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.


2016 Year In Review

Every year it is fun to look back and see the bird’s eye view of the past financial year. makes that especially easy to do.

Our spending was heavily weighted by the down payment for an apartment building.

Spending by Category

Taxes normally dominates our spending followed closely by Kids (aka childcare).  This year Travel made a big splash because we took two international trips.  You can read about those trips here and here.

Our asset allocation has also shifted quite a bit over the past year.  Our primary residence and apartment building now make up a significant portion of our assets.

Assets by Account Type

We still have the majority of our assets invested in the stock market under tax advantaged accounts (401ks, IRAs, 529s).  We also have maintained a healthy liquid cushion should life throw us any curve balls.

The apartment acquisition also put us back into the debt game.

Debt By Type

Credit cards balances are still being paid in full every month, but the ‘Loan’ is the mortgage for the apartment building.  At 3.5% for 30 years, I would consider it ‘good’ debt.  We currently have no plans to make any accelerated payments.

Overall net worth (assets – liabilities) trended upward for 2016.

net worth (primary residence not included)

The upwards trend is a good sign that we are living below our means.

In some sillier number comparisons,

we used more water this year than in 2015.  There are likely two reasons for this:  1. Frugal Boy is using more water than when he was a baby and 2. I replaced a super low flow shower head with a medium flow head.

~ 600 cubic feet more water used

Electric usage is also up this year.  There are more gadgets and gizmos in our house.  I also ran power tools quite a bit this Fall while working on the basement remodel.

electric usage

Natural gas usage has remained inline with previous years.  Insulation efforts have not yielded any major changes in efficiency.

natural gas usage

We used approximately 1.3 TB of internet bandwidth this year.

That is a lot of Netflix!