What if I told you there was a version of FIRE where you could stop saving for retirement in your 30s and still retire comfortably at age 65? It sounds too good to be true, but it’s called Coast FIRE, and it might be the most achievable path to financial independence that nobody’s talking about.
[intro music]
Hello, hello, hello and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen, and with me as always, is my not-coastal co-host, Scott Trench.
Scott: Thanks, Mindy. Great to be here, and great to discuss how we can help people peak their net worth. You see, not the coast, it’s the mountain peak here on BiggerPockets Money. I’m so excited to get into this topic today. No, coast-FI is not when you go and live by the beach. It is when you have enough saved that traditional retirement is funded with a high probability of certainty, such that you can, at your discretion, optionally, spend everything you earn or earn less to just cover your living expenses today. It’s a very freeing milestone mentally and psychologically.
Mindy: Okay, Scott, let’s get into that a little bit more. What happens in your finances that allows you to coast? What does coast-FI really, really mean?
Scott: I think it’s this concept of if you have $300,000 saved in your 30s, and your goal is a $100,000 a year annual expense profile, then you’re almost certainly at a 7% long term annual return rate, going to have that $2.5 million. And many people use 7% return rates to include assumptions around inflation, for example. You’re almost certainly going to have that $2.5 million inflation adjusted net worth by the time traditional retirement hits. If we perform anything like, um, what we’ve seen performance wise in the, in the overall financial markets over the next 30, 40 years. And so that’s, that’s the idea here is if you, if you are able to stockpile that wealth, especially early in life, and just leave it untouched in your retirement accounts until that point, you should be set for your traditional retirement. Again, assuming long term average trends. And that can be a very freeing milestone to break. It’s it’s much more achievable to think about those numbers and hitting those numbers early in life than it is to building a $2.5 million portfolio in your 30s that can distribute at $100,000 a year, which can be a very, very overwhelming obstacle for many.
Mindy: Did you say you could be set for life with coast-fi?
Scott: That is not what I said, I guess. What a what a pun.
Mindy: Okay, so what I like about coast-fi is that you are saving a more nominal amount instead of this push, like you said, to get to the 1 million or 2.5 million or whatever it is that you have your fi number. Now I’ve taken care of my 65-year-old self. If I don’t wish to work anymore, let’s say you’re in a super stressful job and this job pays really well, you’d rather not work there anymore. You can still go out and get a different kind of job, cover your current living expenses, but not have to worry about being able to save for retirement. You’ve already taken care of your retirement. Or now you can start stepping back your retirement. Let’s say you’re in a job you like or you don’t actively hate, you can continue to work there, continue to save for retirement. And now retirement isn’t 65, it’s 62. And a couple of years later, it’s 58. And a couple of years later, it’s 52. And then you can really start stepping back and creating the life that you want, creating your retirement timeline on your own timeline where you’re not doing this all-out mad dash to grab as much money as you can, save it now so that you can retire now.
Scott: And again, I think that comes back down to that freeing concept. I think a lot of people who are in the FIRE community really obsess over this goal of financial independence, perhaps to an unhealthy degree. And they attempt to break that, again, I use this number 2.5 million because that’s around the midpoint of what bigger pockets money listeners say is their desired target for financial independence. Their fire portfolio has two and a half million dollars, thus allowing them to spend $100,000 a year, adjusting for inflation indefinitely into the future. You know, there’s a a whole bunch of concepts here. You know, I think, uh, Mr. 1500, Mindy’s husband came up with the concept of the death march to FI. And that is a, you know, a phenomenon that people feel. But it’s much, it can take a lot of pressure off you’re like, wow, I’m just going to be so set here at 30 or 40 with just the amount that I have in my retirement accounts. That’s going to compound so nicely over the next 30 to 35 years that I don’t really have to crush it and keep grinding it out. I can, I can ease off in a pretty meaningful way and really begin to enjoy the benefits of the wealth that I’ve built up over this time. So that, that’s the concept of coast fire. It’s a relatively niche, or niche, depending on where you’re from, uh, concept in the fire community. I, I don’t think you’re going to see this as a, as a particularly popular, uh, strategy where people are actually beginning to change things, but it’s a major mental milestone, and you should feel great if you’ve hit coast fire, even if you’re far away from actually being able to today live off of your asset base alone, because it means that you fully funded your retirement in a traditional sense, or you will have a fully funded retirement in a traditional sense by the time you hit a traditional retirement age.
