Deliberately coasting to FI?

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Fish
Posts: 555
Joined: Sun Jun 12, 2016 9:09 am

Re: Deliberately coasting to FI?

Post by Fish »

@black_son_of_gray: I like this concept, it's a blend of FU money and semi-retirement.

There is a catch, though. If the "coasting" income is only sufficient to meet expenses, then the time to FI is entirely subject to the investment returns. Suppose a 60% savings rate, and assume 6% real investment returns. If the person starts with 50% of the net worth goal (say 12.5x, with a target SWR of 4%), then continuing to work will result in 25x being reached in 4.9 years. If semi-retiring to a 0% savings rate (without touching investments), then 25x is reached in 11.9 years. This is just 7 more years, but freedom starts immediately. Sounds great!

Now take the same example, but instead of 6% investment returns, let's use a less optimistic assumption and compound at 4%. If continuing to work, 25x is reached in 5.7 years (an increase of less than 1 year). However, the semi-retirement case now reaches 25x in 17.7 years. The rift widens to a point where it is nearly indistinguishable from normal semi-retirement. Table 1 can be used to explore several possibilities. Maybe instead of targeting a 0% savings rate in semi-retirement, something more like 30% would considerably reduce the variability of the FI date due to investment return uncertainty. However, to achieve a 30% savings rate in semi-retirement requires 43% more work or serendipity.

Table 2 is just simple arithmetic but the point is to show that at these higher (optimistic) rates of return, the person is already essentially FI with 12-16x expenses saved. In any case, the idea compares favorably to saving 25-33x in a high-powered job and waiting until FI to start developing new skills and alternative sources of income. There's a real risk of over-accumulating (i.e. could have left the job earlier) because net worth is already in runaway mode at the time new income sources are added. Yet another reminder that FI is not a discrete net worth but rather a fuzzy and somewhat subjective milestone.

Table 1 - Years to 25x/33x from Net Worth Midpoint

Code: Select all

                       Years to 25x/33x     Years to 25x/33x
  Job        Job      From 50% NW Target   From 50% NW Target
Savings    Savings     (Compound at 6%)    (Compound at SWR)
 Rate      Per Year       25x     33x         25x     33x
-------    --------   ------------------   ------------------
   0%        0.00        11.9    11.9        17.7    23.4       
  10%        0.11        10.7    11.0        15.3    20.2
  20%        0.25         9.6    10.1        13.0    17.2
  30%        0.43         8.4     9.1        11.0    14.5
  40%        0.67         7.3     8.0         9.1    12.0
  50%        1.00         6.1     6.9         7.3     9.7
  60%        1.50         4.9     5.7         5.7     7.5
  70%        2.33         3.7     4.5         4.1     5.5
  80%        4.00         2.5     3.1         2.7     3.5
  90%        9.00         1.3     1.6         1.3     1.7
Table 2 - Investment Growth Per Year, Normalized to Expenses

Code: Select all

Starting                     Real Rate of Return
Assets       0%     1%     2%     3%     4%     5%     6%     7%
----------------------------------------------------------------
 10.00     0.00   0.10   0.20   0.30   0.40   0.50   0.60   0.70
 12.00     0.00   0.12   0.24   0.36   0.48   0.60   0.72   0.84
 14.00     0.00   0.14   0.28   0.42   0.56   0.70   0.84   0.98
 16.00     0.00   0.16   0.32   0.48   0.64   0.80   0.96   1.12
 18.00     0.00   0.18   0.36   0.54   0.72   0.90   1.08   1.26
 20.00     0.00   0.20   0.40   0.60   0.80   1.00   1.20   1.40
 25.00     0.00   0.25   0.50   0.75   1.00   1.25   1.50   1.75
 33.00     0.00   0.33   0.66   0.99   1.32   1.65   1.98   2.31

black_son_of_gray
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Re: Deliberately coasting to FI?

Post by black_son_of_gray »

@Fish: I won't argue with the math of your argument, and I see your point. My opinion has evolved since my OP. I see it as more of a way to learn a set of ERE Wheaton level 6+ skills years earlier while getting paid to do it! What has changed most for me is an internalization that I don't want to purely rely on financial assets, for two reasons.

One: As far as I'm concerned, 25x, 33x, or 50x are approximately equally useful to me, so I would much rather have [15x expenses plus a bunch of useful skills and experience]>>[50x expenses and less time left in my life]. Of course there is an individual calculus here, and not everyone values the same things as much, but I see this as an important form of diversification.

