Have You Saved Enough to Coast Until Retirement? Here's How to Know.

Key Points

• The Coast FIRE movement is all about reaching a savings milestone and taking the pressure off the latter part of your career.

• Before you decide to stop saving for retirement, assess your portfolio and future income needs.

• Remember that contributing toward retirement savings could also result in a very attractive tax break.

If you dig around long enough on the internet, you're apt to come across stories of people who embraced the Financial Independence, Retire Early (FIRE) movement and exited the workforce at remarkably young ages. FIRE encourages people to hustle and save aggressively early in their working years so that they can ditch their careers when they're fairly young.

But there are some big problems with the FIRE movement. Not only does it often require a lot of sacrifice, but it could also potentially put you at risk of burnout.

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Also, there are financial risks. Even if you accumulate a lot of money, retiring at 38 or 42 or even 50 means your savings have to last a really long time. A few million dollars could easily run out if your expenses rise at a faster rate than the returns your portfolio generates.

It's for these reasons that an alternative approach to retirement may be more ideal for you -- Coast FIRE. With Coast FIRE, you don't retire early so much as build up a lot of savings early on so you can coast through a good chunk of your career.

The logic is that if you fund your savings enough by a certain age and then invest that money wisely, you can potentially reach a point where you can stop saving and take an easy job that's just enough to pay your bills until you retire at a fairly traditional age.

Here's what that might look like. Say you're 45 with $1.5 million socked away in your individual retirement account (IRA) or 401(k) plan. If your portfolio generates an annual 7% return, which is a few notches below the stock market's average, and you leave it alone until age 62, you could be sitting on about $4.7 million at that point.

In light of that, you may decide that starting at 45, you're going to abandon your stressful, high-paying job and take any old job that covers your yearly bills. That way, even if you can't contribute to your retirement savings further, you'll still be OK.

It's not a bad approach to retirement savings at all. But it's also important to know when you've saved enough and to recognize the pitfalls of this strategy.

Make sure you have a handle on your portfolio and income needs

Coasting until retirement is a reasonable compromise for people who are burned out at work and feel they need a break. It's a risky thing to retire in your 40s, at which point your savings may need to last another 50 years. Retiring in your 60s is a less risky option, as your savings may only need to last 30 years at that point.

But there's absolutely nothing wrong with making your life easier during that gap between your 40s and 60s, or whenever you reach the point of burnout. The key is to make sure you're truly in a strong enough place to stop saving.

One way to know is to estimate your future expenses. And that means being honest about the lifestyle you'll be happy with.

A lot of people tell themselves they'll be content to downsize in retirement and spend minimally, only to realize that's not such a fun adjustment. Think about what a realistic lifestyle will cost you and build in some margin for error -- for example, if healthcare expenses rise at a faster pace than projected or Social Security benefits do end up undergoing substantial cuts, leaving you with less monthly income.

Another important thing to do is to assess your portfolio. If you're going to stop saving for retirement at a fairly young age, you need to make sure your assets are on the aggressive side.

This doesn't mean you have to take on loads of risk. A portfolio that largely consists of S&P 500 index funds, for example, may be more than reasonable.

However, you don't want to invest too conservatively if you're going to reach a certain point in your savings journey when you say enough is enough. Any money you save today to live on in the future needs to grow at a faster rate than inflation.

Think about what you're giving up

Another thing to consider is that if you stop funding your IRA or 401(k) plan at a fairly young age, you may be giving up a significant tax break. This especially holds true if you're someone who has been maxing out a 401(k).

Also, 401(k)s commonly offer the benefit of an employer match. If yours is generous, that's free money you shouldn't be so quick to say no to. In that scenario, it may be reasonable to fund your 401(k) only to the point of your workplace match to avoid having to forgo your employer contribution.

If you're midway through your career, or at another point where you're still a good number of years away from a traditional retirement age, and you're happy with your nest egg thus far, you may be ready to call it quits on the savings front and coast the rest of the way through.

That's perfectly OK, provided you've run the numbers. And it may be an optimal compromise that allows you to build up nice savings for retirement without having to spend the next decade or more grinding away when you've had enough.

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