CoastFI: Can You Really Stop Saving for Retirement Once You Reach One Number?
A recent article introduced an increasingly popular financial concept called CoastFI: the point at which you have accumulated enough investments that, theoretically, you no longer need to contribute another dollar toward retirement.
The concept sounds remarkably simple.
Suppose you are 35 years old and want to have $1.8 million when you retire at 65. If your existing investments can compound at 7% annually for the next 30 years, you would need approximately $236,000 invested today.
Leave that money invested, make no further contributions, and mathematically it could grow to approximately $1.8 million by age 65.
You would not be financially independent today because you would still need enough income to pay your current expenses. But you could theoretically stop worrying about saving for retirement.
That is the “coast” in CoastFI.
The article suggests that reaching this milestone can give people considerably more freedom. Someone might take a lower-paying job, leave a stressful career, take time away from work or start a business because future retirement contributions no longer need to consume as much of their current income.
It is an attractive idea, particularly for younger people who have saved aggressively early in their careers.
But how much confidence should you place in that number?
The Formula Works
Let’s start by giving CoastFI credit where it is due.
The mathematics isn’t particularly controversial.
The calculation is essentially:
Amount required today = Future retirement target ÷ (1 + investment return)years until retirement
Using the example above:
$1.8 million ÷ 1.0730 ≈ $236,000
If you invest approximately $236,000 for 30 years and actually compound your money at 7% annually, you will end up with approximately $1.8 million.
The problem isn’t the mathematics.
The problem is everything the mathematics assumes.
Critique #1: What Does “$1.8 Million” Mean?
Before calculating how much you need today, we should probably ask a more fundamental question:
Why do you need $1.8 million at age 65?
A retirement portfolio isn’t normally the objective itself. The objective is to generate enough money to support your desired lifestyle.
That means we should first think about future spending.
How much will you need for housing? Travel? Healthcare? Family support? Lifestyle?
And how much income will already be available from other sources?
Without answering those questions, $1.8 million is simply a number.
There is an even bigger issue if that $1.8 million represents today’s purchasing power.
Critique #2: Thirty Years of Inflation Changes the Answer Dramatically
Suppose you want the equivalent purchasing power of $1.8 million today when you reach age 65.
If inflation averages 2% over the next 30 years:
$1.8 million today ≈ $3.26 million in 30 years
Now repeat the CoastFI calculation.
If investments earn 7%, you would need approximately $428,000 today to reach $3.26 million in 30 years.
The original simple calculation suggested approximately $236,000.
Accounting for 2% inflation increases the amount to approximately $428,000.
Same person. Same retirement age. Same 7% investment return. Very different answer.
This is why long-term financial projections need to distinguish between nominal returns and real returns.
If your investments earn 7% but inflation is 2%, your real return is approximately 4.9%, not 7%.
Critique #3: A Small Change in Investment Returns Creates a Big Change in the Answer
Thirty years is a long time.
Nobody knows exactly what investment returns will be over that period.
If we express the $1.8 million target in today’s purchasing power, the approximate amount required at age 35 changes significantly depending on the real investment return assumed:
| Real annual return | Approximate amount required today |
|---|---|
| 3% | $742,000 |
| 4% | $555,000 |
| 5% | $417,000 |
| 6% | $313,000 |
The difference between assuming 3% and 6% isn’t a minor adjustment.
It changes the answer by more than $400,000.
This doesn’t make financial projections useless. It means they should be treated as scenarios rather than predictions.
Critique #4: A Canadian Doesn’t Retire on Their Investment Portfolio Alone
The calculation becomes even more interesting when we apply it in Canada.
Most Canadians don’t enter retirement with a single investment account from which every dollar of retirement spending will come.
Potential sources include CPP, OAS, employer pensions, RRSPs and RRIFs, TFSAs, non-registered investments, rental properties, corporate investments and business assets.
That means we shouldn’t necessarily start with:
“I need a $1.8 million portfolio.”
We might instead start with:
“How much after-tax income will I need each year, and where will it come from?”
Suppose part of your future spending will be covered by CPP and OAS.
Your investment portfolio only needs to fund the remaining gap.
For an incorporated professional or business owner, there may also be significant assets accumulated inside a corporation.
That leads to another problem with a simple CoastFI number.
Critique #5: $1 Million Isn’t Always $1 Million
Imagine three Canadians who each tell you:
“I have $1 million invested.”
The first has $1 million in a TFSA.
The second has $1 million in an RRSP.
The third has $1 million of investments inside a private corporation.
Do they have the same amount available for retirement?
Not necessarily.
TFSA withdrawals are generally tax-free.
RRSP withdrawals are generally taxable.
Corporate investments introduce additional tax considerations because the investments are owned by the corporation and funds eventually need to reach the shareholder personally if they are going to fund personal spending.
Even within a non-registered portfolio, the tax consequences depend on whether returns come from interest, dividends or capital gains.
A retirement calculation based solely on gross investment balances can therefore create a false sense of precision.
For Canadians, a more meaningful calculation ultimately needs to consider after-tax spending power.
Critique #6: Business Owners Have Another Assumption Hidden in Their Wealth
There is an additional issue for entrepreneurs.
A business owner may say: “My company should be worth $3 million when I retire.”
Perhaps it will.
But the expected future sale price of a private business isn’t the same thing as $3 million sitting in a diversified investment portfolio today.
The future value depends on profitability, the industry, potential buyers, how dependent the company remains on the owner, transaction structure and the tax consequences when the business is eventually sold.
For some entrepreneurs, the same business provides both their current income and a large portion of their expected retirement wealth.
That concentration deserves consideration before deciding that they have already accumulated enough to coast.
Where We Think CoastFI Gets Something Very Right
After all those criticisms, you might think we don’t like the concept.
Actually, we do.
We simply think the most valuable insight isn’t:
“You can stop saving.”
It is:
“Accumulated wealth can eventually give you permission to work differently.”
Consider someone who has spent 20 years building a successful professional practice.
Perhaps maximizing annual income made sense at 35.
Does it still make sense at 55?
If retirement is already substantially funded, maximizing every additional dollar of income may no longer be the most important objective.
The person might choose to work four days a week. Take longer vacations. Spend more time with family. Reduce the least enjoyable part of their practice. Start another business. Invest in something they care about. Or gradually transition into retirement rather than treating retirement as an abrupt event that begins on their 65th birthday.
That is a much more interesting interpretation of financial independence.
Don’t Ask Only “Can I Retire?”
Traditional retirement planning often focuses on one question:
When can I retire?
CoastFI introduces another question that may actually become relevant much earlier:
When have I accumulated enough wealth that I no longer need to maximize my income?
We would take that question one step further.
The real objective of accumulating wealth isn’t necessarily to reach a particular account balance.
It is to create choices.
Your CoastFI number can be a useful checkpoint. But before making a major career or financial decision based on it, test the assumptions behind the number.
Inflation matters. Investment returns matter. Taxes matter. Government benefits matter. Where your investments are held matters. Your business matters.
And, most importantly, what you actually want your money to accomplish matters.
A spreadsheet can tell you when your investments might reach a certain number.
It cannot tell you when you have enough.
That requires a much broader conversation.
This article is intended for general informational purposes only and does not constitute tax, investment, legal or financial advice. Individual circumstances vary, and professional advice should be obtained before making significant financial or retirement-planning decisions.