Two: A key point here that I think draws me to this idea concerns my desired lifestyle. I'm learning that I really derive a lot of meaning out of "creating" and contributing to the community around me in some obvious way (does not include crafting derivative financial products, for example). Doesn't mean I want to do that 40 hours a week, but I see myself wanting to do that at least a few hours a week (maybe 10-20) for the rest of my life. I have a habit of getting really absorbed by hobbies, so who knows maybe I'll end up working lots! Not being mega-wealthy keeps me with at least a tiny amount of skin in the game. Furthermore, if 1) I'm always learning new skills and 2) deriving enough income from the learning of new skills and 3) plan to keep on doing that in some capacity until I am traditional retirement age (at least)... then what do I care about any return rate over inflation? The money is primarily just FU money and buffer to carry me from one interest to the other. So maybe the 'coasting' doesn't need a destination.

Fish
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Re: Deliberately coasting to FI?

Post by Fish »

@black_son_of_gray: The purpose of the math was to characterize this idea in terms of existing personal finance concepts. Is it something new? That's what I wanted to explore.

If the destination is important, the Rule of 72 tells us that 7.2% real returns are needed to compound from half of goal assets to the target within 10 years. Seems rather optimistic. There is also the observation that during the accumulation stage, compounding at best matches a 50% savings rate in terms of speed. FI is already reached when investment returns exceed expenses. So the "coasting" is more like "crawling" if there are no savings while working the job.

This being said, if the destination is not important, this can be a very useful strategy for those who want an earlier exit and don't have an aversion to doing things that most other people would classify as work. In a sense it's a more robust form of semi-retirement since investments are only used as a safety net. For those who already intend to pursue a Jacob-like approach of continuing value generation into retirement, it allows living the FIRE lifestyle with lower assets than traditional FI dictates. All it requires is a flexible definition of "financial independence" and "retirement."

The classification is the least of our concerns but it combines the security of FU money, the optionality of semi-retirement, and the skill acquisition of the ERE renaissance ideal. How this differs from traditional FI is that it brings human capital into the equation. If one is always willing and able to engage in paid activities to meet their expenses, then assets become irrelevant. Of course, this is not compatible with the purist beach towel definition of FI. In terms of personal finance, this is just the normal work-spend dimension, but less leveraged due to considerable savings and higher skill of living. Back to the beginner level but with fresh eyes.

heyhey
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Re: Deliberately coasting to FI?

Post by heyhey »

I switched out of employment to be self-employed. I have done a semi-ER while still working. My definition of "work" has become so vague, it is hard to say how much time I spend on it, but let's say I aim for 4 hours a day but often do less. This could have been a massive fail financially, but it would not have been difficult for me then to call a halt and find another j.o.b. I do believe this is easily possible, especially for those of us who have work experience in tech/web environments, and are not risk-averse (e.g. I do not have small children, which would make me more risk-averse). One has to be prepared to take a chance and potentially to go back to the cubicle situation if the self employment doesn't work out... but having accepted that, the risk is minimal.

I understand the wish to express the possible returns in numerical terms, but I'm not sure it can be done. One has to spread ones wings and coast.
Last edited by heyhey on Fri Sep 30, 2016 7:37 pm, edited 1 time in total.

Fish
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Re: Deliberately coasting to FI?

Post by Fish »

On second thought I don’t see this path as a return to the beginner level. With a paycheck-to-paycheck mentality, consumption is limited by income. This type of person has not reached their "enough" point. @black_son_of_gray’s proposal reflects post-scarcity thinking where efficiency wrt income generation is sought in dimensions other than financial. That is, considerations besides maximizing hourly rate and total income come into play as homeotelic solutions in goal-space are sought.

FBeyer
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Re: Deliberately coasting to FI?

Post by FBeyer »

Once you have even a few years savings stashed away, you're free to choose any strategy towards FI that you desire.
Contrary to popular belief, you're free long before 4% WR.

SustainableHappiness
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Re: Deliberately coasting to FI?

Post by SustainableHappiness »

You can look up my journal if you want more details, but my wife and I are implementing a very very similar outline to what black_son_of_gray stated. We've been off for about 8 months with our first baby and are not planning on returning to full-time work, or even the same employers. We'll be teaching/freelancing (me), starting part-time small business (her). The 8 months has been a good test at very reduced income as we've been on only Unemployment cheques, which is how Canadian maternity leaves work, and I brought in my first $500 of contract income last month...woo woo!

Anyways, we've been still accumulating net worth and our anticipated income should have us still straight-up accumulating $5-10K a year still, without market growth. I'll be working ~15-25 hours per week, depending on the week and she'll be working...??? no idea, but not much, Baby SH and his future siblings are the priority for the next ~10 years, then once they are all in school who the hell knows?!

