Retiring Early: Why The F.I.R.E Movement Might Not Work For Everyone

Emma Lam

Emma Lam

Last updated 26 October, 2022

The popularity of the “Financial Independence, Retire Early” movement acts as a mantra for aspiring youths in the workforce. It teaches frugality, saving aggressively, and investing early. But does it really work? What if it fails?

Do you have what it takes to retire early? With inflation on the rise and a recession impending, our economy’s outlook isn’t looking too good right now. As the folks call it, times are getting harder — especially for those pursuing early retirement.

If you’re a proponent of early retirement, you’d agree that building savings, growing a robust investment portfolio, and spending minimally is the core philosophy of the popular F.I.R.E movement.

The F.I.R.E. Movement rejects the idea of a lavish lifestyle and instead, emphasises spending well below your financial means while generating passive income. They sacrifice and live humbly now for a better future funded by their investments or side income tomorrow.

Essentially, your cash inflow should exceed your cash outflow.

While this is an admirable mindset and practice, does F.I.R.E. always work for everyone? What if it fails for you?

How does F.I.R.E work?

In principle, the F.I.R.E. movement basically revolves around “building a reliable nest egg”. The general idea is to accumulate money through savings and investments throughout your career in order to comfortably retire in your 60s and live off that amount. 

To get a better picture of what this sum looks like, calculate backwards. 

By establishing your life expectancy, desired retirement age, and average annual expenditure during retirement, you can estimate your appropriate retirement fund amount. This amount includes both savings and investments, where you live off investments rather than savings. 

This is known as the 4% rule. Under this practice, individuals endeavour to live off 4% per annum of their assets for at least 30 years. The belief is that withdrawing this minimal amount allows your portfolio to sustain you until the end of your life.

This accumulated wealth is known as a “nest egg”. 

Unfortunately, as you can already guess, the “nest egg” amount for F.I.R.E. retirement is much harder to achieve than that of traditional retirement. The timeframe to grow this wealth is shorter and more stringent — demanding both strict saving habits and considerable income flow just to retire by your 30s or 40s.

To illustrate the differences, let’s compare building wealth under F.I.R.E. retirement versus traditional retirement.

How to calculate “nest egg” amount

F.I.R.E. retirement

Attaining the “nest egg” amount is fairly straightforward but outlines specific conditions:

Characteristics of F.I.R.E. approach

Savings

50% to 70% of recurring income

Earnings

Subject to individual occupation

Total value of savings & investment portfolio

At least 25 to 30 times of annual expenditure

To state the obvious: in order to retire by 35, you have a shorter timespan to grow your wealth while having a longer retirement ahead of you.

In an ideal situation, you’ll need to save aggressively and earn substantially. Unfortunately, the average salaryman doesn’t have the power or authority to inflate their job’s income dramatically.

As a result, many F.I.R.E. followers are forced to significantly save more and spend less simultaneously in their 20s. According to the Department of Statistics, the 10-year average savings rate of Singaporeans is 32.9% of our income. But even this percentage is insufficient.

While that outperforms the suggested 20%, early retirement chasers should save between 50% to 70% of their income. Plus, your annual expenditure needs to remain consistently low.

Estimated annual expenditure

S$2,500 x 12 months = S$30,000

Recommended portfolio value

S$30,000 x 30 = S$900,000 

For example, if you wish to withdraw S$2,500 per month in retirement, you’d minimally need a S$900,000 portfolio.

These portfolios typically consist of low-fee index funds (e.g. S&P 500) that yield a modest 5% to 8% return per annum. 

💡 Pro-tip: Don’t try to time and beat the market. Participating in it through low-risk funds will lead to better profit outcomes in the long run.

All of these calculations are rooted in the 4% rule, a popular method to determine how much retirement funds you need and its safe withdrawal rate. 

Based on past market performances, 99% of retirees were found to be able to withdraw 4% of their portfolio without touching the principal amount at all — thus effectively never running out of money.

Under this rule, you’d only be withdrawing S$60,000 in your first year of retirement. That’s two times more than the predicted withdrawal amount of S$30,000. Your subsequent yearly withdrawals will depend on inflation rates.

For instance, if inflation is at 2% that year, you might choose to withdraw S$61,200 to sustain a projected higher cost of living.

💡 Pro-tip: Flexibility in withdrawals is key to sustaining a self-sufficient portfolio. Stubbornly sticking to the 4% rule while ignoring stock market conditions might exceed and detriment your portfolio’s self-replenishing returns.


Traditional retirement

But how does this compare with traditional retirement funds? Well, it's still simple enough but requires a bit more math, so bear with us.

