In this post, we’ll show you how to calculate when you’ll reach CoastFire, using an easy-to-use CoastFire calculator that factors in your age, monthly contributions, asset growth, inflation, and expected spending in retirement.

What is CoastFire? Check out this blog post for more information.

The CoastFire Calculator below will help you figure out when you’ll hit this point, based on factors like your current age, retirement age, current assets, monthly contributions, and expected asset growth. Simply input your values, and it will give you an estimate of when you’ll reach CoastFire and how much you’ll need at that point.

Here’s a CoastFire Calculator that helps you find your financial freedom point:

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How to Use This CoastFire Calculator

1. Input your current age and retirement age.
2. Enter your current invested assets and your monthly contributions.
3. Adjust the expected annual growth rate of your investments, and the inflation rate.
4. After entering the values, the calculator will show:
   • The age when you’ll reach CoastFire.
   • The net worth at that point, when you no longer need to contribute to your retirement savings.

The math behind the CoastFire Calculator is rooted in compound interest, the 4% rule for retirement withdrawals, and basic future value calculations. Here’s a breakdown of how it works:

1. Future Value of Investments

First, we need to determine how your investments grow over time. Investments in the stock market or other assets typically grow at a certain annual rate (e.g., 7% per year, as in the example). This growth is compounded over time.

The average 30 year annual return on S&P500 invested assets is close to 10%.

Formula:

The formula to calculate the future value of an investment is:

Future Value Formula:

FV = P * (1 + (r-i)/n)^(nt)

Where:
FV = Future value of the investment
P = Principal (initial investment)
r = Annual growth rate (as a decimal)
n = Number of compounding periods per year (monthly = 12)
t = Time in years
i = Inflation rate

However, in our calculator, we simplify the monthly compounding process by adding the monthly contributions and applying the annual growth rate minus the inflation rate every month (monthly growth rate).

2. The Role of Monthly Contributions

Along with the initial investments, we assume that you’re contributing a fixed amount each month. For example, if you’re investing $3,000 per month into the S&P 500 (which has an average annual growth rate of 7% in this case), each month, you’re adding more to your total assets. These monthly contributions also grow at the same annual growth rate, which compounds over time.

So, the calculation is split into two parts:

• The growth of the initial investment over time.
• The growth of the monthly contributions.

For simplicity, we add the growth for both contributions and initial investments monthly.

Example:

Let’s assume:

• Initial assets = $30,000
• Monthly contributions = $3,000
• Annual growth rate = 7%
• Inflation = 3.5%

We calculate how much the investments will grow each month and add it to the total balance. We keep doing this until the total value reaches 25 times your annual spending, which is the target amount to reach CoastFire (based on the 4% withdrawal rule).

3. The 4% Rule (Retirement Spending)

The 4% rule is a guideline used by financial independence proponents. It suggests that in retirement, you can withdraw 4% of your total savings each year without depleting your funds.

To calculate the target assets for CoastFire:

Target Assets Based on the 4% Rule:

Target Assets = Annual Spending * 25

Where:
Target Assets = The total amount of money you need to accumulate
Annual Spending = How much you plan to spend annually during retirement
25 = The number of years you can withdraw at 4% per year without depleting your funds

So, if you want to spend $80,000 per year in retirement, you need:

Target Assets=80,000×25=2,000,000

The goal is to reach this target amount through your investments. Once you have that amount saved up, you can stop contributing to the investment and let your assets grow on their own.

4. Adjusting for Inflation

Inflation has a significant impact on the purchasing power of currency. As time progresses, inflation leads to an increase in the cost of living, indicating that a fixed sum of money will have diminished value in the future.

In our calculator, we incorporate the inflation rate to modify the annual growth rate of your investments. For instance, if you anticipate an inflation rate of 3.5% and expect your investments to appreciate by 7% annually, we subtract the inflation rate from the annual growth rate, resulting in 7% – 3.5% = 3.5%

5. When Do You Reach CoastFire?

Once the total invested assets (with growth and monthly contributions) reach the target amount (25 times the annual spending), you have achieved CoastFire.

The calculator runs a loop:

• It adds the monthly contributions to your investment.
• It applies the growth rate monthly(Adjusted for inflation).
• It calculates the future value of the investments.
• It continues until the total assets reach the target, indicating that you no longer need to save for retirement—your investments can grow on their own to fund your future.

The time it takes to reach this target determines your CoastFire age. The age is calculated based on how many months it takes to reach the target from your current age.

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