Calculate when you can stop contributing and let SCHD dividends power your path to financial independence
You're on track! With your current savings and SCHD's dividend growth, you can reach Coast FIRE at age 45. After that, you can stop contributions and your portfolio should grow to reach your retirement goal by age 65.
Age | Portfolio Value | Annual Dividends | Contributions | Milestone |
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Coast FIRE (Financial Independence Retire Early) is a milestone where you've saved enough money that, without any additional contributions, your investments will grow to support your retirement at your target retirement age.
Once you reach Coast FIRE, you can "coast" to traditional retirement by simply covering your current expenses without needing to save additional money for retirement. You've front-loaded your retirement savings, allowing compound growth to do the heavy lifting.
To calculate your Coast FIRE number:
SCHD (Schwab U.S. Dividend Equity ETF) offers several unique advantages for a Coast FIRE strategy:
Aggressively save and invest in SCHD during your early working years. Maximize contributions until reaching your Coast FIRE number.
After reaching your Coast FIRE number, you can reduce or eliminate retirement savings while continuing to work to cover current expenses.
When you reach your target retirement age, your SCHD portfolio should have grown sufficiently to support your retirement expenses.
Consideration | Details | Strategy |
---|---|---|
Market Volatility | Stock markets, including SCHD, will experience ups and downs | Use a conservative growth rate in your calculations; consider a larger safety margin |
Inflation Risk | Higher inflation can erode purchasing power over time | SCHD's dividend growth helps offset inflation impact over long periods |
Healthcare Costs | Medical expenses often rise faster than general inflation | Consider a higher annual expense estimate or specific healthcare savings |
Tax Implications | SCHD dividends are qualified (lower tax rate) in taxable accounts | Strategic account placement (taxable vs. tax-advantaged) based on time horizon |
Sequence Risk | Poor returns early in retirement can deplete portfolio faster | SCHD's dividend focus provides income without requiring principal sales |
Traditional FIRE (Financial Independence, Retire Early) requires accumulating enough assets to fully retire early, typically 25-30 times your annual expenses. With traditional FIRE, you stop working completely once you reach your target.
Coast FIRE is a milestone on the path to traditional FIRE. You've saved enough that your investments will grow to support traditional retirement without additional contributions. You still need to work to cover current expenses, but you don't need to save for retirement anymore.
Think of Coast FIRE as reaching the summit of a mountain and then being able to "coast" downhill the rest of the way, while traditional FIRE is reaching your final destination.
SCHD has several characteristics that make it well-suited for a Coast FIRE strategy:
However, the "best" ETF depends on your personal financial goals, risk tolerance, and time horizon. Some investors may prefer:
SCHD offers a balanced approach that provides both current income and growth potential, making it a strong candidate for Coast FIRE strategies.
While SCHD can be a valuable tool for Coast FIRE, there are several important risks to consider:
To mitigate these risks, consider building in a safety margin, diversifying across multiple assets, periodically reviewing and adjusting your plan, and potentially making small additional contributions during your Coast phase if financial circumstances allow.
Dividend reinvestment plays a crucial role in a SCHD Coast FIRE strategy:
During Accumulation Phase: Reinvesting dividends accelerates portfolio growth through compounding. SCHD's dividends are automatically used to purchase additional shares, which themselves generate more dividends. This compounding effect can significantly reduce the time needed to reach your Coast FIRE number.
During Coast Phase: Continuing to reinvest dividends while coasting maximizes the growth potential of your portfolio. Each reinvested dividend increases your share count, which increases future dividend payments in a virtuous cycle.
During Retirement: In retirement, you'll likely stop reinvesting dividends and instead use them for living expenses. However, the larger share count you've accumulated through years of dividend reinvestment will provide more income than if you hadn't reinvested.
Our calculator assumes dividends are reinvested until retirement, which is typically the most efficient approach for maximizing long-term growth. If you plan to use dividends for income during your Coast phase, you'll need a larger initial Coast FIRE number to compensate for the reduced compounding benefit.
While SCHD can be a strong foundation for a Coast FIRE strategy, diversification across multiple assets is generally prudent. Here are some diversification strategies to consider:
A common approach is to start with a more aggressive, equity-heavy portfolio during your accumulation phase, then gradually increase allocations to more conservative investments as you approach retirement. The specific mix depends on your risk tolerance, time horizon, and financial goals.
Calculate potential dividend income and growth from your SCHD investment over time.
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