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Striving for early retirement – is it worth it?

Many of us have dreamed of retiring early, often while sitting in the confines of an office cubicle. For most, this dream usually involves a windfall obtained either through a lottery ticket or the proceeds from a successful business deal. In the past decade, a new paradigm has emerged where early retirement need not be the outcome of solely good fortune but can instead be achieved through a movement called FIRE—Financial Independence, Retire Early. Early retirement is increasingly becoming more synonymous with FIRE.



What is FIRE?


FIRE is underpinned by a strategy of savings maximisation, fuelled by aggressively decreasing expenses and increasing income. The difference between the FIRE movement and what sounds like regular financial advice is the intensity behind it. In the FIRE mindset, the drive to decrease expenses is taken to the nth degree where proponents give up luxuries such as pay-TV, eating out, and morning coffees, which results in a frugal lifestyle. This works for some people but can result in unhappiness for others as it becomes harder to maintain quality of life and social connections.


The other side of the FIRE equation is all about maximising income growth. This can be achieved by taking on part-time jobs, consulting work, or engaging in a small side business. Being more assertive about promotions and pay rises, or switching to a higher-paying job is definitely recommended. And acquiring new and marketable skills is crucial in being able to land better and higher-paying jobs. The general rule of thumb is to target a nest egg that is about 25 times the expected annual expenses during retirement.



Drawbacks of FIRE


While the benefits of retiring early are clear, it does require a lot of sacrifice and discipline. And after more than a decade where have been living the FIRE lifestyle, there has been some collective pushback. One of the biggest drawbacks of the FIRE lifestyle is the almost complete erosion of the quality of life. Living life so frugally fails to provide the balance for many needed to compensate for the rigours and stresses of working life. In fact, even for those who successfully retire early, they become too used to living frugally and may not be able to fully enjoy retirement.


For those that retire early, most of their retirement portfolio is maintained in the capital markets. These markets are not immune to black swan events like the global financial crisis of 2008 or the COVID-19 pandemic, and this can significantly erode a nest egg. If this happens, it can leave the early-retiree in a precarious position where they no longer have sufficient income to cover their expenses. Furthermore, if they have been out of employment for several years, it might be very difficult to get back into a job.



So, is it worth it?


As to the question of whether striving for early retirement is worth it or not, it is highly dependent on the individual. For many, despite the drudgery of working life, it provides structure and purpose in life. For many others, working life is a perpetual stress that they cannot wait to get out of. The answer may lie somewhere in between where retiring early can be at 50 instead of a decade earlier.


Retiring may not mean a life of no work but could instead be a life of public service or community work. Whatever the answer is, spending less, saving more, and investing well, is good advice for everyone. For civil servants, the option to retire early is available and the steps as well as the criteria to qualify for early retirement are provided [here].


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