Is Retiring by 40 a Fantasy? Here’s What You Can Do
The FIRE movement, also known as “Financial Independence, Retire Early”, has been gaining momentum among millennials in the past decade.
This idea is appealing as more young adults, under the age of 40, look to free themselves from the drudgery of working life.
Those who tout the FIRE concept believe that a combination of saving hard, investing well and living frugally can help you to achieve financial nirvana.
It seems, however, that young Singaporeans are not feeling optimistic..
A recent survey by Fullerton Fund Management also showed that, on average, Singaporeans needed S$1.4 million for their desired retirement.
In that context, retiring by the age of 40 seems like a distant fantasy.
The pandemic dampened the prospects of a well-paying job. At the same time, many are also worried about the impact of inflation eroding the value of their money.
A more realistic goal
The problem with today’s society can be summed up in two words: instant gratification.
With the proliferation of social media, smartphones and round-the-clock internet access, youths get bombarded by ideas on FIRE almost 24/7.
Unless you’re a successful entrepreneur who has built up an impressive business by your 30s, it’s unlikely that you can hit the multi-million-dollar mark before you hit 40.
A more realistic objective, then, is to slowly but surely grow your nest egg at your own pace, rather than trying to rush things.
Trying to FIRE by a certain age only introduces undue stress and imposes unrealistic expectations.
Instead, cultivate the good habit of saving for a rainy day and ensuring you always have an emergency fund of at least six months’ worth of expenses.
Start investing as early as you can
Rather than being 100% reliant on your savings to build your wealth, you should start investing your money at the earliest opportunity.
You can start with just a few hundred dollars and then steadily inject more capital into the market over time, akin to a dollar-cost averaging method.
If you do this consistently over time, your capital base should grow steadily.
To give an example, imagine you can set aside just S$300 per month for investments in the first three years of your working life.
That’s already a total of S$10,800 (i.e. S$300 x 12 x 3) injected into the stock market over this period.
As you climb the corporate ladder, you can inject a higher amount per month to grow your investment pot more quickly.
By sticking to strong blue-chip companies such as DBS Group (SGX: D05), OCBC Bank Ltd (SGX: O39) and Singapore Exchange Limited (SGX: S68), you can rest assured that your money is in safe hands.
And if you’re more adventurous, you can also park some money in fast-growing US companies.
Names such as Nike (NYSE: NKE), Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT) boast a long track record of growing their revenue and net profits.
Compounding your dividends
Dividends represent a source of passive income paid out by companies as a form of investment return to shareholders.
REITs are a popular vehicle for dividends as they are required to pay out 90% of their earnings to enjoy tax benefits.
You can purchase a smattering of strong REITs such as Parkway Life REIT (SGX: C2PU) and Mapletree Industrial Trust (SGX: ME8U) to receive a regular stream of quarterly dividends.
The afore-mentioned blue chips such as DBS and OCBC also payout consistent dividends.
By receiving and then reinvesting these dividends into the very same REITs or companies that paid them out, you can accelerate the growth of your investment portfolio.
Get Smart: Set your own retirement goals
As you pass through different life stages such as getting married, buying your first house and having children, your financial needs will also change.
Hence, it’s good to set your own retirement goals as you go along that’s both personal and realistic for yourself.
A recent survey concluded that a family of four requires around S$6,426 a month for a basic standard of living.
The same study also highlighted that an elderly person needs around S$1,400 a month for sustenance.
Use these numbers as guideposts to assess your own financial needs as everyone desires a different lifestyle in their golden years.
The aim of the FIRE movement is aspirational. But be mindful that it also introduces unnecessary stress should you feel to make headway early on.
You should, instead, pace yourself and be comfortable with your retirement journey.
As long as you save diligently, live simply and invest prudently, you should already be on your way to a well-funded retirement.
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Disclaimer: Royston Yang owns shares in DBS Group, Singapore Exchange Limited, Nike, Apple and Mapletree Industrial Trust.
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