FIRE (Financial Independence, Retire Early): Is It Too Late To Start After 40?

FIRE (Financial Independence, Retire Early): Is It Too Late To Start After 40?

5 min read

Pros and cons of joining the FIRE movement as a middle-ager.

If you’ve been online recently, you may have heard a lot of chatter about FIRE—no, not the disco at Orchard Plaza (readers of a certain vintage will know what I’m talking about). FIRE is a lifestyle movement with the goal of achieving Financial Independence and Retire Early. So how exactly do you FIRE and is it attainable for someone in their 40s? Let us break it down for you.

getting cash out of FIRE Singapore

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Understanding FIRE

The first part of the FIRE movement is of course, to achieve Financial Independence. By adopting an aggressive savings rate of up to 70% and putting it into investments, the idea is to grow your money to a point where you can live off that amount by making small withdrawals every year. 

According to the Four Percent Rule used by financial planners, 4% is generally considered a safe amount to withdraw from your retirement funds each year, based on a 30-year retirement horizon.

Of course, this also means that the 4% you withdraw annually must be enough to cover your living expenses for the entire year. Then, how much money do you need to be able to sustain your retirement? 

The Magic Number and how to get there

In FIRE circles, there is a common consensus on the Financial Independence Number you need to achieve to declare Financial Independence. It’s quite simple, actually—just take your annual household spending and multiply it by 25. 

calculating how much to FIRE Singapore

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So, if your household spends $48000 a year, your Financial Independence Number would be $48,000 x 25 = $1.2 million!

Sounds like a scarily huge number, right? The good news is, this can be totally achievable, through the power of compound interest over time. Simply put, your money earns interest every year, which is then reinvested and the bigger amount earns more interest the next year. This can help your money grow quite quickly! 

For example, a $100,000 investment that compounds at 5% annually over 10 years can grow to $162,889.46. So the more you save and invest, the more you can take advantage of the effects of compound interest!

Can I Retire Early?

It’s entirely up to you! The definition of Retiring Early differs from person to person. Some people may aspire to retire by 40, and some may consider 55 to be the ideal age.

Reaching retirement doesn’t mean sitting around and doing nothing (though that’s entirely your choice, if you want to do that!). Once you achieve Financial Independence, you can choose to pursue your hobbies, or even continue to work in a less stressful job to supplement your income.

Your goals after retirement would also determine the rate at which your savings need to grow to sustain your lifestyle.

I’m 40 liao, can I still FIRE?

We’re not gonna lie—for one to FIRE, the longer the pathway you have, the better. That’s because you need time for the effects of compound interest to kick in. So if you’re starting in your 40s, it’s highly unlikely you would be able to retire by 45, unless you’re already pretty loaded to begin with!

steps for FIRE Singapore movement

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That said, there are still some advantages someone starting FIRE in their 40s would have over a younger person:

  • These are your prime earning years. Surveys have shown that a typical worker’s earning power usually peaks around the late 40s to late 50s. Wealth accumulation should be concentrated during these years, as your income should be the highest it’s ever been at this point in your life.

  • Your children start leaving the nest. If you have children, this is perhaps the time when they are leaving school, starting careers and earning their own income. This can mean a drastic reduction in your expenses, which results in more money to channel towards your investments.

  • Ability to downsize. One of the biggest expenses in any household is housing. Once your kids move out and start having families of their own, it might be a good time to look at right-sizing your housing. A smaller home means less taxes, and also costs less to maintain.

Of course, starting late to the FIRE game can also pose some disadvantages for people in their 40s or later:

  • Shorter investment runway. As mentioned earlier, investments need time to grow. Starting FIRE in your 40s means you have less years to your retirement target to accumulate the funds you need.

  • Less time to survive a bear market. Investing is a great way to grow your nest egg, but it’s not without its risks. If a bear market occurs close to your retirement years, you may not have time to wait it out for your portfolio to recover. This could possibly cause your retirement to be delayed by a few years.
  • Retrenchment is a possibility. The economy is unpredictable and no one can guarantee they will have a job forever. The risk of retrenchment becomes higher as we enter our later years, and could have adverse effects on our income and retirement plans.
research into FIRE Singapore

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To FIRE or not to FIRE?

One thing to consider is your own personal definition of financial independence, which means something different to everyone. What I’ve outlined here is a very basic understanding of the concept of FIRE. I would suggest that you do more in-depth research before deciding if FIRE is for you, and how you can make it work for your unique circumstances.

That said, FIRE is a good frame of reference for building a solid retirement plan, and even if you aren’t able to Retire Early, it’s always good to plot a path towards Financial Independence. Here's wishing you all the best on your journey to financial freedom! 

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