For years I’ve been motivated to reach financial freedom by 45. I started a side hustle to accelerate our savings goals, and eventually turned that into a full-time entrepreneurial pursuit. Now that I’ve left my day job and can work on my own terms, it feels like I can finally coast towards financial freedom.
I’ve never been a fan of the traditional FIRE movement – mostly because of the ‘retire early’ aspect of FIRE (plus the emphasis on extreme frugality). But the concept of Coast FIRE is something I can get behind.
Coast FIRE is when you have enough saved early in life that you can meet your retirement needs by simply leaving your portfolio alone to compound and grow. No more contributions needed. That means the flexibility to dial back work without the pressure of having to maintain a high savings rate. Work and earn enough to meet your spending needs while your investments do their thing.
This reminds me of the parable of the twins – a tale told by banks and financial advisors about the power of compounding.
One twin starts investing early, setting aside some amount every year from age 25 to 35 and then stops. The second twin doesn’t start until age 35, but then invests the same amount every year until age 65. Assuming an identical rate of return, who ends up with the larger portfolio? The first twin does, by far, thanks to compounding over a long period of time.
That got me thinking. I’ve saved a bunch of money already (by age 41). I left my 9-5 day job to do something I truly love. The nature of my work means I can take on as few or as many assignments and clients as I want. Is Coast FIRE for me?
My RRSP and TFSA are maxed out. My wife’s RRSP is maxed out and by next year she’ll have maxed out her unused TFSA room. We started investing excess business income in our corporate account last year. We expect this account to be worth close to $200,000 by the end of 2021. By then we expect to have a total of $900,000 invested across our various accounts.
On the income side, we pay ourselves dividends from our business. Once my wife has caught up on her unused TFSA room we can scale back the amount we draw from the business. We have a sizeable emergency fund saved in cash to easily cover 10-12 months of spending.
I shared in my recent net worth update that I plan to intentionally work less in the second half of this year. We also have big plans to re-create our cancelled 2020 trips (fingers crossed) in 2022.
So I decided to run some numbers. I wanted to see what our financial plan would look like if we no longer contributed to our corporate investing account, and only contributed the annual amount to each of our TFSAs*, plus the kids’ RESPs**. That’s $17,000 per year saved on the personal side of our budget instead of the $56,000 we saved in each of the last two years (catching up on unused room).
*Hey, I can’t stop filling up our TFSAs.
**Hey, I can’t turn down the 20% matching government grant.
I figured we could reduce our business revenue by 35% – 45% and still meet our business expenses and personal spending needs. Reducing revenue could be as simple as no longer taking freelance writing assignments, and/or limiting the number of new fee-only financial planning clients I take on in a year.
The result is a less hectic, more balanced lifestyle. I can still do what I enjoy doing – writing about personal finance and investing, and helping people with their financial goals and retirement plans. But thanks to our diligent savings and hard work over the past 10 years I can ease my foot off the gas pedal when it comes to earning and saving more money.
At the heart of the Coast FIRE movement is the concept of ‘enough’. When John D. Rockefeller was asked how much money is enough, his answer was “just a little bit more.”
I’m pushing back against that idea. I don’t need to earn multi-six figures. I don’t need to build a corporate empire. I don’t need to save half my income for no good reason other than to grow the pile.
One of the reasons I left the hospitality industry early in my career was because I saw what happened to senior management and executives – they became burnt-out workaholics. That’s not for me.
So we’re going to allow ourselves to slow down. We’re going to let our sizeable and sensible investments ride for the next decade or more, contributing only modestly to our TFSAs along the way. We’re going to travel more (when we can), and enjoy more family and leisure time.
I have no intention of retiring early. I love helping people with their finances, both generally through the blog and also specifically through one-on-one financial planning. I feel like I have a lot more to contribute to the financial health of Canadians.
But the pressure is off now. I’m taking the Coast FIRE path from here on out.