The best investment in your 20s isn’t your portfolio

HOW early can I actually retire? The question appears increasingly online.

The “Fire” (financial independence, retire early) movement, popularised in the 2010s, offers an option. The steps seem easy: save 50 to 75 per cent of income, invest aggressively and leave the workforce in 10 to 15 years.

Jacob Lund Fisker, author of Early Retirement Extreme, takes this further. He advocates living on US$7,000 annually to retire in five years. The method demands radical frugality, with one learning to repair everything oneself, forgoing car ownership and cutting all discretionary spending. Exit the workforce as early as possible.

But in Singapore, this approach comes with hidden costs. Careers here compound through skills and networks built over decades. A budget of US$7,000 yearly leaves little room for professional courses, industry conferences or networking events.

The young professional who skips a voluntary industry dinner to save some dollars avoids a bill today, but also misses the serendipitous conversation that shapes a career later.

For Singapore residents, life expectancy at birth has risen to 83.5 years in 2024. Retiring at 35 means funding nearly five decades from five years of maximum savings rather than decades of compounding career growth.

The Fire trap

The premise of Fire is to spend as little as possible now to retire as early as possible. The problem is the 20s and 30s are when the best returns come from investing in human capital, not just portfolios.

Nobel Prize-winning economist Gary Becker showed that investing in education and skills generates returns like physical capital. A 2001 study in the Academy of Management Journal found that professional networks predict career success. The network built at age 28 opens doors at 35, 42 and 50.

Work provides more than income. It provides identity, rhythm and social connection. A 22-year study of Finnish workers showed that early career networks lead to higher incomes later. Early exit cuts short these benefits just as they accelerate. This is rarely visible at 30. It becomes obvious at 45.

On the opposite end of financial philosophies is the “you only live once” or Yolo mindset. The rationalisation is always the same. Start saving at 35 instead of 25. Just 10 years. The difference seems trivial at the time. But those 10 years cost an estimated US$450,000 in final portfolio value due to lost compounding. The expense appears small when deferred. The cost becomes visible only decades later when compound interest has done its work.

In Singapore, life expectancy means funding 20 to 25-year-long retirements. Central Provident Fund (CPF) Life provides a foundation. For someone setting aside the Full Retirement Sum, estimated CPF Life payouts are about S$1,610 to S$1,730 monthly from age 65. But supplementary planning matters for households facing higher healthcare costs, supporting ageing parents, or maintaining pre-retirement lifestyles.

Seeking balance

A more balanced approach is to invest in human capital while beginning modest supplementary planning. Early career is for human and social capital investment. This means paying for courses, attending conferences and building networks. These investments compound in ways extreme frugality never will. Spend on what matters to you. Cut what you buy mindlessly.

Starting modest supplementary planning also matters. Singapore offers tax-advantaged ways to supplement CPF. The pattern that works best tends to be starting earlier and contributing more consistently over time.

Starting at 25 versus 55 means 30 additional compounding years. Assuming 5 per cent annual returns, someone who contributes S$500 monthly from 25 to 65 accumulates about S$760,000. Someone who contributes S$2,000 monthly from 55 to 65 accumulates around S$310,000. Same total contributions. The difference is S$450,000, all from time.

Later, let career flexibility become the goal. Design work around life through portfolio careers and semi-retirement. Flexible work preserves the structure and connection that work provides.

A new playbook

Skills and networks compound most in the 20s and 30s. Modest retirement contributions should begin at the same time. Career flexibility comes later. The choice is not extreme frugality versus unplanned consumption. The choice is balancing between earning power and savings.

The tools exist through CPF, Supplementary Retirement Scheme and voluntary top-ups. The challenge is behavioural discipline to act early when the stakes feel distant and retirement seems abstract. Most people understand the maths. Few execute consistently over decades.

The real risk is not choosing wrongly between present and future. The real risk is believing the choice must be binary at all.

The writer is director of private wealth management at UOB Kay Hian. He writes about behavioural finance at https://www.appliedmindletter.com. The views expressed are his own.

This essay launches Switching Lanes, a new column exploring the diverse realities of life after a full-time career. From money strategies to finding fresh purpose, we’re redefining what it means to retire well.

Have a perspective to share? Write to btletter@sph.com.sg with the subject, Switching Lanes.