Coast FIRE: The Math, the Risks, and How to Test It

Work out your FIRE number first — the portfolio that funds your retirement spending at a withdrawal rate you trust. Then discount it back to today at an assumed real (after-inflation) return. Someone who is 40, wants 1,000,000 in today's money at 65, and assumes a 5% real return needs 1,000,000 ÷ 1.05²⁵ ≈ 295,000 today. Hit that, and on those assumptions the saving is done; only the waiting remains.

Everything must stay in real terms for the arithmetic to mean anything: a real return keeps the target in today's money and today's spending. Mixing a nominal return with today's spending is the classic error, and it flatters the answer badly — at 25 years out, an inflation-sized 3% wedge roughly halves the apparent coast number.

At long horizons the discount factor compounds mercilessly. The same 25-year, 1,000,000 target needs about 295,000 today at 5% real but about 423,000 at 3.5% real — a 43% difference from a 1.5-point change in assumption. US equities returned roughly 6.5% real over the long run; a broad pool of 16 developed markets sits meaningfully lower, and fees and any bond allocation come straight off the top. Which history you think you're entitled to is the whole answer.

The honest move is to compute the coast number under at least two returns — one hopeful, one conservative — and treat the gap between them as the price of certainty. A coast plan that only works at 6% real isn't a coast plan; it's a leveraged bet on the next 25 years resembling the best stretch of the last 150.

A fixed r pretends compounding is a straight line. It isn't: two decades of real market history produce a wide fan of outcomes around any average, and a coasting portfolio has no new contributions to buy the dips — the classic buffer that makes accumulation so forgiving is exactly what you gave up. With no cash flows the timing of a bear market doesn't change the endpoint, but a below-average two decades leaves the portfolio short of the projection with no mechanism to catch up except returning to saving.

The softer risks compound this. Stepping down from a peak career is often a one-way door — re-entry five years later at the old salary is not guaranteed. Spending tends to drift up, not down, between 40 and 65, and health insurance or care costs can move independently of any market. None of this says Coast FIRE is a bad idea; it says the coast number should be checked against bad histories, not just the average one.

The better question is not "does my portfolio reach the target at r%?" but "in what share of historical market sequences does it reach the target?" A Monte Carlo simulation over resampled market history answers exactly that: in an accumulation planner, set income equal to expenses so nothing new is saved, and read the probability of reaching financial independence by your target age instead of a single projected point. The portfolio that makes it in 90% of simulated histories is materially larger than the one the deterministic formula blesses — that gap is the volatility you're absorbing.

Probability framing also reveals the cheap insurance: keeping a fifth of your old savings rate instead of dropping to zero, keeping one flexible year of work in reserve, or holding the coast decision until the portfolio is comfortably past the threshold rather than exactly on it. Each converts a small amount of extra work into a large cut in the odds of arriving at 65 short.