Early retirement in Singapore - Is the FIRE movement possible here?

Just like how miles chasers live for the day they fly SQ Suites, or how BTS fans can finally die happy if they could see their idols up close… Personal finance bloggers are obsessed with FIRE (Financial Independence, Retire Early).

To achieve FIRE is to become so financially self-sufficient that you no longer need to work to earn an income. You are able to live off your own wealth.

Regardless of how much we enjoy working, achieving FIRE is a goal that most of us expense-tracking nerds have always dreamed of.

These days, the dream is not just for hardcore nerds, if reports of the growing "FIRE movement" are to be believed.

Even regular people want to know if it's possible for them to retire early, too. (Because who doesn't have fantasies of quitting to travel the world in a van, right?)

So let's find out what FIRE is, and whether it's even possible in Singapore.

WHAT IS FIRE (FINANCIAL INDEPENDENCE, RETIRE EARLY)?

There are about as many definitions of FIRE as there are personal finance bloggers. 

But in general, FIRE is associated with living frugally, aggressively accumulating money during one's working years, and amassing enough to live off your wealth way before the official retirement age.

To illustrate what financial independence and early retirement looks like, I'll cite Mr Money Moustache - one of the most popular characters in the FIRE movement - as a case study.

Mr Money Moustache (real name Pete Adeney) is famous for retiring at the age of 30 with enough money to live on for the rest of his life.

Granted, he did earn pretty high wages when he was in his 20s. As a software engineer, he earned an estimated average annual income of US$67,000 (S$92,550) while he was working, which is about US$5,583 a month.

By spending extremely little of his paycheck and investing the rest in US stock market index funds, he managed to amass a US$600,000 investment portfolio by age 30, which he believed was enough to retire on.

WHUT? HOW IS US$600,000 ENOUGH TO RETIRE ON!?

Okay, here's the bit that boggles the mind: To make the US$600,000 last a lifetime, Mr Money Moustache believes in this thing called the 4 per cent withdrawal rate rule. 

This is a pretty old investment rule used in retirement planning.

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The idea is that it should be safe for you to withdraw up to 4 per cent from your retirement account each year.

By the next year, your balance (if invested in the appropriate vehicles) should have grown enough to make up for it. 

In theory, you can make your funds last a really long time. 

4 per cent of US$600,000 is US$24,000, which is projected to be sufficient to cover Mr Money Moustache's annual expenses. 

Now, retiring with just US$600,000 is not possible for one with lavish tastes, whose annual expenses run closer to US$100,000. (According to the 4 per cent rule, you'd need a US$2.5million retirement fund for that.)

So one of the important pillars of FIRE is maintaining a frugal lifestyle throughout your life, so that it's possible to retire on a smaller lump of cash.

CAN EARLY RETIREMENT EVER WORK IN SINGAPORE?

Singaporeans are in a unique position when it comes to early retirement. We do have a number of things in our favour.

First, CPF. (You saw this coming!)

The "forced savings" nature of CPF gives all Singaporean workers a head start in saving for retirement.

If you are willing to top it up, the CPF SA also has an incredibly high risk-free interest rate of 4 per cent, which grows your money at an incredible rate thanks to compounding.

And, I'm no gahmen spokesperson, yet even I think that CPF LIFE is a first-rate retirement annuity plan.

Utilise it well, and you basically do not need to worry much about your retirement income from the payout eligibility age onwards.

Singaporeans shooting for early retirement have it easy: After hitting your desired CPF retirement sum, all that's left to worry about is what to live on between our target retirement age (say it's 40) and our first CPF LIFE payout (let's say 70). That's only a 30-year window.

Secondly, it's not hard to invest your money in Singapore.

As a financial hub, it's easy and affordable to invest even in overseas markets like the US.

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The fact that Malaysians come all the way here to open investment brokerage accounts should show you that not all countries enjoy this privilege… 

Finally, when you're young and healthy, the cost of living in Singapore (food, utilities and transport) isn't really that high - but that's only if you're willing to be different from the herd by trimming the acai bowls and Tokyo holidays from your expenditure.

But there are a few Singapore-specific "obstacles" to achieving FIRE.

OBSTACLE 1: HOUSING, MARRIAGE & KIDS ARE EXPENSIVE 

For many Singaporeans in their early careers, buying a flat, getting married and having kids are the 3 big events that deplete whatever money you've managed to save up.

If you meet someone like-minded, you might be able to avoid the high costs of the latter two.

