FIRE up to early retirement


Early retirement and financial freedom is what many millennials want. How can you then achieve financial freedom and retire early? (The EPF - Malaysia's main pension fund's building in Kuala Lumpur.)

THE retirement age in this country is 60 for the private sector and 62 for the public sector. In some other countries, it is much higher, up to 70.

That means you can continue to earn an income till you retire provided you are in good stead and the company still requires your services.

For many, working till retirement is a must but not many millennials share those same thoughts.

Early retirement and financial freedom is what many millennials want.

How can you then achieve financial freedom and retire early?

There are many financial planning plans and concepts out there to choose from and dozens of financial planners ready to craft out a plan for you. It all depends on you and your needs.

One such concept is FIRE – which stands for financial independence, retire early.

It is a movement which began in the 1990s. The community focuses on ways to save up and invest enough to accumulate wealth.

Their main motivation is to retire early and spend the rest of the time pursuing other interests.

As Schroders puts it, they promote a “simpler way of living that reduces consumption and saves the planet.’’

It certainly requires a change from the lavish spending mindset to one that adopts “frugality and extreme savings’’ so that you can save enough money, retire early and live off what you have saved.

FIRE is a “way of life that’s attracting followers like, well, moths to a flame. The idea is to live frugally during your working years, aiming to save as much as 50%-80% of your salary.

“The simple theory is that by making big sacrifices early on, you buy your freedom later – meaning you can stop earning at a younger age, ’’ Schroders adds in a note.

Reports suggest that you have to stash away about 25 times of your annual living expenses and save up to 70%. When in retirement, you pull about 4% out of your nest eggs each year to live on.

Whatever your preference, there are lessons from the FIRE concept to adapt if you are keen.

The good thing about the FIRE movement is that it gets younger people to start thinking about retirement and teaches them to look at where they are spending and where their money is going.

Budgeting becomes part of your goal and that makes you realise that saving every ringgit counts, as it will just add up over time.

If you have free time, then start looking for some part time jobs or look at creative ways to increase your income flow.

There is no way you can retire early if you do not save and invest and if you can’t save 50% initially, then start with smaller amounts, say, 10% or 15% initially and raise that over time.

The FIRE concept promotes getting into the habit of saving and investing every month.

“Get into a regular habit of saving and investing every single month. Over time you will realise that the compounded interest works for you instead of against you, ’’ a report said.

The concept also promotes the reduction or elimination of your debts, especially high interest debts and cut your daily expenses and remove non-essentials.

The Covid-19 pandemic is a good example of how disruptions can happen in your life and without an emergency fund you will have to dig into your savings, something you may not want to touch.

Ensure you have an emergency fund that can take you through a three to six months period to ride the tide of eventualities.

The FIRE concept may sound interesting to some, ridiculous to others since living in frugality may erode their vision of happiness. What it offers is a blueprint for planning, the decision is really yours.

Schroders pointed out that the calculations used (in the FIRE concept) show how investment formulas are great in theory, but we know real life works out differently.

“Things start to fall apart when you’re faced with unexpected expenses, for example. What happens if you’re suddenly responsible for another dependent – a child, or parent? Or if you lose your job or become incapacitated?’’ it added.

However, it also pointed out that “on the positive side, the financial dynamics might change because you inherit a windfall or enjoy a rapid increase in

earnings.

Each of these instances will alter the time it takes you to reach your desired retirement age, ’’ Schroders said.

Whatever works, do your research as the risks and rewards are yours.

Related stories:

INTERACTIVE: Should you set yourself on FIRE? Experts douse common myths

INTERACTIVE: How to get some FIRE in your belly and retire early

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