Commentary: By wanting to retire early, millennials are subverting conventional ideas of work and finances

SINGAPORE: The average retirement age in Singapore is 62. But today, it’s increasingly common to hear of millennials who want to retire by their 40s, even before they hit 35.

In the past, people patiently worked and saved towards their destination of financial independence: Retirement in their silver age.

Now, many are sprinting towards early retirement, attracted by the prospect of living life on their terms as early as possible. To do so, millennials are subscribing to the FIRE (Financial Independence, Retire Early) movement.

Adherents of FIRE aim to save 70 per cent or more of their full-time income. The holy grail is to save 25 times of one’s annual expenses and make 4 per cent annual withdrawals for living expenditures.

The FIRE lifestyle is thus characterised by meticulous planning, extreme frugality and common sense investing. In its most extreme form, people minimise expenses by forsaking all frills in life, like dining out with friends or nibbling artisanal pastries.

More moderate FIRE practitioners, on the other hand, strive to accumulate sufficient savings to sustain their lifestyles without having to work a 9 to 6 job.

The pursuit of FIRE marks a paradigm shift from traditional views of work and money. Indeed, the TODAY Youth Survey 2021 found that among respondents aged between 18 and 35, 59 per cent felt having enough funds to retire early is a top indicator of material success – in contrast to more ostensible symbols of wealth like private homes (38 per cent) or cars (34 per cent).

So what’s behind this shift in the goals and aspirations of Singapore’s new generation of working adults?

WHY FIRE IS GAINING TRACTION

Two economic trends explain why this movement is gaining traction, especially amongst millennials.

First, many in Singapore are feeling a great deal of financial insecurity amid high inflation and subdued growth.

According to an Institute of Policy Studies (IPS) survey, 34 per cent of respondents said in early June they were rather or very worried about not having enough finances for personal or family needs. This figure crept up from 30 per cent in early April, during which an Omicron wave was subsiding and measures were relaxing.

Younger individuals, with less savings to fall back on, are more likely to feel the brunt of economic uncertainties. The same IPS survey revealed that 40 per cent of those aged 21 to 29 were highly worried over the rising costs of living, as opposed to 24 per cent of those aged 60 and up.

If the prices of cars, housing and daily household goods continue to rise, millennials are likely to delay marriages, home ownership and having children, and focus instead on securing their own financial independence.

Second, many millennials are disillusioned with their jobs. Gallup has reported that in America, only 29 per cent of millennials describe themselves as “engaged” at work. Most millennials (55 per cent) are not engaged, exceeding all other generations in this category of worker engagement.

Workers are similarly disengaged in Singapore. According to ADP’s Global Workplace Study, Singapore had the sixth-lowest employee engagement rate in a sample of 25 countries. The projected employment term of millennial workers experienced a decline from 3.5 years to 3.05 years from 2020 to 2021.

A CHANCE AT FINDING ONE’S CALLING

These two trends taken as a whole explain why millennials want to pursue FIRE. Many conclude they can be released from a job or industry they never really liked in the first place.

With sufficient savings to tide through a prolonged period, adherents of FIRE can pursue their interests, work lower-stress jobs while enjoying a decent standard of living. Even for those who love their jobs and are well-compensated, FIRE offers them an exit in the event their dream job morphs into a pair of “golden handcuffs”.

Most importantly, FIRE helps practitioners rethink the type of vocation they want to pursue. The Latin root word of vocation is “vocare”, which means "to call" – but how many white-collar office workers can describe their job as a calling?

Life is far too precious and finite to let jobs merely be an exchange of time for money. In this light, proponents believe FIRE offers a chance to answer the question, “If money was not an issue, what would you do?”

WHEN FIRE TAKES AWAY FROM ENJOYING LIFE

However, FIRE, like all lifestyle philosophies, is not a one-size-fits-all. Do a deep dive into FIRE subreddits and forums and you’ll see common pitfalls.

Some have become financially independent but continue to worry about money. Some find themselves becoming increasingly stingy. Others resent their golden handcuffs but are afraid a job change will interfere with their financial goals.

The pattern across disgruntled practitioners is that they have found no satisfaction in their accumulated wealth. These cautionary tales suggest frugality can diminish the joys of life greatly.

When FIRE becomes the prism through which one views the world, decisions are rational only when they make financial sense. However, things that don’t make financial sense are enriching in many other ways.

Planning an extravagant wedding might be deemed a waste of money, but when else in your life can you gather all the people that ever mattered to you in one place to celebrate you and your spouse?

Drinking a pumpkin-spiced latte with a friend at your neighbourhood cafe seems over-the-top, but surely the value of catching up with old friends would be worth many times the price of an overpriced beverage?

Spending three months of wages on an extended vacation may be frowned upon as financially irresponsible, but if the memories of such expeditions last an entire lifetime, would this splurge set retirement back significantly?

Some FIRE practitioners say they do in fact enjoy living a minimalist lifestyle and do not crave these luxuries. But while frugality is a virtue, it cannot be totalising. If the cost of missing out on fancy dinners and new clothes exceeds the joy that could have been derived from them, scrimping might make one worse off.

FIRE or not, we all can take inspiration from Aristotle’s golden mean. If virtue is the mean between extremes, the virtuous way to use our money is to moderate our impulse for consumption with frugality, and to counteract our tendency for miserliness with generosity.

Keith Yap is an Economics & Development graduate from Lee Kuan Yew School of Public Policy who writes about business and work life.