Mindy: So I’m gonna push back on you a little bit, Scott. You said you don’t think it’s for everybody. I think it is for everybody. I think anybody on the path to financial independence should open up a coast-fi calculator and just run the numbers. I think there’s so much comparison to people like Carl and I share our numbers over on his website and people will see that and be like, oh, I’m not there. Well, don’t compare the beginning of your journey to the well past the end of my journey. Look at where you’re at in comparison to, you know, your coast-fi number. The Fioneers have a calculator, a coast-fi calculator where it’s already got some numbers entered in there just to show you what you’re supposed to put in there. And at age 30, if you want to retire at 65…
Scott: Let’s actually do it. Right?
Mindy: Scott, I’m going to share my screen with you. This is the copy of the Fioneers coast-fi calculator. It’s a Google sheet. It’s super easy to use. You’re literally just plugging in a bunch of different numbers. Your current age, age 30. Your target retirement age of 65 is where we’ll start. These are some assumptions. The 4% safe withdrawal rate and an inflation adjusted growth rate of 7%. I think 7% is a little low. I’m going to change that to eight, Scott. And then annual expenses in retirement, 100,000. Passive income, zero. FIRE number 2.5 million. At age 30 to retire at age 65, you would need $169,000 in your bank right now. That is so much more approachable and so much more attainable, especially for somebody who’s just starting out, who might not be making a ton of money, who’s thinking to themselves, how am I going to save $2.5 million dollars? You don’t need to. You only need to have $169,000 at age 30. But what if you don’t want to retire at 65? What if you want to retire at 55? Well, let’s see what that says. Now at age 30, you need $365,000. Playing around with this calculator just gives you some ideas of how easy it’s going to be. Maybe I’m 35. Okay, at age 35, if you want to retire at 55, you need $536,000. That’s still a whole lot less than 2.5 million. So this coast-fi idea is such a brilliant idea. I’ve been in the FI community for a really long time, and in the beginning it was all about frugality and getting to the end as fast as you can. And now, let’s say it takes you 10 years to get to FI with the all-out approach. Those are 10 pretty miserable years and I know this because I did it. But what if it took you 11 or 12 really awesome years? I’d rather have an 11 or 12 year journey that was pleasant than a 10 year awful journey.
Scott: I think that while this should be good news for everyone, this concept of coast fire, I think it’s particularly powerful for young people, right? So, you know, you’re 27, let’s put a 27 year old in there, wanting to retire at 65. And this this person, you know, let’s put that uh return profile at 7% per year, which again is a more conservative approximation of this. I mean, because you have so long between now and that retirement date and then you only need $191,000 saved up at 27 to never have to contribute again to your retirement accounts. This is assuming not another dollar goes in to get your coast fire number. You are likely with if the return profile goes, you know, anything close to historical averages, or even a little worse with this 7% assumption, you are likely to have this $2.5 million inflation adjusted terminal net worth at 65 and be able to withdraw $100,000 in inflation adjusted dollars in those what, 38 years. So it’s a pretty powerful concept. So it’s it’s actually quite, quite achievable I think for many, it’s still a lot of work to get $191,000 saved up by 27, of course, but that’s a very achievable amount of money, I think for for a lot of folks compared to, you know, when you hear about all these folks that are, you know, trying to get into millions of dollars in their late 20s or early 30s and achieve a true early retirement level of wealth at that point in time. I mean this person can spend the rest of their life spending every dollar they make or working a much easier job that’s much less demanding and making less money and not have to contribute. And so it’s a very powerful concept I think, especially for younger folks as a milestone in that journey.
Mindy: Absolutely. And Scott, we haven’t talked about passive income yet. You’ve got rental properties. Give me a number for annual passive cash flow on a rental property. Let’s say somebody has one or two rental properties.
Scott: Our $500,000 rental property ought to, paid off, produce $30 to $40,000 a year. So let’s use $30,000 as a conservative approximation.
Mindy: $30,000 in annual passive income. Oh, look at that. Your FIRE number dropped from 2.5 to 1.75 million and your coast-fi number is now only $133,000 at age 27.
Scott: And you said paid off rental properties. I want to extrapolate on that. Scott is talking about at age 65, this will be paid off.
Mindy: All right, we are going to coast into our first ad break. After this, we’re going to break down exactly how much you’ll need saved in your 20s, 30s, 40s and beyond to achieve coast-fi.