Get married and have a kid by all means, but don't spend on all those things like it's some lavish performance.

What's really unavoidable are the housing costs, unless you want to live with your parents your whole life.

The cheapest public housing option, an HDB BTO flat, will set you back anywhere from $300,000 to $450,000 for 4-room, a hefty sum for those on a normal early-career salary.

But I would say early retirement is still possible.

Let's say both you and your partner are earning $3,000 a month.

You get $1,110 a month ($600 + $510) each in total CPF contributions.

Of your $2,400 take-home pay, you religiously stash away $1,700 by limiting your monthly expenses to $700 each (entirely doable when living with your parents, I assure you).

In theory, if you do nothing but this, you two would be able to save enough to pay for a $300,000 4-room BTO in cash + CPF in 4 years. Which nicely coincides with the time it takes for a BTO to be built.

That said, it may be more sensible to channel your hardcore savings into investments and take out a home loan.

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The HDB loan interest rate is at 2.6 per cent, which is not hard to beat with a solid investment plan, so you could potentially be better off by investing the cash.

Either way, despite its costs, having a home is a great way to generate more money. You can start monetising your flat from the moment you move in by renting out a spare room.

If you wish, you can even sell it for a profit after the MOP is up, and then downsize to a smaller flat. Then, channel the extra cash into your early retirement fund.

OBSTACLE 2: PARENTS TREATING YOU AS THEIR RETIREMENT PLAN 

This isn't a big problem in most Western countries where "filial piety" has not really taken off.

Many FIRE bloggers don't even pause to consider their parents as a financial obligation.

But in Singapore, it's common for parents to bamboozle their offspring with random Confucian values. ("When Mummy is old, you will pay for my vacations, right?")

Unfortunately, this isn't a problem that can be solved with disciplined saving, nor can you shake your parents off like you can with toxic, materialistic "friends".

The only thing you can do is to sit your parents down to reset their expectations as early as you can. 

Best case scenario, they've been joking with you all along and are secretly millionaires.

But in many cases, our parents are not as financially savvy as we are, and may be holding on to antiquated notions of retirement planning.

In this case, the goal should be to gently get them as set up for retirement as they possibly can (with their own assets and money) to minimise their reliance on you.

Teach a man to fish, as the saying goes.

PROBLEM 3: SINGAPOREANS DON'T HAVE A "RETIREMENT REFUDGE" 

A common tactic employed by early retirement bloggers is to make their "fortune" in an expensive city, where high-paying jobs usually are, then retire in a much cheaper part of the country.

Here's a long post by Mr Money Moustache about differences in taxes and home prices between different US cities. 

And there's the Frugalwoods, who left their Massachusetts city home to live in rural Vermont, increasing their cashflow from rental income (from the city home) and decreasing their cost of living in one fell swoop.

What about in Singapore? We don't exactly have a countryside to move to.

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Although moving from Tiong Bahru to Woodlands will almost certainly result in spare cash, it's not going to decrease the cost of living dramatically.

But we do have the option of moving to another country altogether (which has a fancy FIRE name: "geographic arbitrage"). 

The most obvious option is Malaysia, which obviously has a way lower cost of housing and living.

Obtaining a 10-year visa for early retirement does require some capital, but it is very doable if you have been stashing money away anyway.

In fact, if you're willing to relocate, I'd say that Singaporeans are even better off for early retirement than our Western counterparts. 

We are smack in the middle of some incredibly cheap and wonderful places to retire, like Thailand, the Philippines and Indonesia (imagine retiring in Bali).

The main difficulty is in obtaining the retirement visa, which tends to involve proof of income / assets and some form of injection into the country's economy (e.g. buying a house). 

But you will quickly realise that our Singapore dollars go way, way further in these places - even for things like property - than back home.

CALL ME CRAZY, BUT I THINK EARLY RETIREMENT IS POSSIBLE IN SINGAPORE 

Maybe it's overly optimistic of me, but I do think that middle-class Singaporeans are extremely privileged - we can earn relatively high incomes, pay low taxes and still get our expenses subsidised (e.g. housing and healthcare). 

I honestly can't think of more optimal conditions for early retirement.

Yet so many Singaporeans are far from that goal. Certainly, some of us are unlucky - perhaps we're saddled with our parents' debts or have jobs that don't pay well enough for us to look beyond the next paycheck.

But for the rest of us in relatively good financial positions? Then yes, I believe FIRE is possible, but only if you are willing to be completely unconventional.

This article was first published in MoneySmart.