Estimated retirement period

63 to 83 years old 

Estimated annual expenditure

S$2,500 x 12 months = S$30,000 per year 

Total nominal “nest egg” amount
(before inflation)

S$30,000 x 20 years = S$600,000

Total real “nest egg” amount
(inflation-adjusted)

600,000 / (1 + 0.03)^20 = S$183,934*

Total loss in purchasing power

S$600,000 - S$183,934 = S$416,066

Therefore,
Actual "nest egg" amount required = S$1.96 million**

Assuming the same S$2,500 monthly withdrawals and S$30,000 annual expenditure, you’ll spend a total of S$600,000 across a 20-year period — from the formal age of retirement (63 years old) to average life expectancy (83 years old).

This amount might seem achievable for many of us young adults right now if we remain disciplined and hustle in our youth. However, the caveat is that S$600,000 is the nominal value. It hasn’t accounted for inflation yet.

The real retirement sum needed is much higher after adjusting for inflation. Inflation erodes the purchasing power of idle money.

The rate of inflation averages about 3% per annum over the next 40 years in most developed countries. Currently, Singapore’s core inflation sits at an all-time high of 5.3% in September.

Assuming you are 23 years old now, the projected “nest egg” sum of S$600,000 will significantly diminish over the next 40 years when you retire at 63 years old. By that time, its purchasing power is only about S$183,934*.

That’s a 326% loss or S$416,066 loss in real figures.

As a result, you’ll need to aim a lot higher. To achieve an amount with the same purchasing power as S$600,000 in 40 years, you’ll need at least S$1.96 million** by today’s standards; a little daunting and harsh, but it’s feasible with proper planning.

This is why it’s important that besides saving, build a robust investment portfolio with 4% to 5% per annum returns to help mitigate inflation. 

💡 Pro-tip: Assuming you consistently earn a median salary and diligently save at least 20% of it, you would’ve accumulated about S$500,000 in savings in a high-yield savings account theoretically in 40 years. However, due to inflation and historic-high stock valuations, its purchasing power would be reduced to around S$153,000. 

If you build a balanced, diversified portfolio earning 5% p.a., you’d only need to start with as little as S$2,000 principal amount and afterwards, contribute S$1,500 per month (or S$18,000 per year) via dollar-cost averaging.

Projected investment portfolio (40-year period)

Target portfolio sum

S$1.96 million** - S$153,000 = S$1.8 million

Annual return rate

~ 5% p.a.

Principal amount

S$1,000

Monthly contribution (DCA method)

~ S$1,200 per month

With realistic goals, consistency, and discipline, the road to growing a S$1.96 million wealth portfolio doesn’t look so intimidating, now does it? But now, let’s look at F.I.R.E. retirement.


*Formula = Retirement sum / [(1 + inflation rate) ^ number of years]

**Formula = Retirement sum x [(1+inflation rate) ^ number of years]


Read more:
What is the Average Salary in Singapore and Are You Earning Enough?
How Much Savings Should I Have by Age — 20s, 30s, 40s, 50s
How Much of My Salary Should I Invest?

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Why F.I.R.E. might be successful

Before we can address potential pitfalls, we must first examine what are the typical traits or success factors contributing to achieving F.I.R.E. 

1. 3.3% is the new 4% rule

The creator of the 4% retirement rule, Bill Bengen, posited in his 1994 “Trinity Study” that you should be able to comfortably withdraw 4% of your retirement savings each year. Withdrawing 4% in the first year of retirement is straightforward. In the subsequent years, you’ll need to adjust the withdrawal amount to account for inflation. 

Thus, experts recommend for retirees build a portfolio of about 25 to 30 times their estimated annual expenses.

However, according to a recent study by Morningstar, the 4% withdrawal rate is deemed as too aggressive now. Instead, a new 3.3% withdrawal rate is proposed. This assumes a 50/50 stock and bond portfolio split, in order to leave the principal amount untouched and a “self-replenishing steady flow” of passive income for at least 30 years.

It’s crucial that retirees are flexible in spending during their golden years. The more flexible their spending is, the higher the chance of raising the withdrawal rate over time.

2. Lean F.I.R.E.: Save like no tomorrow, invest for the future

Ditch the 50/30/20 rule, and save between 50% to 70%. There’s no such thing as a conservative saving approach when it comes to F.I.R.E. 

Initially, you’d want to dedicate your savings to building an emergency fund. An emergency fund should be worth three to six months of your income. This is one of the first non-negotiables of personal savings, not even if you’re on a tight budget.

Once done, re-allocate this "savings" percentage into investments instead. The composition of your portfolio depends on your risk appetite.

💡 Pro-tip: For those preferring to invest conservatively, investing in blue chip stocks, ETFs, mutual funds, index funds, bonds, etc. might be up your alley. 


3. Fat F.I.R.E.: Balloon your income

This is the less conventional method of achieving F.I.R.E. Unless you’re self-employed, chances are, your main income flow is dictated by someone else. You wouldn’t have the authority to increase your salary on a whim.