[ad break]
When spring hits, some people suddenly just want to declutter the garage, clean out the closets and get everything all organized. Whether or not that hits you, Monarch will do your financial spring cleaning for you. One dashboard gets your entire financial life organized. No more clutter, no more mess, no more scattered logins, just accounts, investments, property and more all in one place. One of my favorite parts is the Sankey diagram. Every month I open it up and literally watch the flow of money. It shows exactly where every dollar is going from income to all of my spending categories. It makes it so much easier to spot what’s working and what needs tweaking. Get your first year of Monarch for half off, just $50 with the promo code Pockets. Use the code Pockets at monarch.com to get your first year half off at just 50 bucks. That’s 50% off your first year at monarch.com with the code P O C K E T S.
When you’re ready to start your business, Northwest Registered Agent helps you do more than just file paperwork. You get all the tools to build a real business identity from day one. A business address, website, phone number, operating agreement, free guides and more at no extra cost. Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They are the largest registered agent and LLC service in the US with over 1500 corporate guides. These are real people who know your local laws and can help you and your business every step of the way. With Northwest, your business is set up to stand on its own from day one. That means your home address, personal email and phone number stay private. Don’t pay hundreds or thousands of dollars for what you can get from Northwest for free. Visit northwestregisteredagent.com/moneyfree and start using free resources to build something amazing. Get more with Northwest Registered Agent at northwestregisteredagent.com/moneyfree.
I’m skeptical of a lot of financial products but life insurance isn’t one of them, at least not term life. For the vast majority of you listening, term life is simply the right answer. And the smartest way to buy it isn’t one big policy, it’s a ladder. Your need for coverage isn’t flat. It declines over time. You’ve got a 30 year mortgage, a couple of young kids, maybe a spouse in mid career. In 15 years, the mortgage is going to be smaller and the kids are almost launched. So instead of buying one giant 30 year policy you’ll overpay for, you stack a few, say a 10 year, a 20 year and a 30 year layer. So your total coverage steps down as your actual obligations step down. You only pay for what you actually need when you need it. Ethos is a platform that helps you find life insurance 100% online. You can get a quote in seconds and apply in minutes. There’s no medical exam, you just answer a few health questions online. You can get up to 3 million in coverage. Some policies are as low as $30 a month. That makes building a ladder genuinely fast. Get your free quote at ethos.com/bpmoney. That’s E. T. H. O. S. dot com slash bp money. Application signs vary and rates may vary.
[ad break]
Thanks for sticking with us.
Scott: Let’s do this. Let’s have a 35 year old and this 35 year old has just bought two rental properties. So in the time from 20 to 35, they were enabled to amass two rental properties. Those are not generating any cash flow today, we’re not assuming any cash flow whatsoever today. But just over 30 years, two 30 year mortgages on him. By the time that they’re 65, this will generate $60,000 a year in passive cash flow, right? These could be two house hacks between the ages of 23 and 35, for example. Now, now this person, you know, just needs, what is that, $130 grand in their retirement accounts and they’re done. Their their their retirement is a $2.5 million spending level retirement is done. Not counting social security, any other types of benefits, any other type of wealth building. If they just have $131,000 in a 401K for example and two rental properties that are beginning that amortization journey, the amortization of the loan, they’re done.
Mindy: Of course, these are all assumptions. We can’t see into the future, but these are safe assumptions. These are not crazy assumptions. I actually don’t like the 7%. I’m gonna go to 8%.
Scott: You gonna go to 5%?
Mindy: I can go to 5% in a minute. But right now, assuming you had $60,000 in annual cash flow, your coast-fi number at age 35 is now $99,000. And then at 5% return, it bumps up to $231,000. That’s why I like this Fioneers calculator so much. They did all the math for you. All you have to do is change these numbers and go back and forth and play. Oh, okay, I’m 35. I’ve got two rental properties. I’m only making 5%. And I want to retire at age 55. Now I need $376,000 as my coast-fi number. And again, that’s so much more attainable and so much more realistic than 2.5 million at age 35.
Scott: Let’s do a couple of other maneuvers here. Can you make the rental property passive cash flow go to zero?
Mindy: I sure can.