Interestingly though, it took me 5 or 6 months before I fell into a comfortable life groove, literally, I now wear sweat pants a lot.

SustainableHappiness
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Re: Deliberately coasting to FI?

Post by SustainableHappiness »

Oh, and we are doing all this with roughly 15x spending. We're FI in mind, therefore numbers are less relevant.

FBeyer
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Re: Deliberately coasting to FI?

Post by FBeyer »

SustainableHappiness wrote:
Tue Apr 17, 2018 8:49 am
... I now wear sweat pants a lot.
Hallmark of the free :lol:

7Wannabe5
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Re: Deliberately coasting to FI?

Post by 7Wannabe5 »

Good plan, so long as you aren't semi-depending on passive income from continued sales of rare book inventory as opposed to conservative return from stock market equities (sigh.) Still, highly unlikely that I will persevere at working full-time-for-other again even long enough to hit 10X spending, and if I do it will likely only be because I switched jobs 10X too. That's one of the perks of not giving a rat's azz about having a career or a coherent resume, because it's just about the stash/roll. Of course, it's easier to just hop from one new curve to another if your overall spending is low enough that $15/hr full-time = 75% savings rate.

black_son_of_gray
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Re: Deliberately coasting to FI?

Post by black_son_of_gray »

@Augustus

Long answer in my journal. (Thanks for spurring me to update it!)

Short answer is that I'll probably be implementing a transition to this strategy in a couple of months. I can sympathize with the decision calculus of part time for a long time or full time for a short time. I'm still open to high-paying full time job for 3-5 years if one just falls in my lap. I'm leaning a little bit away from that right now, though, simply because I've never not had a full time job as an adult, and I want to experience what that is like before I make a judgement as to what better fits me.

SustainableHappiness
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Re: Deliberately coasting to FI?

Post by SustainableHappiness »

I'll be honest the switch to sweat pants was not deliberate. My jeans (which should not even be called jeans because they only lasted me <2 years after purchasing for a redneck wedding) wore away in the crotch from biking around with them on so I switch to sweats and slush pants over top from riding in the snow/rain. I've just never looked back because it's just a better way to live... :)

Stupid crotch-less jeans.

wolf
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Re: Deliberately coasting to FI?

Post by wolf »

JamesR wrote:
Fri May 29, 2015 6:16 pm
I am planning on going "semi-ERE" at only 12x. I will leave the job and switch to part-time freelancing.
Did you switch to part-time freelancing?
How is semi-ERE?

TopHatFox
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Re: Deliberately coasting to FI?

Post by TopHatFox »

I like this idea. Save up some $ and then enjoy your life while saving up some more. The less time we can spend stressed out in offices, the better. I’ve found that work mates that you meet while volunteering or doing part-time, supplementive work tend to care about you more. That compared to colleagues in a full-time office job, who tend to to take you and the work for-granted, like something that just is and doesn’t need to be shown appreciation.

Truthfully, relying on standard asset classes is starting to seem more like a religion compared to the security of « can I live simply and show up to freelance this week for 10-20 hours »

AnalyticalEngine
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Re: Deliberately coasting to FI?

Post by AnalyticalEngine »

What do you all think of the coasting strategy in today's investing environment? If we are looking at 10+ years of flats/minimal returns, is coasting still a good idea?

Fish
Posts: 555
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Re: Deliberately coasting to FI?

Post by Fish »

@AE - I view coasting as a lifestyle decision, not a wealth strategy. For someone who hasn’t yet “made it”, going from saving+compounding to compounding only is a huge loss of financial firepower unless SR was low to begin with (<20%). Assuming flat returns takes compounding out of the picture and makes coasting even worse. Then the relevant question is not “can I still coast from 50% to 100%” but rather “do I have the right asset allocation?” This is because the AA becomes more influential for time to FI at lower savings rates. For analyzing coast FI, I find it helpful to use the Portfolio Charts portfolio growth calculator with these settings (start=50% progress to 4% SWR):
  • Starting value = 12,500
  • Annual contribution = 0
  • Goal = 25,000
Some example portfolios which demonstrate variability in years to FI are: 1) 100% TSM, 2) 100% LT bonds, 3) Permanent Portfolio (25% each of: TSM, LT bonds, ST bonds, GLD)

On another note, coasting seems remarkably similar to the recent “semi-ERE” phenomenon with the one difference that coast has a destination while semi-ERE *is* the destination. It doesn’t surprise me. The FIRE movement seems to emphasize achieving financial security by multiple means: job, assets, low expenses. If paid work is a given, may as well choose something enjoyable and/or sustainable.

classical_Liberal
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Re: Deliberately coasting to FI?

