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Hi RIP readers, first things first: today, five years ago, I’ve published the first post on this blog.
Happy birthday Retire in Progress 🙂
Ok, enough for a celebration. Let’s get started.
Today topic is a lightweight one, it’s a “on the beach” kind of quick post – in fact I’m actually on the beach for a couple of weeks.
So, while I’m enjoying Apulia’s coast, why not talk about coast… FIRE?
Simply explained, Coast FIRE is a financial milestone that, when reached, it means you can stop saving money (i.e. you can spend all your income) while your current Net North snowballs you into Financial Independence at traditional retirement age (for example, age 65).
There’s a weird loophole, a paradox in this money game that makes me think about it from different angles. Let’s try to decompose it and see where this summer beach thought will bring us.
Sometimes it takes the shape of “the market always goes up”, sometimes it’s the “coast FIRE” concept itself that seems fundamentally wrong. Few times it appears as the “generational wealth responsibility” problem, but most of the time it’s just yet another version of “FIRE-brainwashed utopia, a.k.a. the 4% rule, i.e. multiply your spending by 25 and if you reach that amount of wealth your money will last forevah“.
I think the root of it is that we all believe that the stock market, even for passive investors, will keep rewarding our willingness to handle volatility with an “above inflation risk premium”, forever. Even while we don’t watch. Even across generations.
I mean that we all believe (and kind of demand) that the “money invested, left alone, will grow overtime above inflation”.
It’s a reasonable belief, I also hold it (weakly, though).
but there’s something deeply wrong about it.
“RIP, you keep mining the FIRE foundations, what game are you playing?“
R.I.P. FIRE of course!
Joking, that would have been a great and timely answer and I didn’t want to waste the opportunity, sorry 😀
Btw, it would not be the first time I’d write about the death of FIRE, so I guess you aren’t that surprised after all.
Ok, before we move on, you already know that if you’re on RIP blog you’ll leave the page with more questions than answers, right?
Ok, let’s go.
Also, let’s not challenge (today) the infinite growth hypothesis, and deep dive First Principle into the implications of self growing money.
First question: How long would it take for $1 to grow enough to make you FI?
“What kind of question is this? FI from a single Dollar? Are you kidding me?”
Nope, it’s a logical consequence of this line of thinking. Do you believe in the possibility of FIRE? Do you believe in above inflation passive growth of a basket of investments?
Then you must accept that a Dollar left alone for enough time can make you FI!
The trick is in “for enough time”. It will take a while 🙂
Ok, let’s set aside the unfeasibility of investing a single dollar (thanks to minimal investable amounts, fees, and so on) for now.
Same question can be presented as Can Highlander Connor MacLeod coast FIRE with $1?
The disturbing truth is that yes, he can.
Given some assumptions (documented in this spreadsheet), it will only take 360 years to grow $1 into a FIRE amount 🙂
Well it won’t be a nice ride, especially at the beginning, where your dollar would grow so slowly while your needs would skyrocket thanks to inflation.
It will take 24 years for your portfolio to cross $5, meanwhile your expenses would have doubled by then (at 3% inflation per year).
But given “enough” time (360 years for our Highlander), the exponential compounding of investments will presumably – not challenging the assumptions today – outpace the also exponential growth of your expenses!
Yes, you can retire with $1!
Ok, but then why there’s “generational wealth” in the post title?
Well, the same coastFIRE math can be used to plant small “FIRE Trees” for your descendants.
For example, for each $1 FIRE Tree you plant today you can gift a pack of great(N)-grandnephews freedom by year 2400, in the rare case where robots, UBI, staking on DogeCoin, and FED still printing money wouldn’t have created abundant wealth for everyone already.
But I discovered nothing, Futurama geniously showed the magic of “one dollar coast FIRE”, actually 93 cents, back in 1999.
[Nerd note: somebody over at r/futurama verified the math]
Apparently 0.93 cents compounded at 2.25% for 1000 years grew to 4.3 Billions Dollars. Of course they “forgot” to take inflation into account in the show. Futurama world seems to have prices still in line with late 1990s, while banks kept offering high yields on checking accounts for the previous 1000 years… ok, very unlikely to happen (it’s already not happened). Amazing episode anyway, we can forgive the inaccuracy 🙂
One Thousand Dollars
Ok, with $1 in a single lifetime or two (or 5) you can’t do much. Let’s raise the bet to $1k.
According to the spreadsheet, you only need 179 years to coast FIRE now! Wow, half the time compared to the $1 example!
If you invest 1000 dollars today, you can grant someone freedom ($3000/month of today dollars) by the year 2200.
This is something similar to what Benjamin Franklin did with the Ben Franklin Fund back in 1790.
Good guy Ben 🙂
Do you want to have a kind of large impact on the world? List a few causes you care about, metaphorically put “$1k in a bottle” for each one of them, and let the bottles automatically open (a smart contract?) in year 2200 with the following message attached:
Hey “cure for cancer” folks, here is a treasury chest containing 3k of “2020 Dollars” each month that you should spend as you wish for your cause!