Scott: And let’s make the retirement age 65. And let’s make a 35 year old, by the way we’re not we’re choosing 35 intentionally for two reasons, right? One is this is my age, I’ll be 35 shortly here. And second, this is about the midpoint of the age for people listening to this podcast. So right around that that level here. So if a 35 year old is very conservative in their assumptions, they’re very scared about the future and they say, we’re just going to get a 5% return over the next 30 years, they would need $600,000 saved in their IRAs at the age of 35 to feel comfortable with our retiring. Mindy, let’s go to your more, what I think is more realistic assumption that we’re going to get it closer to 8% return over 30 years. Now you need 250. So either way, 250 or 600, very different than the $2.5 million net worth at age 35 target. Both are much more realistic, much more achievable for many of the people, not everybody, but many of the people who listen to this or watch this podcast.
Mindy: And remember, this is if you get to this age and never put another dime in, you will be comfortable retiring at age 65 with two and a half million. And you would need the $250,000 in your accounts at age 35. If you continued to contribute to your retirement accounts, your retirement age just steps back, marches towards you. You’ve got your money up front and you’re now you’re marching your retirement age back as you continue to contribute a little bit more. So you can be 35 and live a great life. You’re covering your expenses as long as you’re not going into debt, you’ve got your retirement covered. You don’t really have to save anymore and invest anymore. What we did, Carl and I, once we hit retirement, of course, we didn’t believe that Bill Bengen was correct, even though he is. We continued to save. Now, it’s just a game to us. How much can I amass by creatively investing in these other things? We’ve got our safe investments, you know, index funds is I think 50% of our portfolio and then the other 50% we’re like, oh, let’s see what we can do with this.
Scott: One thing to note is that the concept of coast fire, I think is really more of a concept that applies to young people, right? The concept of coast fire becomes less relevant as one gets older or closer to their target retirement age. And just that’s because there’s less time to compound, right? You need to be adding to the portfolio pretty aggressively if you’re starting from scratch and want to build a portfolio like this, $2.5 million mark, if you’re starting at age 50, for example. So to illustrate that, let’s actually put this in there and I think because you have a shorter time horizon, sequence of return and and investment risk in the near term is more of a concern. So I think you have to bring down your assumption on the long term growth rate a little bit or the investment growth rate in order to be conservative enough if you are starting later. So Mindy, I would put this growth rate at 6% for this particular one and then I’d say we’re starting at age 50, what does that look like from a coast fire number?
Mindy: All right, at age 50 to amass a $2.5 million portfolio with a 6% return, you would need to have $1,043,000 at age 50.
Scott: Yeah, and that seems really scary. You do not need to have a million dollars at age 50 in order to retire with $2.5 million. But I just to be clear, you need to have a million if you don’t want to continue adding to your retirement accounts and have $2.5 million under this set of assumptions. But your coast fire is a much higher number. So a 50 year old with a million who wants to retire with 2.5 million would be coast fire, but if they had zero, they could retire at 2.5 million even if they’re starting with zero, they just have to be very aggressive about how much they’re contributing to their retirement accounts. That would be a tall order but possible.
Mindy: Very aggressive. Okay, let’s change that now to age 40, Scott. At age 40, we are cut almost in half, $582,497 that you would need to have at age 40 assuming a 6% return to have 2.5 million at age 65.
Scott: The reason it’s not cut by a little bit more than half is because we’re using a 6% return ratio instead of the rule of 72 at a 10% growth rate here. But yes, you would need half as much in this scenario as you would at 50. So it’s really a young person’s number here, this coast fire calculator, someone that is very far away from traditional, their target retirement date, to determine this number.
Mindy: Okay. And since we’re doing this with, uh, 40, let’s do it with 30. Again, slightly more than half, $325,000 at age 30. And just for fun, Scott, let’s do age 20, $181,000. So if you had $181,000 by age 20, you could safely assume that you would be retiring at age 65 with a 4% withdrawal rate, with a $2.5 million portfolio, if you had $181,000 invested at age 20.
Scott: And I think it’s even more unfair than that, unfair of an advantage to the young person, because I think you can get a little bit more aggressive with your long-term growth assumptions at that point in time. So I think you can bump that growth assumption to 8% in this particular example for a 20-year-old, and now that’s gonna give us a shockingly low number. $78,000. And look, there are a good chunk of 20-year-olds who will amass something in this ballpark or by 25, you know, if you, for example, are working through college or able to fund college, uh, for for a very low cost or for free and are working through high school. I mean, this is an amount that is hard, but possible for some of the Gen Z generation to accumulate. They could be coast-FI by the time they graduate college in some of these cases.
