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To achieve FIRE, don’t rely on the spark of speculation

Financial independence and early retirement are popular goals for millennials and Gen Z workers – but getting there requires steady financial habits, not risky investments.

Advocates of the concept of FIRE (Financial Independence, Retire Early) believe that frugal living, aggressive saving and savvy investing can make early retirement a reality, rather than a pipe dream. Photo: Unsplash

Advocates of the concept of FIRE (Financial Independence, Retire Early) believe that frugal living, aggressive saving and savvy investing can make early retirement a reality, rather than a pipe dream. Photo: Unsplash

Financial independence and early retirement are popular goals for millennials and Gen Z workers – but getting there requires steady financial habits, not risky investments.

Gen Zs and millennials may be the two youngest age groups currently in employment – but according to the OCBC Financial Index 2022, they are the ones who want to retire earlier than everyone else.

While workers aged between 40 and 54, as well as between 55 and 65, preferred to retire at 61 and 65 years of age, respectively, millennials (aged 30 to 39) wanted to stop working at the age of 58, while Gen Z (aged 21 to 29) stated that 57 was their desired retirement age.

A growing movement among millennials and Gen Z workers is the concept of FIRE (Financial Independence, Retire Early). This involves achieving financial independence and retiring much earlier than the official retirement age, through a combination of frugal living, aggressive saving and savvy investing. FIRE adherents may aim to retire by their 40s, or even earlier.

With employee burnout being the leading factor affecting mental health in Singapore during the pandemic, it’s no surprise that more people are thinking about leaving behind the daily hustle in favour of a slower-paced early retirement.

OBSTACLES TO CREATING FIRE

The desire to retire early has been made more complicated by a range of environmental factors, such as an unbalanced post-pandemic recovery, high interest rates, inflation and market volatility. These have caused Singaporeans’ financial wellness to decline, dipping one point from last year to match 2020’s score of 61 out of a maximum of 100.

The index tracks each respondent’s replies to 24 indicators across 10 pillars of financial wellness, including their saving habits and retirement planning.

The Index also found that young Singaporeans were still keen on pursuing risky investments, such as cryptocurrencies, despite many experiencing losses in 2022’s crypto crash. This could be due to a lack of investment education or – as suggested by one local pundit – the hope that cryptocurrency investments could make achieving FIRE possible.

Ms Tan Siew Lee, OCBC Bank’s head of wealth management, said that 2022’s market downturn has naturally made young people in Singapore concerned about their finances and their ability to save for retirement.

“However, engaging in high-risk, speculative behaviour in the hope of making quick gains might cause one’s retirement dream to drift even further out of reach,” she said.

RISKY BUSINESS

According to the OCBC Financial Wellness Index, two in five crypto investors in their 20s planned to invest more in cryptocurrencies within the next 12 months, despite making average losses of 40 per cent from crypto investments in 2022.

This stronger appetite for risk could be due to the younger generations’ own uncertainty regarding whether their goal of early retirement can be reached, as 62 per cent of Gen Zs and 56 per cent of millennials expressed worry that their retirement funds will prove inadequate for their desired lifestyle.

Gen Z was also eyeing a more luxurious retirement, with 34 per cent – the highest proportion compared to other age groups – aiming for a retirement lifestyle that includes private healthcare, full-time domestic help and international holidays twice yearly. In FIRE terms, this is known as Fat FIRE – in which one enjoys an early retirement without having to cut back on life’s luxuries.

Fattening up one’s investment portfolio for Fat FIRE is a challenge, though. Overall, the market downturn in 2022 affected Gen Z the most, with 42 per cent seeing a loss in their investment portfolios, followed by 35 per cent for millennials. These figures were up 19 per cent and 10 per cent respectively, compared to last year.

Compared to the other age groups, Gen Z also saw the lowest rate of return on their investments at 0.3 per cent. But it’s not all doom: About 48 per cent of Gen Z were deriving side income from part-time endeavours, ranging from food delivery to running online businesses or giving tuition.

Having a secondary stream of income can raise one’s monthly earnings substantially. In addition, you can always carry on with your side hustle after quitting your day job – a form of FIRE known as Barista FIRE, where part-time or freelance work supplements income and helps workers keep one foot in the world of employment, should they need to return full-time.

FINANCING THE FUTURE

While the post-pandemic phase of economic recovery has seen more revenge travel and consumer spending, Singaporeans remained strong savers, with 91 per cent saving at least 10 per cent of their salary.

Less went to contingency and retirement funds, two categories that saw a slight dip in savings allocation. Only 53 per cent of Singaporeans had the recommended six months’ worth of their current salary in their savings to overcome a crisis.

Sixty-eight per cent of Singaporeans had made a retirement plan – a two per cent increase from 2021. Gen Z workers might need to work on that plan a little more, though: Their preferred retirement lifestyle – with vacations to Europe and the United States, and a high-end car – is likely to cost around S$5,760 a month, instead of most Singaporeans’ estimate of S$3,617.

And with investment portfolios hard hit in 2022 – especially if they held risky assets, like crypto – only 42 per cent of Singaporeans were on track to achieving their retirement goals, compared to 49 per cent in 2021.

Nevertheless, with the right financial habits, Gen Z and millennials can get their FIRE dreams back on track.

Said Ms Tan: “When growing one’s retirement funds, it’s best to think long-term, seek professional advice and do research before investing. Young Singaporeans are generally good savers and with prudent financial habits, they can weather this storm – and eventually, achieve their financial goals and ideal retirement.”

Visit the OCBC Financial Wellness Index to learn more about Singaporeans’ financial wellness, how you compare and what you can do to improve your own financial health.

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