Why I LOVE Coasting Financial Independence

I love coasting financial independence almost as much as I love the idea of being truly financial independent and today we're gonna be exploring four reasons for loving this part of the financial journey so much let's get started but before we get going be sure to like this video if you haven't already as it really does help out the channel a lot and subscribe with notifications on for more money related videos like this one every single week and if you want to further support this channel you can check out some of the links I've left in the description below which includes a link to the investing platform m1 finance get started investing for free today but before we get into why exactly I love coasting financial independence so much let's first take a moment to talk about what it is exactly and how it differs from traditional retirement savings plans coasting financial independence is a fairly simple thing to understand even if there isn't a widely applicable rule of thumb to help you know once you've achieved it the basic idea is that at some point on your journey to true financial independence you will have saved and invested enough money that you could simply stop putting money away every month and still be able to become fully financially independent and retire at the age you're aiming for so while there isn't a widely applicable rule of thumb like the 4% rule for coasting financial independence there are four variables you can use to figure out when you'll be able to achieve it those variables are the lifestyle you want to have in retirement the rate of return you will earn on your investments between now and retirement the age at which you start investing for retirement and of course the age when you want to become fully financially independent so let's take a look at an example to see how we can calculate coasting financial independence using these four variables let's say that John and Jane are 25 years old they take home $60,000 a year and live on $30,000 a year investing the rest for retirement let's assume that John and Jane's investments earn about 7% per year after adjusting for expenses in inflation which is right around what vanguards S&P 500 index fund has done since 1980 assuming you reinvested your dividends let's also assume that they want to maintain their $30,000 a year lifestyle in retirement and they wish to retire at the age of 55 based on these assumptions John and Jane will require a stake of about 750,000 dollars to be considered fully financially independent at the age of 55 since they're capable beginning to invest immediately they have 30 years to amass that nest egg if they manage to invest that $2,500 a month over the course of just 45 months or three years and nine months an average that 7% return after inflation they would have about a hundred and twenty two thousand six hundred dollars in their nest egg a few months before turning 29 and if they stopped investing completely at that point their nest egg would still grow to be about seven hundred and fifty nine thousand dollars by the time they're 55 and ready to hang up their boots for good that's pretty darn good if you ask me considering they maintain their entire standard of living adjusted for inflation in retirement while retiring a full 12 years earlier than the standard age and to achieve that they didn't even have to spend as much time saving as the average student spends in college getting a degree and mind you this was all done without any assistance from employer matches bonuses pay raises or the like but perhaps the nicest thing about coasting financial independence is that it gets even better for those who don't mind working at something even if it isn't the job you currently have until the standard retirement age hypothetically if John and Jane had worked at least to some degree until the age of 67 they would have been able to start coasting their way into financial independence after just 19 months of investing that's barely a year and a half of investing and a total of just forty seven and a half thousand dollars of their own money and their future is basically set at least assuming they managed to earn seven percent per year after inflation which brings me to the first reason I love coasting financial independence it's often a much more efficient use of money than the standard plans compare our results to what the standard retirement savings plan would look like for John and Jane the standard advice is to save anywhere from 10 to 15 percent of your income for retirement if John and Jane save 10 percent of their income and wanted to retire at the age of 67 with a thirty thousand dollar a year income they would be able to start coasting after some utley a hundred and twenty-one months of investing or about ten years if they bumped it up to 15% they could start coasting after just 71 months or just under six years neither of those time periods are bad by any stretch of the imagination but both are quite a bit longer than the 19 months John and Jane had to invest when they were saving aggressively they also both end up taking more of John and Janes own money to achieve the same goal of future financial independence for example with the 10% savings plan John and Jane are required to save sixty thousand five hundred dollars of their own money and the 15 percent savings plan is a little better but still requires John and Jane to put away fifty three thousand two hundred and fifty dollars of their own money a second reason that I love coasting financial independence is that it gives you greater financial flexibility to weather any unfortunate realities you may experience in the future as well as to pursue other financial goals or just live everyday life for example we assumed a rate of return of 7% per year after expenses and inflation vanguards S&P 500 index fund has averaged about 7.4 percent per year since 1980 at the time of this writing but that doesn't mean it'll continue to do that in the future what would the numbers have looked like if John and Janes future reality was less fortunate then they only averaged 5 percent per year after inflation and expenses well if John and Jane were pursuing coasting financial independence and saving $30,000 a year so that they could retire at age 67 with a $30,000 a year income they would be able to start coasting their way into financial independence after 42 months of investing or about three and a half years that is quite a bit longer than the 19 months we saw before but it's got nothing on the time periods using the more traditional retirement savings plans because say using the 15 percent