Mindy: Well, let’s do that. Age 22 on the coast-FI journey, you need $91,000 in order to allow that to grow at an 8% rate, which I think is very conservative, to 2.5 million. This is something that’s so interesting. I’m going to make my girls watch me walk through this calculator with them and they are going to be like, “Mom, we don’t care.” And I’m going to be like, “You need to watch this one. This is awesome.”
Scott: One nitpick I have with you, Mindy, on this, and I want to see how you respond to this, this observation. But, remember that the growth rate of 8% is an inflation-adjusted growth rate. So if we assume inflation is going to be at this like 3% mark, then we’re really assuming an 11% nominal return, which many people do attribute to very long-term stock market performance. But I’m not convinced that the 8% return profile, which again is inflation-adjusted, is actually a conservative. I think it’s more realistic and something that you could use as a for a 22-year-old, but not one that I’d be comfortable with using for somebody that’s later in their journey or does not have the full 30, like that full very long-term outlook, um, to go ahead and realize.
Mindy: Okay, I think that’s fair. I said conservative, I meant realistic, I think is the word that I did. But I’ve popped it down to 7%, and now we’re at $136,000. I think for a 22-year-old, that might be a bit of a stretch, but if you go to, you know, 25, age 25, now you need $166,000. I think that’s kind of doable, especially if you’re, you know, 20 with that, what do we say 20 was? $119,000 with at the 7% rate. I just think this calculator is so much fun because you can plug in all these different numbers, it instantly does the math for you, and it really makes this seem way more possible. We truly believe financial independence is attainable for everyone, no matter when or where you’re starting. But the earlier you start, the easier it’s going to be. And all these kids, I know Scott, you had a presentation at BiggerPockets where you were just sharing the concept of financial independence. They said, “But I’m young, I want to live my life right now.” And I thought, now is the best time to be saving.
Scott: Mindy always thinks that, though.
Mindy: I do. I do think. When’s the best time to save money? Right now. After our final ad break, we will break down how a coast-fi portfolio should be structured.
[ad break]
When the change in season hits, some people suddenly just want to declutter the garage, clean out the closets and get everything all organized. And that’s great. If that’s you, or if it’s not you, either way, let Monarch do the financial spring cleaning this year for you. One dashboard gets your entire financial life organized. No more clutter, no more mess, no more scattered logins, just accounts, investments, property and more all in one place. Another feature I love about Monarch is the weekly AI recap. It catches spending spikes before they become problems and flags big net worth shifts or upcoming expenses. It’s like having a quick personal check-in every week so nothing sneaks up on me. Get your first year of Monarch for half off, just 50 bucks with the promo code Pockets. Use the code pockets at monarch.com to get your first year half off at just $50. That’s 50% off your first year at monarch.com with the code Pockets, P. O. C. K. E. T. S.
When you’re ready to start your business, Northwest Registered Agent helps you do more than just file paperwork. You get all the tools to build a real business identity from day one. A business address, website, phone number, operating agreement, free guides and more at no extra cost. Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They are the largest registered agent and LLC service in the US with over 1500 corporate guides. These are real people who know your local laws and can help you and your business every step of the way. With Northwest, your business is set up to stand on its own from day one. That means your home address, personal email and phone number stay private. Don’t pay hundreds or thousands of dollars for what you can get from Northwest for free. Visit northwestregisteredagent.com/moneyfree and start using free resources to build something amazing. Get more with Northwest Registered Agent at northwestregisteredagent.com/moneyfree.
If you’ve been putting off life insurance, I get it. The old process was miserable. Phone calls with an agent, a nurse coming to your house for a blood draw, then waiting weeks to find out what you’d pay for. That friction is exactly why so many people who should have coverage don’t. Here’s what I believe. Most BP Money listeners need term life. And the right move is to build a ladder. A few term policies of different lengths stacked together, so your coverage steps down as your mortgage shrinks and your kids get closer to being financially independent, or you get closer to hitting your financial independence number. The thing that makes that practical now is Ethos, a platform that helps you find life insurance all 100% online. Same day coverage, no medical exam. You just answer a few health questions online. Up to $3 million in coverage, some policies as low as $30 a month. So building a two or three layer ladder that used to take a month of appointments is something you can knock out before your coffee gets cold. Get your free quote at ethos.com/bpmoney. That is e t h o s.com/bpmoney. Application times may vary and rates may vary.
