Last week, there was an article in the Straits Times, titled
“Moving from financial stability to financial abundance takes Singaporeans
32.3 years”.
As usual, when it comes to the topic of retirement… it
caused quite a stir online. Based on social media comments, the overwhelming
sentiment seems to be that these numbers are ridiculous – that in Singapore, it
is nearly impossible to achieve financial freedom / financial
abundance, apart from maybe striking the lottery (or birth lottery).
To summarise what the article mentioned, the survey found
that from a starting point of financial stability, it took:
6.1 years to reach financial security; defined as being able
to invest on top of saving a portion of income.
An additional 6.5 years (cumulatively 12.6 years) to reach financial
flexibility; defined as having sufficient financial investments and assets to
cover living expenses for up to one year.
An additional 8.7 years (cumulatively 21.3 years) to reach
financial freedom; defined as having sufficient investments and assets to
generate enough passive income for life.
And finally, an additional 11 years (cumulatively 32.3
years) to reach financial abundance; defined as having more than enough income
for one’s lifetime.
Comments on social media raised a few key points.
Firstly, some folks believed that this survey was “not
representative” of the average Singaporean, because it only targeted the “high
income” folks. Is it perspective valid? Let’s look at some figures.
The survey interviewed 1,000 participants aged between 25
and 64, with household incomes of $70k to $250k.
For perspective, the median household income
for Singaporeans in 2022 was around $120k per year ($10,099 per month), which
means that the 50th percentile household would be included in this
survey.
At the lower end, the $70k household income would actually
fall slightly under that of a median household consisting of 2 fresh graduates:
$4,200/month per person (2022 figures) amounts to ~$100k per year.
While at the upper end, assuming the $250k household income
are for folks in their 50s, then that works out to around $10k/month per person
– reasonable for people working in middle-management roles at
that age.
Thus, based on the figures above, I believe that the sampled
population surveyed is reasonable. While it does skew slightly towards the wealthier
segments (the article itself mentioned that respondents were “affluent”), the $70k
to $120k income group falls below the median household income. Definitely not only
the “rich” folks, as many have speculated.
But within the sample there could be anomalies. While a
$250k household income in your 50s is would be comfortable, a $250k household
income for a fresh graduate couple in their 20s is undoubtedly amazing. After
all, there are fresh grads earning >$10k per month, right?
The second point that many have brought up is that: if it
takes an average of 21 years to attain financial independence, and 32 years to
attain financial abundance, why do we still see many elderly folks working well
into their 60s and 70s? (Or, to be politically correct, some may just be “collecting
cardboard for exercise”). Why isn’t everyone retiring in their 40s and 50s?
I think this is a valid challenge. I don’t have a
comprehensive answer to this, but I have a few thoughts.
If we were to compare the Baby Boomers against the
Millennials / Gen Z, the Boomers grew up in an environment where the priority
was on survival. Literacy rates were lower, and many stopped pursuing education
at a young age, in order to work to support their families. Consequently, if
some Baby Boomers end up falling short on retirement adequacy, I don’t think it
is fair to fault them for not managing their finances well. It was a different
time.
Today, for the majority of the Millennials / Gen Zs, life
isn’t solely about survival. Education in Singapore is heavily subsidised, and
most go on to complete tertiary education. Singapore’s economy has grown by
many multiples from the early days of independence, providing more
opportunities. The internet has also democratised access to financial knowledge
– we have forums like Seedly, SGFI on Reddit or telegram groups like 1M65 where
folks can discuss personal finance. The FIRE movement has also increasingly gained
traction in Singapore in recent years.
As a result, financial literacy today is much higher than
previous generations. The barriers to entry for investing is much lower (zero /
low cost brokerages), and there are a wider suite of products that cater to
people who do not want to actively manage their investments (ETFs /
robo-advisors). An increasing number of people realise the power of compounding
and the importance of starting early, and have started investing in their 20s
or even late-teens.
For further evidence of the aspirations of Millennials and
Gen Zs, a survey last year found that on average, Millennials and Gen Zs want to
retire earlier than the previous generations, which is ironic and
contradictory to the retirement age being progressively raised.
Therefore, I would argue that despite the rising cost of
living, achieving financial freedom today would actually be easier than for the
previous generation. People are more financially savvy, aware of the steps
required to achieve financial freedom, and have the benefit of staring early
with time on our side for compounding to work its magic.
The main contributors to the sky-high cost of living today
are private properties and cars. Without these big-ticket items, I believe that
it is still possible work towards financial freedom, while enjoying a
reasonable standard of living in Singapore.
Putting some figures to each level of wealth
The article left out any reference to hard figures when for
each milestone. Which makes perfect sense, because these milestones differ
based on individual needs and wants. A luxury to someone may be a necessity to
another.
But let me share what I think would be comfortable
for me (for 1 person – double the amount for a couple, although there could be
some synergies):
Financial Security: At least 6 months of emergency
funds set aside, and starting to build an investment portfolio.
Financial Flexibility: Emergency funds able to last
at least 12 months, possibly supplemented by some passive income.
Barista FIRE (Added by me): $1m to $1.25m
SGD
Financial Freedom: $1.5m – $2m SGD
Financial Abundance: $3m SGD and above.
Given that I view attaining FIRE as a “cashflow” target,
rather than an “asset target” (FIRE number), the way I think about the last 3
stages above would be “if I want a monthly cashflow of $X, how much capital
would I need to invest, based on a reasonable portfolio yield of 3 to 5%?”
Our mindset is key
For me, the main takeaway from the fervent debate would be
the different mindsets that people have. In the Financial Independence
community, I am used to seeing people with targets like “Barista FIRE by 30”,
“2M35 as a couple”, and “Retire by 45”.
These are very ambitious targets, but definitely possible,
with a combination of 1) above average income, 2) above average savings rate,
and 3) moderate investment returns.
Whereas in the general comments on social media, the
sentiment seems to be that even after working for 32 years, it is impossible
to even achieve financial freedom, let alone financial abundance. To me,
that’s the stark difference. Those actively working towards FIRE are mostly
driven, goal-oriented folks, with the conviction that FIRE can
and will be achieved, even if some trade-offs are required
along the way.
If we believe that something is impossible, it will remain
impossible. A good example of this would be the 4-minute mile. For a long time,
people believed that it was impossible for a person to run a mile
in under 4 minutes. People genuinely believed that it was just not possible for
the human body. But once Roger Bannister broke the 4-minute mile barrier in 1959,
subsequently, many people could break it as well. This shows that our beliefs play
a huge role in determining the outcome. Get rid of your limiting beliefs today!
Surround yourself with like-minded people who share the same
values and mindsets towards positive wealth building habits, who will inspire
you on your journey. Having the belief and conviction that you will succeed.
Ignore the naysayers and skeptics.
While reading through the comments, perhaps my favourite one
was “I don’t even want to work for 25 years”.
Well, I don’t even want to work for 10.
“Believe you can, and you’re halfway there.” – Theodore
Roosevelt
Earlier this year, I made a YouTube video detailing the numbers required for an average fresh graduate earning $4,200 per month to achieve financial freedom within 20 years. Do check it out!
