. In short, Coast FIRE means lifestyle freedom years or decades before retirement.
Coast FIRE Cons
While there are certainly many benefits to Coast FIRE, there is a considerable drawback to consider. Coast FIRE requires sacrifice and dedication up front. As a result, you have to save significantly more when you are first starting out.
For many people, their 20s and 30s are a time when they are still establishing themselves at work. Their salaries may not be that big. Additionally, if you are starting a family, this is also often a time when you are saddled with hefty childcare costs. As a result, it might require extra sacrifice or starting a side hustle to save enough to reach that Coast FIRE milestone. However, if you have a higher-than-average household income, Coast FIRE can be more feasible.
Traditional Retirement Pros
There are several big pros to traditional retirement when it comes to Coast FIRE vs. traditional retirement. First of all, much of society is shaped around the concept of traditional retirement.
People are familiar with it, and retirement savings vehicles (such as a 401k or an IRA) are designed around it. That means that there is an abundance of resources to help you map out a comfortable traditional retirement. You also don’t have to worry about navigating any penalties or fees for accessing your accounts before the typical retirement age.
Traditional Retirement Cons
One of the biggest cons to traditional retirement is that it means significantly delaying lifestyle freedom. When you work until 65 or 70, that takes up a significant portion of your life. As a result, you may only have five, ten, or twenty years of true freedom.
How to Make the Right Retirement Choice
Retirement–like other things in personal finance–is not one-size-fits-all. Instead, you want to make the right retirement choice for you.
Risk Tolerance
One important thing to consider when planning your retirement is your risk tolerance. You want to build your portfolio in a way that aligns with your personality and your retirement timeline.
Goals and Values
What do you want for your future? When we talk about goals and values regarding retirement, we tend to imagine the gray-haired versions of ourselves. But what do you imagine for your life in five or ten years? Would you like to give entrepreneurship a try? Do you expect to start a family? In that case, maybe you would like to work part-time to have a more flexible schedule. Perhaps in another five years, your kids will be in their teens, and you’d like to really be able to dive more deeply into your work.
Once you determine your goals and values, that should help you determine what type of retirement you want.
Detailed Planning
Additionally, you may really love the idea of Coast FIRE. However, you need to make sure that you are in a position to dedicate a considerable portion of your income to your retirement savings. If you are still working on securing a higher-paying job or you find yourself having to pay a sizable child care bill, you might not be able to pursue Coast FIRE quite yet.
Making sure you have a clear picture when it comes to your income and your expenses will help you put together a detailed plan.
Crafting Your Dream Life – The Next Steps
Planning for retirement can help you build your dream life. If you’re ready to start planning, follow these next steps.
Assess Where You Are
Whether traditional retirement or Coast FIRE sounds best to you, you still need to know your current financial situation. Thankfully, there is no shortage of fintech tools that can help!
There are many different tools that you can use to plan for retirement. Here are some of our favorites!
- Coast FIRE Calculator – Are you wondering how close you are to Coast FIRE? Our simple calculator can crunch the numbers for you!
- Empower – Do you like to calculate your financial picture yourself? Empower has a whole suite of free tools for you to use.
- Monarch – Are you looking for a tool to help you get your family’s financial picture? Monarch is one of our favorite tools that you can use seamlessly with your partner, too.
Make Goals
Another way to determine which is better when it comes to Coast FIRE vs. traditional retirement is to look at your goals for the future. Break your goals into short-term and long-term goals. What do you envision for your future after one year? 5 years? 10 years? That can help you see what type of financial path you should chart.
Share with Partner
One of the most important parts of determining which type of retirement is right for you is to get your partner on board. Money dates are a great way to make sure you are on the same page financially.
Get Help Along the Way
Of course, it can be difficult to make retirement decisions on your own. That’s why we suggest you get help along the way.
Advice-only financial advisors tend to have your best interests in mind. That means you don’t need to worry about sales pitches and hidden fees. We recommend working with advisors from Nectarine.
Final Thoughts on Coast FIRE vs. Traditional Retirement
What type of retirement is right for you? When it comes to deciding between Coast FIRE vs. traditional retirement, it’s important to be clear on your goals. That will help you weigh the pros and cons of both types of retirement to determine what is right for you.
Where do you fall on the Coast FIRE vs. traditional retirement spectrum? How are you saving for retirement?
Please let us know in the comments below.
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