[ad break]
Let’s jump back in.
Mindy: Okay, Scott, so we’ve talked about how much money we need. Where is this money going to be? How should a coast-fi portfolio be structured?
Scott: I think a coast-fi portfolio for the young person that I think the topic is truly meant for, uh, should be a highly aggressive portfolio, right? This is something that’s going to be hitting us at traditional retirement age. For most people using this term it’s going to be a long way off, perhaps more than 30 years. And I’d probably be 100% in an aggressive portfolio concentration, including equities. If there’s money lost, then that person can potentially add to that portfolio to some degree. Most people are not going to truly stop adding in the entirety if they’re, uh, looking for this coast-fi number. And I think it can be very aggressive. And that’s also why I think you can use a little bit more of an aggressive or more realistic very long term assumption for those portfolios. The closer one is to their target retirement date, the more important it becomes to diversify that portfolio and build, get to something that has some more safety in it, right? Um, a traditional answer to that is more bonds. But I think an answer that we like much better than that bond portfolio is the risk parity or golden ratio portfolio we recently learned about from Frank Vasquez. I know both you and I have personally now set up portfolios like that. And that includes a mixture of stocks, bonds, gold, managed futures and international funds, cash, or private equity or some other alternative that’s uncorrelated with the four previous assets. So that that’s the time to move towards that more diversified portfolio is, you know, you can do it gradually. Some people have target date, um, concentrations with these types of things that can handle that. Um, and I know there’s some portion of the community that doesn’t love the concept of target date funds, but it is an answer to that question about how to allocate the funds over this time period. Or, um, another answer to that is when you’re about 80% or five years away from your target retirement date, it’s time to begin building that more diversified portfolio.
Mindy: Yeah, I think that there is a lot of benefit to really researching portfolio theory and portfolio allocations. I agree with you, the aggressive portfolio the earlier you are, and the more conservative portfolio the closer you are to retirement. The risk parity portfolio that Frank walked us through was just really eye-opening to see how kind of stable it’s going to be. I’m super excited to follow along with that and just check in on it. I’m actually, I never understood why people were so obsessed about checking their numbers all the time. And this one, I am obsessed with. I check it multiple times a day. I just leave the Fidelity app open on my computer.
Scott: Nice. Love it. Yeah. So I, I think that, uh, regardless of how often you check it, that concept of the the aggressive accumulation at the beginning and then the diversification as you approach your target number or you’re within a few years of your target date. So that’s the, the key.
Mindy: Okay, Scott, now that we know where we’re putting our money, what accounts are we putting this in? What is the investment order of operations for coast-fi adherents?
Scott: If you’re pursuing coast-fire, then you can leave all this money in retirement accounts. We want to take advantage of the full range of options available to us and let them grow there. So I think this is a very consistent process with the traditional order of operations for FIRE, which is, first, build out your thousand-dollar emergency fund, then pay off any high interest rate debt before you pursue coast fire, take your 401K match from your employer. If you have an employee stock purchase plan or similar offering where you can arbitrage stock immediately for a gain, take that for the employee stock purchase plan. Then we’re going to fully fund our emergency fund with three to six months of expenses. Three months, if you have a more stable income stream and six months if you’re maybe on more entrepreneurial or have potentially more risk in your cash position in the near future. The sixth order of operations step is going to be to, uh, fully fund your HSA, an HSA, which Mindy and I believe is a retirement saving super account for most people. Then we’re going to fully fund the 401K, then the Roth IRA. And then we’re from there, we’re going to take care of any other expenses like 529 plans and, uh, any extra cash can go into an after-tax brokerage. At this point in time, I probably wouldn’t be if I was pursuing coast-fire, paying off low interest rate debt. Um, I’d probably begin building up long-term assets because by definition, um, we’re mostly talking about people who are younger who are pursuing coast-fire.
Mindy: Okay, I think this is pretty similar to the investing order of operations that we suggested in the past. Just because you’re pursuing coast-fire doesn’t mean that your investment accounts are any different.
