Retirement Savings Coast Number

One interesting thought experiment when planning for retirement is thinking about your coast number.  What is a coast number you ask?

Let’s take an imaginary man, Frank, for our little thought experiment.  Frank is diligently saving 20% of his income into a 401K or IRA that is mostly invested in equities.  For arguments sake, the retirement vehicle will produce 7% returns every year.  Frank wants to retire at the age of 65, when he can pull social security benefits.  If Frank front loads his retirement savings, there may come a threshold when he can stop saving 20% of his income because the investments will grow enough on their own to secure his retirement at age 65.

That threshold, is what I am calling the Coast number.

To calculate the coast number, we need 3 inputs.  We need to know or guesstimate the Rate of Return that the investment vehicle will kick off every year.  We need to know the goal amount to be saved and we need to know how much is currently saved towards the goal.

The continuous compounding formula is A = Pert where A is the goal amount, P is the starting amount, r is the rate of return, and t is the time it takes to get there.

Say Frank wants $25,000 a year from just his retirement savings after he turns 65.  According to the 4% safe withdrawal rule, he would need a total amount of $625,000 in retirement savings to do that.  If he has already saved $75,000 then we can calculate his coast number.

(1/r) * ln(A/P) = t

(1/.07) * ln (625000/75000) = t

t=30.29 years.

Subtract 30.29 years from his planned retirement age of 65 and we can see that he can stop contributing to his retirement accounts and coast on the savings a little before his 35th birthday.

Of course, for the majority of the population, the coast number would be somewhere in our past.  The whole point of this exercise is to see if you front loaded your retirement savings to take advantage of compounding interest, when could you theoretically stop saving for retirement.

You can use the calculator below for your own hypotheticals.  They don’t have to be retirement related.  Perhaps you are saving up for a house down payment or other large expenditure.