Understanding COAST FIRE Risks
The Reality Check
COAST FIRE involves significant risks that you must understand and plan for. However, with proper planning and conservative assumptions, these risks can be managed effectively.
The key is being honest about the uncertainties and having multiple backup plans.
Primary Risk Categories
- Market Risk: Poor investment returns over decades
- Inflation Risk: Higher than expected cost increases
- Longevity Risk: Living longer than planned
- Healthcare Risk: Rising medical costs
- Sequence Risk: Market crashes near retirement
Risk Mitigation Strategies
- Conservative Assumptions: Use 3.5% withdrawal, 3% real returns
- Safety Margins: Save 10-20% more than calculated
- Backup Plans: Part-time work flexibility
- Diversification: Geographic and asset class spread
- Flexibility: Adjust spending and timeline as needed
Detailed Risk Analysis & Solutions
Market Risk: Poor Long-Term Returns
The Risk:
- • Stock market returns lower than 4% real for decades
- • Japan-style lost decades scenario
- • Extended bear markets
- • Your investments don't grow as expected
Worst Case: 2% real returns = need 50% more savings
Mitigation Strategies:
- • Use conservative 3% real return assumptions
- • Save 20% more than calculated target
- • Diversify globally (US + international)
- • Monitor progress and adjust if needed
- • Have backup plan for part-time income
Historical context: 4% real returns very conservative vs 7% historical average
Sequence of Returns Risk
The Risk:
- • Market crashes right before/during early retirement
- • Forced to withdraw during down markets
- • Portfolio never recovers to target level
- • 2008-style crash at age 62-67
Example: 40% market drop could devastate early retirement plans
Mitigation Strategies:
- • Use 3.5% withdrawal rate instead of 4%
- • Keep 2-3 years expenses in bonds/cash
- • Implement bond tent as you age
- • Have flexibility to delay retirement 2-5 years
- • Consider part-time work during market downturns
COAST FIRE advantage: You have 35+ years to recover from crashes
Healthcare Cost Inflation
The Risk:
- • Healthcare costs rising faster than inflation
- • Need for long-term care
- • Medicare gaps and premium increases
- • Prescription drug cost increases
Healthcare costs have grown 2-3% above general inflation historically
Mitigation Strategies:
- • Maximize HSA contributions while working
- • Budget extra 20-30% for healthcare in retirement
- • Consider long-term care insurance
- • Plan for geographic arbitrage (lower healthcare costs)
- • Maintain good health through prevention
HSA funds can cover healthcare costs tax-free in retirement
Lifestyle Inflation & Goal Changes
The Risk:
- • Your desired retirement lifestyle becomes more expensive
- • Family obligations increase costs
- • Travel and hobby costs higher than expected
- • Social pressure to maintain higher spending
Many people underestimate retirement spending by 20-40%
Mitigation Strategies:
- • Build in 20% buffer above target spending
- • Practice retirement budget before retiring
- • Consider continuing some work for extra income
- • Plan for geographic arbitrage if needed
- • Regular reviews and adjustments of goals
COAST FIRE gives you flexibility to earn more if needed
Assess Your Risk Tolerance
COAST FIRE Risk Tolerance Quiz
COAST FIRE May Be Right for You If:
- You're comfortable with market volatility over decades
- You can handle uncertainty about future returns
- You're willing to adjust plans if needed
- You value career flexibility over guaranteed outcomes
- You can save aggressively for 10-15 years
- You're comfortable with traditional retirement age
Consider Alternatives If:
- You need guaranteed retirement income
- You want to retire before age 60
- You can't handle market volatility emotionally
- You prefer traditional pension-style security
- You can't maintain high savings rates
- You have significant health concerns
Conservative COAST FIRE Implementation
Ultra-Conservative Assumptions
- • 3% real returns (vs 4% standard)
- • 3.5% withdrawal rate (vs 4%)
- • Retire at 67 (vs 65)
- • Save 25% above calculated target
- • Plan for 5% healthcare inflation
Result: Very high probability of success
Backup Income Plans
- • Part-time consulting in your field
- • Seasonal work (retail, tax prep)
- • Online tutoring or teaching
- • Rental property income
- • Gig economy participation
Target: $500-1,500/month in retirement
Flexibility Strategies
- • Geographic arbitrage in retirement
- • Downsizing housing options
- • Healthcare cost optimization
- • Spending adjustment capabilities
- • Social Security timing flexibility
Potential: 20-40% cost reduction