Start Your Retirement Planning at 40 & Forget About F.I.R.E.
Retirement Planning is very much like the martial arts scene.
There are forums where people extensively discuss how to fight.
Many know how to throw a punch and a kick, but have never been in an actual fight.
Last but not least, there are plenty of martial arts schools teaching their own style of martial arts. They claim to sell the best martial arts manuals.
But jokes aside, I have been seeing more and more people start their FIRE (Financial Independence Retire Early) journey.
For that, we have created a Retirement Progress Checker for you to use, read on to find out how you can download this.
And today, we'll start with why you need to start your retirement planning at 40 and how it will change the way you execute your retirement planning.
As a disclaimer, this article is to explore another approach to retirement planning. Do not spend every single cent of money just because you think you can start at 40. Save up as a habit whenever you can.
Why Start Retirement Planning at 40?
First and foremost, let's establish what constitutes as serious retirement planning.
Retirement planning needs cashflows aside for a LONG PERIOD OF TIME and the main purpose is for your OWN USE AT RETIREMENT AGE.
Almost everyone preaches the benefits of planning early without factoring the commitment needed to a long term plan.
In addition, there's just too much changes from ages 25-40!
Some are trying to upgrade and figure out life's interest. Some are trying to settle down and start families.
There are things to spend on before the age40!
1) Should you spend to have a different future?
It is still early part of career building and income is still growing.
With a starting pay of $3,000 in Singapore, take home pay will be $2,400. It is quite hard to save $1,200 and only spend $1,200 on various living expenses.
What if you need to spend money for dating?
If you are single, saving 50% of your income should be doable. It may get harder if you are dating and tend to eat out a lot.
What if you need to spend money to upgrade yourself like take a post graduate diploma or part time degree?
Surely that has future use than to purely set the money aside for planning early retirement.
Saving 50% of income for the long term is good but saving hard now and forsaking a better/different future is being near sighted!
That is not to say we support spending every single cent before 40 years old. Saving money is still a habit which needs to be cultivated.
2) Money to spend on starting a family
Many couples postpone starting a family because of financial reasons.
It is undoubtedly costly to raise a child. Some estimates are at $670,000!
Your savings would be prioritised for your children. You have to provide for their childcare, enrichment classes and much more.
Child raising is at its costliest in a children's first 6 years (age 0 to 6) of life especially with childcare costs and medical expense. I know this because I am undergoing this right now!
As a result, saving 50% of income might not be viable for most circumstances.
If you are expecting a kid now this post might interest you:
What is F.I.R.E. and why some families can't get there!
F.I.R.E. stands for Financial Independence, Retire Early.
The FIRE movement is also the central theme in a lot of personal finance bloggers, forums, and social media platforms. It is extremely popular among millennials and their hashtags.
The emphasis and key attraction is Retiring Early, preferable before the age 40.
To achieve FIRE, you need a HIGH MONTHLY INCOME!
Pete Adeney (Mr Money Mustache - one of the pioneers of FIRE) and his ex-wife both worked in software engineering, each averaging an income of approximately USD$67,000/year (SGD $90,000/year), over the course of their careers.
This is the unfortunate truth, not everyone gets to start work in the big 4 audit firms or in major tech companies. In Singapore, many earn less than S$5,000/m before the age of 40. Median Male salary from age35-39 for a diploma holder is $4,533!
How to retire rich
Secondly, FIRE requires you to have LOW EXPENSES!
But with young family of 2, at least $1,000/m is spent on childcare costs already.
What about elderly parents as a "sandwich generation?"? I've friends who have to contribute $500/m to their parents for basic needs.
Buying adequate insurance now may be more important than setting aside money for early retirement!
A family car is almost always the family F.I.R.E. "extinguisher"
Singapore has often been considered to be the most expensive city to live in the world.
Our cars are so much more expensive with COE and it is not even close. Here's some car price comparison:
Toyota Corolla Global Price Index (TCGPI)**
Country/ Variant /Trim /Local Price SGD Price
Australia 1.8L 7CVT ‘Ascent 4D’ A$25,812 - $30,143.51
China 1.6 4AT ‘G’ RMB 140,800 - $28,582.54
Germany 1.6L 7CVT ‘Life’ EUR22,500- $38,949.53
Indonesia 1.6L 7CVT ‘G’ Rp410,000,000 - $45,510.00
Japan 1.5L 7CVT ‘G’ ¥1,697,143 - $20,741.46
Malaysia 1.8L 7CVT ‘G’ RM 114,015.30 - $43,954.26
USA 1.8L 4AT ‘L’ USD$18,210 - $22,962.81
Singapore 1.6L 7CVT STD - $135,988.00
Thailand 1.8L 7CVT G B829,000 - $32,147.00
**Toyota Corolla Global Price Index (TCGPI) is a made up car price comparison featured in this Yahoo! article by Carbuyer Singapore in 2014. The car prices today will have changed due to currency rates and inflation.
Although a car is a lifestyle choice, it does help young families significantly in all the logistics needed.
There's grandma house to send to, childcare to go to, classes to reach etc...
We've a summary of car cost below to show you why it gets in the way of F.I.R.E.
Frequently, families look at loan instalment only and forget about insurance cost, parking charges, road tax, tyre depreciation etc...
In total, the actual cost of the CHEAPEST FAMILY CAR is possibly $2,163/m!!
Hence, it's often the family's F.I.R.E "extinguisher"...
Conclusion of why start retirement planning at age40 and forget about F.I.R.E
Ideally, it is good to start retirement planning as early as you understand numbers, but in reality, life gets in the way.
Before the age 40, you have many other possible cost to prioritise over your own retirement.
By this age, a few things would have been in place and 'stabilised':
Family Nucleus: the heavier costs of pregnancy to toddler years are over. You are not likely to have more kids at age of 40. Plus, primary school fees are free!
Career: there is less volatility in income due to job hopping. Increments and bonuses will form a surplus on top of current saving amount.
Lifestyle: current lifestyle will be a realistic projection of your retirement lifestyle.
TheAstuteParent is planning future articles focus on breaking down the various components of retirement planning for serious retirement planning at age of 40!
In future articles, we will discuss how to plan for your retirement, talk about some unrealistic fantasies of retirement planning, and how to avoid them.
But before that, it is still good to cultivate a habit of saving and start building wealth.
And as usual, always ask yourself:
How to Best Optimise Your Money
TAP Retirement Progress Checker
As promised, here is the spreadsheet to download.
The spreadsheet gives you a quick 'check up' on your finances and roughly how much you will have when you enter retirement based on the amount you are saving now.
Sample screenshot of the spreadsheet
The spreadsheet should be quite simple to complete, there are some automations in place.
Click the "download" button to save a copy in your computer.
Do update every now and then to see how you are doing from time to time.
Don't worry, we cannot see what you fill in so your numbers are safe with you.
Last but not least, the spreadsheet doesn't constitute as any financial report or advise. Do contact us or speak to a MAS licensed financial adviser.
Contact me, email to josh.tan@promiseland.com.sg or click on the WhatsApp button below
Click on WhatsApp button above or reach me on this page for comprehensive insurance planning
If you're keen to know more on the 4 levels of career progression and when to plan for retirement,
read this When to Plan for Retirement!
Last updated on April 16th, 2020 at 05:24 pm
Leave a Reply