Therefore, a more realistic approach to Fat F.I.R.E. would be to generate multiple revenue streams (e.g. side hustles) to increase the breadth of your earning power, rather than depth. 


4. Earlier financial headstart 

This is another condition of F.I.R.E. shrouded in controversy. 

Understandably, those coming from a wealthier family background with no financial burdens nor dependents like the elderly or children under them (e.g. sandwich generation) are more predisposed to financial independence earlier on. They have greater access to financial resources and fewer obstacles, allowing them to save and invest larger sums at a time.

Although this isn’t a necessary condition to retire by your 30s, such a headstart is definitely helpful if you’re wise and prudent with your money.

5. Open conversation around shared financial goals

For singles, personal finances are a rather private affair. On the other hand, finances among couples function more like an open book.

As a couple, it’s important to work as a team.

After all, you’re working towards a house, a family, and retirement together; you’re earning and investing for your joint future. Therefore, being transparent about each other’s financial goals is necessary if you intend to retire early together.

That said, everybody’s money management and habits are different. It doesn’t have to align perfectly, but you guys should more or less be on the same page with each other. 

For instance, you can share the same savings goal, but the method to achieve it respectively might differ. Or perhaps your partner might earn more than you, hence the contributions have to be proportional.

6. High productivity drive

Last on this list, we have a high productivity drive. While high productivity is praised and rewarded in a meritocratic society, hustle culture can potentially become toxic productivity. 

We place too much emphasis on “chasing the daily grind”, causing many Singaporeans to feel easily burned out or susceptible to imposter syndrome

Chasing F.I.R.E. is a fairly demanding lifestyle and requires significant sacrifices when young. You’d have to eat out less, socialise less, travel less, and the list goes on. It can be tiring to be constantly hyperconscious of your daily expenses to such a degree.


Read more:
What is the “Correct” Age to Retire in Singapore?
How Much Do You Need to Retire Overseas?
Will I Ever Retire in Singapore?

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Why F.I.R.E. might be unsuccessful

1. Requires discipline and sacrifice

As mentioned above, the F.I.R.E. is not for “chill” individuals (no pun intended).

It requires a certain tenacity, discipline, and motivation to live an extremely frugal lifestyle for about a decade before, hopefully, retiring successfully.

At first, many severely underestimate the sacrifice needed; the discipline to drastically cut down expenses is harder than anticipated. 

Many people tremendously overestimate their ability to change their lifestyle habits and cut costs overnight. They lack the willingness to sacrifice their comfort on more extreme ends. 

After all, generating approximately S$1 million worth of savings and investments in your 20s to early 30s is no easy feat. For some, it seems more like a pipe dream.


2. Difficulty in maintaining overall expenses

Forget about cutting costs, some people fail to even manage to maintain a low annual expenditure. This is because your income naturally increases as your career progresses over time. 

This increase in income leads to a corresponding increase in spending power. This makes it harder to resist consumerism, given the stronger inclination to spend more.

Remember, F.I.R.E. is not about maintaining a proportionate ratio between expenses and income. You have to continuously keep your expenses low (as when you started out) as your salary grows. It’s easier said than done.


3. Investments may underperform

Despite the stock market historically performing between 8% to 10%, investments can still underperform. 

Factoring for your portfolio allocation and risk appetite, investments may underperform to the point where you wind up outliving your supposed “self-replenishing” funds.

Then what?

You’d probably have to take up a part-time job, side hustle, or depend on your loved ones to support the remainder of your retirement — which is, of course, less than ideal.

4. Retirement costs might go up

Now, this is an interesting concern because F.I.R.E. is all about planning a retirement fund that’ll last for decades. 

It’s all founded on current assumptions and projections of what future economic climates might look like — for example, it depends on assumptions like average year-on-year inflation rate, estimated costs of living, life expectancy, lifestyle habits, and so on and so forth.

In your later years especially, healthcare costs are another major factor. You can secure all the necessary insurance coverage in your youth, but your state of health is largely unpredictable. Your insurance can only cushion your healthcare costs to an extent before you need to draw on your funds.

Why some people might disagree with F.I.R.E

To understand these reasons, we must first ask ourselves some questions:

  • “How ‘retired’ do we want to be?”
  • “Do we want to retire or do we just want the option of retiring?”
  • “What do you define as ‘fruitful retirement’?”

By now, it’s clear that the tenets of F.I.R.E. are based upon extreme frugality measures.

1. Not practical for everyone

Although the F.I.R.E. approach has proven useful in helping many retire early, its premise relies on one major (problematic) presupposition: you'll need to earn a substantial income even if you save aggressively.

Here are some calculations to visualise:

Source: calculator.net

Assuming a target S$900,000 portfolio with 5% returns per annum over a decade, you'd need to be contributing at least S$5,800 per month for 10 years straight to achieve this lofty goal.

