Helping clients take on the coast FIRE challenge

With Canadians living longer and healthcare costs on the rise, it’s no wonder retirement is a centrepiece of financial planning conversations. But while the vast majority are on the well-worn path of retirement by their 60s, a small but growing cohort are striking out on a different journey.

“The FIRE movement has given people an opportunity to break out of societal norms,” says Andrea Thompson, an advice-only, fee-for-service financial planner at Modern Cents based in Toronto. “Movements like FIRE are opening more possibilities for people to actually formulate the lives they want to live.”

At her practice, Thompson is helping some clients map out a slight variation to the FIRE strategy. She says conversations around that strategy, known as coast FIRE, has tended to be with people in their mid-working years – between age 40 and 50. The coast FIRE movement is also garnering interest among many younger people, including millennials and Xennials, who are self-educating about strategies to live adventurous and unconventional lifestyles.

“Clients who are in later generations have been in the workforce for so long that they don’t really see things changing,” she says. “But I think people who have been in the workforce for less time, and have gone through COVID, are not so entrenched.”

We didn’t start the FIRE

For people who join the traditional FIRE movement, the goal is to achieve financial independence decades before the usual age of 60 or 65. That means aggressively saving and investing to build a nest egg that would let them retire out of the workforce, typically by age 40 or 45.

Those engaging in coast FIRE planning also save and invest aggressively in their first few wealth-building decades, but still aim to retire in their 60s. The goal is to front-load their active retirement saving so that once they reach 40 or 45, they can leave their nest egg to grow passively over the decades, and it’ll be large enough to address their retirement income needs by the time they ultimately leave the workforce.

“The people in this movement are saying ‘I like working, and I don’t necessarily want to stop working right away. But I want to coast on my current savings,’” Thompson says. “That gives them the flexibility to take a step down from a high-stress, fast-paced job and do something they might enjoy more that maybe brings in a little bit less money.”

A blind spot in coast FIRE planning

Thompson says many of her coast FIRE clients feel underrepresented in financial media, which is replete with features and advice columns geared toward mainstream retire-by-65 Canadians. That pushes them to go to online forums and social media for advice, which potentially opens them up to certain risks.

“There’s a lot of the blind leading the blind,” Thompson says. “Influencers on Instagram, YouTube, and the like are great at communicating that this is possible, but the traditional approach is too simplistic … Coast FIRE requires an understanding of tax, account structures, pensions, and investments – not just investments.”

One of the thorniest challenges for coast FIRE planning concerns pension projections. Aside from CPP payments potentially deviating from what people expect initially, she says people have to grapple with longevity risks and unanticipated emergencies. Those can be particularly impactful, Thompson says, given the shorter retirement-saving timelines baked into FIRE and coast FIRE strategies.

“Because we have so many retirement or potentially lower income-earning years to contend with, there are a lot more unknowns,” Thompson says. “Anything can happen in life. How can you mitigate the risks when there’s a sudden change – health changes, family transitions, getting laid off, or even new tax rules?”

Among the vast array of considerations to consider, Thompson urges her coast FIRE clients to keep a contingency fund, which should topped up and left untouched unless for emergency purposes. Insurance planning is also key: would it still make sense for them to carry life insurance, critical illness insurance, or disability insurance between the ages of 40 and 65? For married clients, there’s also the potential impact of a spouse’s death on the surviving partner’s financial picture.

“I think it’s really important to approach the strategy with a cushion to address a sudden financial need or additional ongoing expense,” she says. “We don’t know what’s coming … We have to make sure there’s enough of a buffer and a plan B, or even a plan C.”