FIRE movement explained: Here’s what you need to know about the latest retirement trend

What is the FIRE movement?

At its core, FIRE is a souped-up version of retirement. The main goal of FIRE is to achieve financial independence at a significantly earlier stage compared to the traditional retirement age, thus enabling one to retire early.

Another hallmark of the FIRE movement is to live frugally so as to save more when you are young and lead a low-maintenance lifestyle when you retire. As more people jump on the FIRE bandwagon, it has forked into two main camps supporting “leanFIRE” and “fatFIRE”.

“leanFIRE” follows the traditional FIRE movement more closely, encouraging people to lead modest lifestyles by spending below their means, while diligently saving and building multiple income streams. “leanFIRE” itself has an offshoot termed “baristaFIRE” – where you lead a modest lifestyle but take on part-time work to supplement your income. This allows you to maintain employability, should you ever require to rejoin the workforce, as well as give you the flexibility to enjoy being part of the FIRE movement before being able to fully afford it.

In the other camp, “fatFIRE” is more for those who have been leading a comfortable lifestyle to accumulate enough wealth such that they can continue leading such a lifestyle even in retirement.

To achieve FIRE, retirement planning needs to start early

The exact age to achieve FIRE can and, should, vary between individuals. This is because it is highly dependent on your financial background, amount you earn and the amount of money required to sustain your desired lifestyle.

Regardless of the variation of FIRE movement you want to lead, you need to have a plan in place to achieve it. This is important implications as you are taking yourself out of the workforce – 1) if you don’t plan prudently, you may not have the right skills to re-enter the workforce halfway into your retirement and 2) you still need to generate sufficient monthly income for your living expenses (that needs to last substantially longer than the average retirement timeframe).

Here are some actionable plans that you can consider implementing in order to achieve FIRE at your desired age. 

This amount is to provide for the living expenses of your family in case of unforeseen circumstances such as the loss of your job, medical emergency or unexpected big-ticket expenses. Typically, you should have between six and 12 months of your average living expenses in a liquid savings or investment account.

Before you FIRE, you should aim to build an emergency fund that will sustain your lifestyle for an even longer period than what is typical. This is because you face greater uncertainties in paying for numerous unexpected big-ticket expenses over the course of your longer retirement years or being unable to patch up your emergency funds once you have dipped into it.

In Singapore, CPF LIFE provides you with a monthly payout starting from age 65. If you plan to FIRE, retirement products or annuities offered by insurers can be a practical option to provide a guaranteed stream of income before you turn 65.

One such product you can utilise is the AIA Retirement Saver (III), which provides the flexibility to choose when you want to start receiving your monthly payouts, which can be as early as 55 to as late as 70.

If you decide to FIRE at age 55, you can plan ahead and purchase the policy when you are younger in order to receive your first payout by then time you retire. The policy provides a guaranteed stream of income to cover your living expenses for 15 years, allowing you to rely on it before you start getting your CPF LIFE monthly payouts at 65. 

As your monthly payout from CPF LIFE is dependent on the amount you have in your CPF Retirement Account (RA) at age 65, one simple way to increase your retirement nest egg is to make voluntary contributions to your CPF Special Account (SA). This not only earns you an interest of at least 4% per annum, but you also get to enjoy a tax relief of up to $14,000 per year on top-ups to your own and your spouse’s CPF SA.

The earlier you top up your CPF SA, the more time you have to compound your balances. One thing you have to note is that monthly payouts for CPF LIFE only began at age 65, which means you will need to depend on other sources of passive income to sustain your early retirement living expenses prior to that.

Savings products offered by insurers allow you to adopt a disciplined approach to save and earn potentially attractive returns for your future plans, while also concurrently providing a death benefit to financially secure your loved ones.

The AIA Smart Pro Saver is a 10-year savings plan that allows you to pay off within five years. After paying it off in five years, your policy continues to provide you a death benefit as well as compound your savings into a greater lump sum upon maturity.

The HDB Lease Buyback is a national scheme where homeowners age 65 and above can unlock the value of their properties to receive cash and higher CPF LIFE monthly payouts. This is in return for the extra years of lease that you unlikely will need when you are old.

The HDB Lease Buyback scheme can be considered a good alternative should you need to supplement your retirement income during the later years of your FIRE journey.

Ensuring you plan for your retirement as early as you can

To avoid shortfalls in the income you need in your retirement years, you should start planning for your retirement as early as you can. This allows you to Be Life Confident in achieving the retirement you want, whether it’s FIRE, a variation of FIRE or even retiring at a more conventional retirement age.

AIA offers simple solutions to keep up with your changing wealth accumulation and protection needs. Get your financial planning on track. Take the first step to Be Life Confident. Speak to us at 1800 248 8000 or get in touch at https://www.aia.com.sg/en/help-support/contact-us.html.