Post by classical_Liberal »

I think it's always a viable strategy, but it depends on you. I completely agree with @fish, this is a lifestyle decision. FI in itself is only part of ERE. So is the goal to reach FI, or to reach a lifestyle that is spent more in renaissance-man quadrant? I'm going to use @fish's excellent comment from a different thread to try and illustrate the difference. viewtopic.php?p=120448#p120448

I also feel somewhat called to defend the idea of semi-ERE, since I'm the one who started using it regularly in my journal. Please note, that when I began to use the term to describe my goals, I did not take the time to create an exact definition for the term. It simply seemed like the best way to describe my goals. I view semi-ERE as a form of ERE, without FI. Where as semi-retirement is a form of E-ER, without FI. Where one wants to place costing to FI on that spectrum is up to them, I don't feel obligated to clarify that term.

If goal is ERE, in both the book and blog posts, Jacob clearly points out FI is not a prerequisite for this lifestyle. Although the freedom FI brings from a time and choice perspective makes it easier to pursue and simply living ERE will likely create a surplus of wealth leading to FI. Many people on the forum use their form of ERE without FI level financial assets and, in my opinion, kick my butt in terms of ERE. As a result of those anecdotes, along with a plethora of others where folks who reached FI found they end up earning such a surplus of wealth it becomes a burden, there may be a better way than 100% salaryman ----> FI---->100% renaissance man.

I think, if someone realizes they are going to produce value and/or they are planning to spend some time in one or more of the other three quadrants anyway, waiting until FI to make lifestyle changes can be huge mistake. Particularly if current lifestyle is not providing adequate happiness, stimulation, or purpose. It also causes too much focus on "the number"/FI, which inherently shifts focus to E-ER from ERE, even if that's not what was intended. Someone making this lifestyle choice should be careful to examine any other causes of life dissatisfaction though. Often times internal changes are what is needed, hence should be the first order of business. It's only when the end goal is only FI that asset valuations, as a proxy to the time to goal, really matter. Otherwise all one really needs is enough to buy into preferred lifestlye, sufficient cashflow to maintain lifestyle, and systems in place to ensure the cashflow isn't disrupted.

mooretrees
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Re: Deliberately coasting to FI?

Post by mooretrees »

When people who are considering this 'coasting' path, do they plan on drawing down some from saved assets? Or are they planning on covering basic living expenses and saving small amounts from part time work?

2Birds1Stone
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Re: Deliberately coasting to FI?

Post by 2Birds1Stone »

I can only speak for myself, so take this with a grain of salt....

Our plan, now that we have significant assets (15-20x annual expenses) is to live off the cash/bond portion of our portfolio while not earning income, supplementing with paid work sporadically (whether that's PT/FT/Seasonal etc), and letting the equities side grow. There may be a year or two with a positive savings rate (adding to the portfolio), years of 0 earned income, and years where we live off of the income and simply let the portfolio grow*.

Were were in a situation where another 2-3 years of FT white collar salaryman type work would have gotten us to "our number". But what I've noticed with myself and others here and elsewhere, is that often times we keep moving the goalposts further and further out, never actually decoupling ourselves from our high incomes. Therefor, we are experimenting with Semi-ERE now, and really focusing on designing the type of lifestyle we believe will give us satisfaction/happiness/purpose or whatever you want to call it. It also gives us practice in optimizing our spending to possibly bring our overall number down (to bring 3% of assets closer to our actual spending), and to learn other means of getting shelter, food, hobbies, than simply spending income or saved assets.

*unless we are in a bear market and assets tank while we spend our monies! (which is looking like the scenario for 2020)

Jin+Guice
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Re: Deliberately coasting to FI?

Post by Jin+Guice »

@mooretrees:

My "plan" is to work intermittently and part-time. I'd like to not draw down on savings until I have an investment plan (my ERE weakness is investment knowledge), but I'm not opposed to drawing down on savings if I need some time off or start up capital. Currently I'm working a job I don't really like but, it's highly paid and has a lot of time off. I can maintain a 50% savings rate working 1-2 days/ week. Eventually I hope to leave this job to do something I like more. I really don't like working less than 1 day a week or more than 3 days a week (unless I'm getting paid to do something I am really into, which I doubt will happen again). I'm planning on working at least 1 day a week, basically until I die. I also believe I'll hit 33x annual barebones spending sometime in my 40s (I'm currently 32 and am about 50% of the way there). I plan to take at least one year off per decade. Once I think I've figured out how to make money off of my investments, I'd like to spend a year drawing down on them to see how it feels.

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