And if S$5,800 technically comprises 50% to 70% of your take-home pay, your gross income needs to be around S$8,825.

For context, the median salary of a 35-year-old in Singapore is only S$6,102.

So even if you work and save meticulously since 25 years old, you won't be capable of financing a S$5,800 monthly contribution into your investments just to attain a S$900,000 portfolio by 35.

Notwithstanding monthly contributions, you'd otherwise need at least:

  1. A principal amount of S$458,000.
  2. Have a portfolio growing at an annualised rate of around 34% p.a. (while investing S$1,200 per month).

These scenarios aren't the most feasible for the average young adult that just started working. No matter how much you save until 35 years old, the chances of you hitting a S$900,000 portfolio are slim.

💡 Fun fact: The top annualised returns reported by roboadvisors like Syfe and Endowus only averaged between 16% to 20% p.a. in 2021.

The only workarounds to this are:

  • You're earning an S$8,000 salary from the get-go,
  • Come from a wealthy background, or
  • Have multiple income channels amassing more than S$8,000.

Out of these, the third option is a popular tactic adopted by many in the workforce today.

Relying completely on your main job as your only source of income lands you in a vulnerable position anyway, especially in times of rampant retrenchment and recession.


Read more:
What Happens If: You Just Got Retrenched in 2022

I Was Retrenched at 26 Years Old and Have No Savings
Are Roboadvisors Worth It? Here's How to Decide
How to Prepare For a Recession: 11 Things You Shouldn't Do
What to Do During a Recession: Investment Portfolio Strategy

2. Not everyone wants to retire early

Detractors of the F.I.R.E. movement agree with the importance of saving and investing early but disagree with its extreme practices.

Early retirement isn’t for everyone. 

This might come as a shocker for some, but it’s true. Some people simply don’t mind retiring at a natural old age and spacing out their youth with a good mix of hard work and leisure. 

A good illustration of this is the popular “I want to retire on a beach” example.

Picture this: Initially, lounging on a beach doing nothing on holiday sounds amazing, but soon after, its novelty wears off and it becomes boring. They start looking for meaning in life elsewhere in the form of chasing passions, interests, and — guess what — taking up a job they actually like. 

With the average life expectancy increasing each year, many don’t realise that early retirement truly lasts long. It might not be as fulfilling as you might’ve hoped for.

In fact, most people don’t necessarily hate having a job nor intend to stop working altogether during retirement. They just want the freedom of option. By attaining financial freedom early on, it allows us to choose whether or not to have an active income or not.

3. Retirement is a spectrum

The F.I.R.E. movement is less so about how much we need, but rather how much we want. It operates upon a gradient of how well we desire to live. 

For the average financially stable person, their lifestyle is often independent of their savings. Because after accumulating enough wealth, money becomes more like capital. 

It’s used less for materialistic purchases and merely reshuffled around your investment portfolio instead. Maybe you’d invest more in blue chip stocks like Apple or Google because of current bear market conditions.

Money becomes a tool that you trade in for time; more time to spend with loved ones, more time chasing your passions and hobbies, and more time exploring the world. Ironically, it’s an enabler of freedom to chase things unrelated to money itself.

4. Gentler alternatives of F.I.R.E.

Judging how the standard iteration of F.I.R.E. might be too intense for some, the community has proposed gentler iterations. These variations emphasise less on growing wealth exponentially and treat F.I.R.E. as a general approach or attitude towards managing personal finance instead. 

Variation

Definition

Coast F.I.R.E.

Refers to accumulating enough investments to cover retirement and then leaving them on “autopilot” growth via compound interest so you can “coast”

Barista F.I.R.E.

Refers to building up a sufficient portfolio to cover your basics, then work part-time to cover the rest


Opposes amassing a wealth of investments to entirely cover retirement 

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Key Takeaways

To reiterate, many people don’t actually want to stop working entirely. They just like having the option of it. 

Many people identify their jobs as a source of purpose if it induces minimal stress while evoking genuine enjoyment. 

Having access to options via financial freedom is liberating. You can sleep peacefully at night without worrying about working and earning money. You can choose to live however you want without financial constraints.

Achieving F.I.R.E. also doesn’t guarantee happiness. 

A recent CNA commentary revealed that some individuals still “found no satisfaction in their accumulated wealth” and identified frugality as a double-edged sword. Yes, it helped them to pursue Lean F.I.R.E effectively, but it crippled their outlook and capacity to enjoy life.

All in all, F.I.R.E. is “a set of principles worth striving for, no matter the outcome”. It’s more akin to a mindset than a destination to reach; because not every decision needs to be financially driven.


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With a minor problem of ‘itchy fingers’ when it comes to checking out at flash deals and sales, Emma is on a lifelong journey to understand what being financially independent in adulthood means. That said, her inner child is still very much alive… with animals and gaming (especially Pokémon) being her weak spot.