savings plan John and Jane would have to invest for a hundred and eighty two months before they could start coasting that's over 15 years and assuming they used the ten percent rule of thumb that time frame would jump all the way up to three hundred and seventy eight months or 31 and a half years in total John and Jane and a hundred and five thousand dollars of their own money under the aggressive savings plan a hundred and thirty six thousand five hundred dollars with a fifteen percent savings rate and a hundred and eighty nine thousand with a ten percent savings rate even if we ignore the value that comes from being able to put a larger portion of your income towards other things in life that eighty four thousand dollar difference between the aggressive saving coasting financial independence plan and the ten percent traditional retirement savings plan is a fairly decent downpayment in many places around the country or a very significant portion of a college degree for your kids or grandkids or an absolutely stunning vacation fund take your pick what's even cooler is that if John and Jane decided that they wanted to raise their standard of living in retirement say to the full sixty thousand dollars a year that they earn they'd be able to do it if they had started with the higher savings rate from the beginning under the same assumptions that we just used John and Jane could begin coasting their way into a $60,000 a year retirement with just ninety three months or seven years nine months worth of investing however at least under these assumptions such a lifestyle wouldn't even be achievable by age sixty seven with a consistent 10% or 15% savings rate John and Jane could further secure their financial future by paying off their home early say they have a thirty-year two hundred and forty thousand dollar mortgage with a four percent interest rate at the time they began saving they took seven years and nine months to save for retirement under the aggressive plan and can now turn their full focus to paying off the rest of their mortgage which at this point would have a balance of a little over two hundred and two thousand dollars assuming the same income and expense figures as before this could lead John and Jane to having a fully paid for home in about five years since their mortgage payment was about eleven hundred and fifty a month they would now be capable of living on a mere thirteen hundred and fifty dollars a month assuming none of their other expenses had changed over the time at least either that or their sixty thousand dollar a year income in retirement would just end up going up a lot further than it would have before even if none of those things applied to John and Jane they'd still have anywhere from an extra 500 to 750 dollars a month to throw around for everyday stuff once their future was taken care of and I don't know about you but I think an extra $500 a month could be quite a lot when none of it has to go towards paying off debts saving or investing for the future unless we want it to a third reason I love coasting financial independence is that it will almost always lead to gaining greater levels of financial adaptability than you would have gained had you follow traditional retirement strategies this one is fairly straightforward but can have far-reaching consequences when life happens I mean think about it in John and Jane's case they had to figure out a sustainable way to save 50 percent of their income in order to reach coasting financial independence early in life that knowledge and experience will not only serve them well when it comes to the portion of their lives where they need to save the money for their future but also for any time in their future when money may seem tight if they decide to have kids they already know how to research ways to fit that into their budget in a sustainable way if one of them has a medical emergency they know how they can temporarily tighten their financial belts and dig their way back above ground and they know how to do these things without making their lives totally miserable because they've almost certainly taken some time to figure out what things are worth spending money on and what things aren't regardless of your level of income it's almost impossible to reach this level of financial independence without having at least some restraint a fourth reason I love coasting financial independence is that it can bring a greater sense of freedom and security than traditional retirement strategies this can make it easier for some people who pursue it to make what would otherwise be incredibly difficult decisions regarding their lifestyle or careers we've already talked about changes to lifestyle so let's talk about the career part which can be just as relevant according to the statistics there are a fairly sizable number of people who either don't like their job or just have other things in mind that they would want to do every day even if it may not pay as well when it comes to coasting financial independence it doesn't really matter whether you absolutely despise your job or you don't mind your job but would rather switch to another job that you think would be more fulfilling but doesn't pay as well either way the fact of the matter is if money were no object you probably wouldn't continue working at your current job or at least you wouldn't continue working at that job in the amount of hours that you are now and if sacrificing a couple luxuries here and there for a few years or taking advantage of some savings hacks like we've discussed in previous videos would be worth it to enable you to switch your career or go part-time or whatever the case may be coasting financial independence could be an idea worth considering but that'll do it for me today once again if you enjoyed this video be sure to smash that like button if you haven't already subscribe and hit that bell next my name's you'll be notified of all my future uploads I generally upload every single Monday and if you have a friend that would be interested in this kind of content be sure to share it with them let's really get this information out there and start our own financial revolution

Channel: Next Level Life

Views: 187,123

Keywords: financial education, money, next level life, personal finance, investing, debt, financial freedom, financial independence, budgeting, retirement, early retirement, retire early, ryan scribner, financial diet, finance, stock market, stocks, graham stephan, why i love coasting financial independence, coasting financial independence, coasting fi

Id: 0Ydt9u6lIjk

Length: 11min 56sec (716 seconds)

Published: Mon Mar 09 2020