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Should I Play With FIRE? 🔥

Today we are seeing the rise of the FIRE movement, not one led by Zuko from Avatar, but one that advocates this slogan “Financial Independence, Retire Early”. The idea of retiring early and having enough passive income that allows you to maintain your lifestyle until you hit the bucket is undoubtedly appealing 😍. The BIG question is, can we millennials afford it? Here are some of the factors that you gotta weigh in before you decide whether it is a good call FIRE 🔥. 

small boy counting with his fingers

How much you gotta have💵

Prior to starting your FIRE journey, you will need to know your FIRE number first. The simplest way to get your FIRE number is by using this formula devised by the Trinity Study:

Annual Expenses ÷ 0.03 = FIRE number

The Trinity Study looked at different withdrawal rates for retirement, and they found that 3 to 4% is the safe withdrawal figure. As such, if you need RM5,000 to survive monthly, your annual expenses would be RM60,000. Divide it with 0.03 and you’ll get your FIRE number – RM2 million. It may look like an enormous amount to aim for, but this is just a starting guideline because you also need to consider inflation. The higher the cost of living, the more cash you’ll need to maintain your current way of life. It is also important to note that the study only covered a period of 30 years. So, if you are looking at a longer retirement period, then you will need to adjust your FIRE number. 

A change of lifestyle 

To FIRE is no easy feat. First, you’ll need to be more frugal with your spending and use that money to invest in your retirement instead. This means turning down more social invitations 🥳 and resisting buying those new kicks 👟 you saw at JD Sports. Wherever you can, you gotta CUT CUT CUT ✂️.

Marge and Homer Simpsons, the Simpsons, using crayon for lipstick, frugal woman

In fact, some FIRE proponents actually save/invest up to 75% of their monthly salary to achieve this. That is quite a high amount to save, especially for those with commitments like student debt, car loans and house rent. If you have kids 👶🏻, then that’s gonna be even tougher. Not to mention, you have to ‘tahan’ this lifestyle for 15 to 20 years, depending on how much you earn. Patience really is a virtue.

What you wanna do after FIRE

Often, early retirement doesn’t mean that you’re not working at all. However, it gives you the luxury to work because you feel like working 🍷, not because you have financial burdens to settle. You have the option to generate supplementary income from your hobby without worrying too much about putting food on the table. Ahhhh, what a life…

man getting on a scooter and falling down

Of course, you can also decide to just chill forever 😎. It’s just that you might get bored doing the same thing every day for the next 30 to 40 years. That is why you must have a plan in place for what you want to do after your retirement, and whether you have enough money to do it. 

When you can withdraw from your retirement fund/pension scheme

Do you know that you can only FULLY withdraw your pension and retirement fund at the age of 55? Yep, you read that right. EPF has two main accounts: Account I, where 70% of your money is saved in and Account II, where the rest are. Before the age of 55, you can only make a partial withdrawal from Account II for these purposes:

🏠 Buying a home

🕋 Performing Hajj

👩🏻‍🎓 Funding own or children’s education

💊 Pay for medical expenses

The same applies to government pensioners too. If you want to retire earlier, you can, but you must serve the government for at least 10 years, and you will only start getting your pension at 55. 

camera zooming in on a man's face

This said, you need to make sure that you have enough money saved somewhere else so you can use that cash to sustain your life first while waiting for your retirement fund to mature. 

 

So, can I achieve FIRE?

Suppose you know how to manage your expenses and investment vehicle well. In that case, it is certainly not impossible to be financially independent and to retire early. But to be really frank, this is not for everyone. 

Without proper financial planning or enough money to begin with, FIRE can backfire 🧯. As such, you can face a “longevity risk” – a situation where a person outlives his or her retirement money because they saved too little or live too long. Unfortunately, 70% of Malaysians are already facing this even without retiring early 🥺. If you’re not careful enough, you can be a victim of this risk too. 

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