Is Fire for you?

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 invest it while young, with the aim of quitting your job ahead of your peers and enjoying 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. Depending on your preferred type of lifestyle and saving habits, there are four methods.

Lean Fire

You’re the master of being frugal, cutting costs and tracking expenses. Your goal is to save diligently. Your aim is to lead a modest retirement lifestyle by spending below your means and living simply.

Being a minimalist, you likely retire with a smaller amount of savings, since you expect to spend less during retirement. This form of Fire has drawn the ire of many as having unrealistic and unsustainable requirements.

Fat Fire

You enjoy a higher standard of living and want to lead a more comfortable retirement lifestyle. Your goal is to have a larger nest egg to fund not just needs but also wants, including travel and the finer things in life.

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

Barista Fire

Instead of retiring fully, you do not mind working part-time or taking on a side hustle to supplement your retirement income. By doing so, you could potentially enjoy employee health insurance and could delay tapping into your nest egg. This style sits between Lean and Fat Fire.

Coast Fire

The more common versions of Fire 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 compounding – until you reach a target nest egg amount for your future retirement. Then you coast from that point onwards 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 cash flows, keep a tight rein on unnecessary spending 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 per cent of monthly pay, while actively getting more bang for your buck.

However, some approaches – particularly Lean Fire – call for sacrifices such as delaying gratification when it comes to the nice things in life, such as holidays and 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 will 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 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 you need to live a purposeful life now, within your financial means and with a holistic plan to help you navigate.

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.

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

Desiring the finer things in life, such as travelling to more far-flung places, would mean 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 meet a looming retirement deadline.

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 rejoin the workforce and become “unretired”. Reasons may be financial or 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’s 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 actually want out of life and leveraging your financial plan to achieve it.

The author is head of financial planning literacy at DBS Bank, and author of bestsellers Money Smart and Retire Smart