Is Coast FI Right for You? With Roxanne Duckels @FinanceRox | Episode 070

So what I thought was interesting in that Wall Street Journal article is they actually put the calculation in there.

Not surprising.

It's Wall Street Journal, right? So I thought we would potentially just go through that real quick because I think some people hear the term COSFI, but they're not really mathing it out necessarily.

They think it sounds like a great concept, but how do you actually figure it out? So- in that article.

And I will try to put a link in there sometimes when you put a link to the Wall Street Journal articles behind a paywall, but there is kind of a way to create a gift link.

So I'm hoping that I can put that in the show notes.

So maybe you could look there for that.

But the calculation, this is going to get a little nerdy for a second, but the calculation is fairly straightforward and there is an easier way to do it.

And we'll talk about that in a moment.

But basically it's what is the total dollar retirement goal? And then we can talk about how do you even figure that out? And then you're basically solving for how much money would you need today to grow at a certain rate of return over a certain number of years? So those are the variables.

How much are you looking to get to? how many years, and what's the rate of return.

Those are the three variables.

And the math is fairly simple, which is the total amount you're trying to achieve divided by one plus the rate of return, and we're going to talk about rate of return in a moment, to the power of, that's where it gets nerdy, the number of years.

Pretty simple.

Now, there is an easier way.

There's time value of money calculators out there, right? So I tend to use those, my trusty HP 12B1 or 12B2 or whatever it is.

I forget what it is, but it's an app now.

And you're basically saying, what is the future value? Let's use a 35-year-old that wants to retire in 30 years, right? So 35 to 65, they're trying to grow the money over that period of time.

Let's say they want $60,000 a year.

Well, how do we figure out how much money they need to be able to withdraw $60,000? And that brings us to the 4% rule.

Do you want to talk a little bit about that? Because we do need to kind of figure out how we convert $60,000 a year to a total dollar amount.

Sure.

The 4% rule says that whatever number you have, if you can withdraw 4% per year, then you should be good for the long term going forward because accounting for inflation, assuming inflation is 2% or 3%, correct me if I'm wrong on that, that you should be able to pull that out indefinitely and not touch the principal.

And where some people do get this a little bit wrong when they think about the 4% rule, it's 4% of the starting value adjusted for inflation each year.

So in this case, let's say it's $60,000.