Scott: I will say that in the context of this discussion for coast fire, I bet you we’re going to get some folks who are like, well, shouldn’t they be maxing out the Roth because we’re talking about a younger person who’s maybe in their lower income years potentially or in a lower tax bracket. And I would say I’m totally fine with flipping the 401K versus Roth prioritization. But I do think that for a coast-fire participant, there could be a bias towards the 401K because implied in coast-fire, I believe, is a low-cost lifestyle where one is maybe traveling a lot, um, living like a local or whatever in their 20s and 30s. And they may have some very low income years, which may allow them to take the dollars that they put into their 401Ks and convert them into a Roth conversion ladder, convert those, those funds in a 401K into a Roth in some of those low income years in a very low tax bracket. So they may be able to save money on taxes and still end up at traditional retirement age with that money in the Roth if they’re pursuing coast fire. So I would bias slightly towards the 401K versus the Roth in this situation, but teach their own and wouldn’t really make a big difference, I don’t think if you flipped it.
Mindy: Okay, now this is where I think it’s very interesting because you and I were contributing to 401K plans at our company, but you were contributing to the Roth and I was contributing to the traditional because I was looking to reduce my taxable income. And now you’re flipping and saying, oh, I think they that they could do the traditional 401K. I would be more inclined for, especially the younger coast-fi pursuers to be in the Roth simply because then you’re not converting down the road. You’re paying the taxes in your lower tax bracket. I think it’s six of one and half a dozen of the other. I really want people to think about where they’re putting their money more so than what account they’re putting it in, just off the bat. Oh, I am specifically doing it in a Roth because I believe my income will be higher or because I believe, you know, something will go on down the right. Or I am reducing my taxable income and I’m doing this on purpose. So whatever you’re doing, whatever order of operations you are putting your finances in, just do it on purpose, not just because Scott said or because Mindy said.
Scott: Yeah, and it’s all about guessing where you what you think is going to happen in the future. And, you know, to answer, I think an implied question there, Mindy, the reason that I invested in the Roth even in a high income tax bracket is because of a fear of the government raising taxes over long periods of time in the future, a belief that the Roth’s promise of distributions and gains being tax-free will be kept over the long term, and then an arrogance that I will be in a high income tax bracket for the duration of my life given my real estate business and and investment interests over time. So if that’s if that, you know, that was one of the reasons why I contributed to the Roth even in a high income tax bracket. That may be an expensive choice for me, who knows? But, um, that’s why I did that.
Mindy: I think it’s funny that you used to be Roth, and now you’re like, ooh, traditional’s good too.
Scott: I am a big Roth proponent. And I will also say that we pulled the BiggerPockets Money audience, and I think a lot of textbook answers to what what account to prioritize would bias you towards the 401K. But half of the people listening to BiggerPockets Money prioritize the Roth, about a quarter the 401K, and about a quarter the HSA. The last bucket being, um, they don’t prioritize the accounts at all.
Mindy: Oh, interesting. Okay. Again, this sounds like people who are answering these questions are doing it on purpose. Whatever their choice is, because it’s on purpose, not because somebody heard something from someone one time, or read it in a book somewhere. So I just, I love that people are thinking. Yay, our listeners are so smart.
Scott: Yeah, so I, Roth is 46%, 401K 30%, HSA 19%, and 5% either do not prioritize retirement accounts or prioritize something besides the Roth, HSA, 401K or their equivalents as I phrased the question.
Mindy: Scott, I think we have done a pretty good job, if I do say so myself, of covering coast-fi, what it is, how to calculate it out. I encourage everybody to go over to thefioneers.com and download their free coast-fi calculator and just play around with it. See where your number is versus where you’re at right now. Your coast-fi number could be closer than you think. Should we get out of here?
Scott: Let’s do it.
Mindy: That wraps up this episode of the Bigger Pockets Money podcast. He is Scott Trench, I am Mindy Jensen saying, “Bye-bye Coast.”
[ad break]
When you’re ready to start your business, Northwest Registered Agent helps you do more than just file paperwork. You get all the tools to build a real business identity from day one. A business address, website, phone number, operating agreement, free guides and more at no extra cost. Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They are the largest registered agent and LLC service in the US with over 1500 corporate guides. These are real people who know your local laws and can help you and your business every step of the way. With Northwest, your business is set up to stand on its own from day one. That means your home address, personal email and phone number stay private. Don’t pay hundreds or thousands of dollars for what you can get from Northwest for free. Visit northwestregisteredagent.com/moneyfree and start using free resources to build something amazing. Get more with Northwest Registered Agent at northwestregisteredagent.com/moneyfree. Bye.