What? Cancer has been cured already? Awesome! Well, now you have $3k/month in beers to celebrate the fact!
What? Alcohol has been banned in 2111 and FIAT money is worthless now? Hey, listen to me: if you ever invent resurrection machines do not bring me back: I don’t want to live in such a crazy planet!
What? Most of humans live on Mars by now? Wait, is the offer for resurrection still valid?
I like this game, let’s keep going.
Freedom by 18
What if I want to gift my daughters with “freedom by age 18”? How much do I need on their birth date?
Well, I assume 2k CHF/month forever is a good proxy for freedom, a nice leanFIRE amount. Let’s also reduce the SWR to 3.25%, the Big ERN SWR for 60 years time horizon.
Here’s the spreadsheet:
Well, there’s some good and bad news.
The bad news is that I’d need to invest 372k CHF per daughter. Very early freedom is expensive, even if you start on your birth date.
The good news is that I could theoretically do that, for each one of my 3 daughters. Sorry Baby#1, you’ll get your freedom at age 21, you’re guilty of already being 3 years old.
Anyway, I’m against giving kids undeserved and unearned freedom so I’m sorry, I’m not walking that way 😀
Coast FIRE on your Birth Date
But what about giving them “freedom by traditional retirement age”? Well, let’s assume that traditional retirement age will still be 65, and that money still matters, life expectancy is in the neighbourhood of what we’re comfortable with today, FIAT money still matters, robots haven’t taken over, people running the simulation we live in haven’t shut it down already and so on. I know, the assumptions start to appear weak.
But anyway, this is a summer post, let’s not challenge the unchallengeable.
Well, at least I can use a 4% SWR for a traditional retirement, but let’s set the spending target back to 3k/month.
Here’s the spreadsheet:
Well, now I’d “only” need 75.6k CHF per children.
In 65 years of compounding the nest eggs would turn into 6.15M, which is the inflation adjusted FI amount to guarantee 3k/month in 2020 money.
Again, I’m assuming a 7% investments return per year and a 3% inflation rate.
Are they pessimistic expectations? I don’t think so.
Will the math hold for 65 years? I don’t think so either.
We’re extrapolating from the past. First Principle Thinking & Black Swan frequency suggest it can’t hold for that long.
Where is the bug? I can’t see it but I can feel it.
Fees and taxes aside, who’s going to execute this “contract”?
- A trust? Extra fees coming.
- A smart contract? Maybe in the future they could work, they’re currently useless for real problems like this one at the moment.
- Me? Well, I trust life extension research but in 65 years I’d be 110…
- Them? Well, maybe if I last until 100 they can inherit their funds and wait 10 more years until age 65, but what if I check out at age 80 or earlier? They’d be 35 (or younger) by then. Quick pause: just a reminder for you to have kids before age 45 guys, it sucks to be an old parent. My grandma became my grandma at age 42… Back on track. Will they have the guts to hold on their coastFIRE money for another 30 years? Will they get tempted to waste it in a trading course on sale for just 999,997 New Italian Liras?
Ok, stop being altruistic, let’s focus on myself and my needs.
Our Coast FIRE
What if I stopped saving money? What if I moved another step in the FIRE Spectrum and stopped saving from now on, working just enough to cover our expenses? How much will our investments grow by the time I reach traditional retirement age?
Spoiler: this might be happening soon. I’ll downshift to working 60%, option 10, more about it in a future post 😉
Here’s the spreadsheet:
Few assumptions have been made: Pillar 1 kicks in in year 2042, expected expenses at age 65 equal to our current 12 months rolling average (which might be a pessimistic expectation), 5% investment return and 1% inflation rate in Switzerland.
Well, we’re already at coastFIRE level even in Switzerland!
Our wealth would reach FI levels on its own in 17 years, by the time I’d be 61 years old even without Pillar 1 expected pension. Considering Pillar 1 pension maybe we can cut a year or two. Not bad, except that “just working enough to cover our expenses” means covering 7.5k CHF per month for us, which is a lot, and maybe that’s an optimistic amount of expenses for the next 10 years, with 3 young kids. It’s not a BaristaFIRE amount of money. It’s a salary of several full time jobs combined for 95% of the world population.
Plus I’m not considering wealth taxes, fees, taxes on dividends, and the fact that achieving “5% returns per year on our entire net worth” requires investing almost all of it – which I’m not right now.
So maybe we’re not even CoastFIRE after all 🙁
Playing with CoastFIRE is almost as funny as playing with FIRE, and in my opinion it is an even bigger delusion than FIRE itself. The number and the magnitude of assumptions you need to make dwarf even the naivety of the 4% rule.
But thinking in CoastFIRE terms has many benefits compared to FIRE:
- You stop dreaming of quitting your career very early, in fact the line of thinking is “i can stop saving from now on, but i will keep working until 65”.
- It forces you to think long term and remain flexible.
- You can always change your plans until traditional retirement age.
- It still forces you to live below (actually “at”) your means.
- It’s just retirement planning, essentially.
“But RIP, do you know that you can stake your stable coin for 6% returns…“
That’s all for today 🙂