Is FIRE for you?

By Lorna Tan
Head, Financial Planning Literacy

If you’ve only got a minute:

• FIRE or Financial Independence, Retire Early is a lifestyle movement defined by frugality, robust savings, and investing with the goal of retiring earlier than the traditional retirement age of 65.
• An alternative to FIRE is FIRM: Financial Independence Retire Meaningfully. Rather than retiring early, the focus is on achieving sustainable financial freedom via a resilient long-term financial plan, while living life with purpose.
• There’s no one-size-fits-all approach to retirement. What’s more important is figuring out what you want out of life and leveraging your financial plan to achieve it.

This article was first published in The Business Times.

The notion of achieving financial freedom and being able to retire early is attractive to many – thus, the FIRE or “financial independence, retire early” lifestyle movement, defined by frugality, robust savings and investing with the goal of retiring earlier than the traditional retirement age of 65.

Essentially, you want to work very hard (for some, this means taking on more than one job) to save lots of money and investing it whilst young, with the aim of quitting your job ahead of your peers and enjoy financial freedom.

But if you delve deeper into it, there is more to FIRE than meets the eye. For a start, there are different approaches.

Types of FIRE

Depending on your preferred type of lifestyle and saving habits, there are 4 methods.

Lean FIRE

Lean FIRE is about lowering your standard of living to achieve early retirement. You would be most frugal, cutting costs and tracking expenses. You aim to lead a modest retirement lifestyle – retire with a smaller amount of savings, spend below your means and live very simply.

However, many people have criticised this form of FIRE as being unrealistic and unsustainable, like having to eat “chye png” or economy rice every day. U may also be too fixated on getting income flows early in life and as a result are unable to enjoy fully the benefits of compounding over the years.   

Fat FIRE

With Fat FIRE, you enjoy a higher standard of living and want to lead a more comfortable retirement lifestyle. Your goal is to have more nest egg to take care of your needs and wants, travel and enjoy the finer things in life.

You don’t mind retiring later since a longer time horizon is required to save and invest to grow passive income flows that can last you comfortably through your golden years.

Barista FIRE

With Barista FIRE, you do not mind working part-time or taking on a side hustle to supplement your retirement income, instead of retiring fully. By doing so, you could be potentially insured by the company’s grp health insurance and may delay tapping into your nest egg. This style sits between Lean and Fat FIRE.

Coast FIRE

The more common versions of FIRE either require very low spending, high income, or a mixture of both. You are also expected to give up work when you retire. Coast FIRE is different.

In this approach, you save and invest diligently – leveraging on compounding - until you reach a target amount of nest egg for your future retirement. Then you coast from that point till your eventual retirement in your 60s.

The idea is to save aggressively in your early working years until your portfolio reaches a point where you hit your Coast FIRE number. In other words, that amount’s expected growth would meet your future retirement needs. At this point, the only thing you need to worry about is covering your current expenses. You can even reduce how much you save each month.

With Coast FIRE, you don’t leave the workforce early, but you have the option to shift to part-time work; have a lower paying, but more fulfilling career, or take extended breaks from work.

Pros and cons of FIRE

The FIRE movement has reportedly empowered its followers to inculcate robust saving habits, diligently monitor cashflows, keep a tight rein on unnecessary spend and focus on growing income and wealth early. The testimonies of Fire-followers show that it is possible to save more than the guideline of at least 10% of monthly pay while actively getting more bang for your buck.

However, some approaches – particularly Lean FIRE - calls for sacrifices such as delaying gratification when it comes to the nice things in life, such as holidays fine dining, and usually require a person to live very frugally. This mode of living is not something that many can pursue.

The biggest assumption of FIRE is that you would still be alive upon achieving financial freedom - but we all know that is a big assumption. You may fall sick at any time, and will inevitably grow old. Once the opportunities to spend time with loved ones are gone, they may not appear again.

Life doesn’t start only after you have attained financial freedom. Every day is precious, and we need to live a purposeful life now, within our financial means and with a holistic plan.

You should also factor in the danger of underestimating your retirement expenses. This is because over time, things change. It is difficult to estimate accurately, decades beforehand, how much you will need to spend in retirement. To mitigate this, adopt more conservative assumptions and have a buffer.

As your career evolves, and you get used to a higher standard of living, some of wants may become needs. For example, watching Netflix for entertainment has become a necessity since Covid-19, for me.

Desiring for the finer things in life, such as travelling to more far-flung places, would mean incurring higher costs and that might creep into your desired retirement lifestyle. So you would need to review constantly, inflation-proof your plan and close the money gaps.

Stay FIRM instead

An alternative to FIRE is FIRM: Financial Independence Retire Meaningfully.

Rather than retiring early, the focus is on achieving sustainable financial freedom via a resilient long-term financial plan, while living life with purpose. There is no need to be pressured by the need to achieve a magic number by retirement or meeting a looming retirement deadline.

As you get closer to your golden years, inculcate a retire habit that leads to setting up multiple passive income flows. This will help you achieve a sustainable retirement. Use the more stable and guaranteed flows to fund your needs and the more variable flows to meet your wants.

Studies have shown that if you enjoy your job and will miss the social network and identity it offers, your health may suffer after retirement. While this applies more to professionals whose self-esteem and identity are mainly bound up with their jobs, it is also true for non-professionals.

Increasingly, there are people who have officially retired but have decided to re-join the workforce and become “unretired”. The reasons may be financial and psychological, such as the need for routine, mental stimulation or company.

So, focus on getting the most from your longer lifespan by continuing to learn and work. You can stay in work that is aligned with your life purpose - and this need not be the same job nor require the same number of work hours, as that of your younger years.

There’s no one-size-fits-all approach to retirement. What works for one person might not work for you, and vice versa. What’s more important is figuring out what you want out of life and leveraging your financial plan to achieve it.

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.