For over a while now, there’s been an increasing awareness and desire to break free from the demands of the modern capitalist economy, where hard work and long hours are demanded in exchange for a decent salary.
The popular premise is that if you want a good life, you must work hard to earn more money, so you can then buy the things you want. But – as more and more people realise – that premise is flawed; money can only bring you so far, and a meaningful life cannot be attained simply by buying material things.
What has resulted, then, is this growing personal finance movement you may have heard of – FIRE, or “financial independence, retire early”.
And then, there’s also DINK – “double income, no kids” – where a couple forgo having children and instead focus on working and earning an income. DINK has also been gaining traction, judging by the continued low birth rate among Singaporeans.
You may have noticed that both these movements are correlated in the sense that not having kids can help you save money, which helps empower you to retire earlier rather than later.
Let’s take a closer look at how to make this work.
Pros and Cons of FIRE
FIRE encourages people to attain a state of financial freedom where work becomes optional. To achieve this, you’d obviously need a sum of savings and/or assets substantial enough for you to live off of.
There are two core tenets to making FIRE work. One, saving and investing as much as you can, starting from as early as you can. This will help you grow your money to the level you need.
Two, training yourself to ignore the trappings of consumerism and living a simpler lifestyle and spending as little as possible. Some proponents even encourage relocating to a country with lower costs of living.
The pros of the FIRE lifestyle are life free from the tyranny of a full-time job and instead being able to pursue your hobbies and passions or spending time with your loved onesPresumably, you’d then be able to lead a more meaningful and vibrant life free from stress and worry.
As for the cons, one criticism is that FIRE is only attainable for the rich or those earning high salaries since you’re expected to have 25 times your annual spending. This has led some proponents to engage in what can only be described as self-imposed poverty.
And it doesn’t stop there. Because the idea is to go without needing an income for the rest of your life, you will also need to manage your money very carefully. While rules-of-thumb like the 4% Rule can help, having to watch your spending at every turn can be stressful and lead to unhealthy mindsets and habits.
Also, FIRE has been criticised for being bad for the economy, so there’s that.
Pros and Cons of DINK
If FIRE is all about spending less and investing more, then DINK should be a natural fit.
Going “double income, no kids” should, theoretically, give couples a lot more spare cash, which means they should be able to build up a sufficiently large nest egg in a shorter amount of time. This will then give them the option to retire early.
Besides having more disposable income, another advantage of the DINK lifestyle is potentially being able to better focus on career advancement – and even entrepreneurship – without the distraction or interruption of starting a family.
On the flipside, the DINK lifestyle can negatively impact the economy, given the reduction in births. After all, fewer kids means fewer workers and fewer workers means a reduction in a nation’s ability to support the elderly.
Of course, birth rates are falling around the world – especially in developed countries – for a variety of reasons, and not just because everyone simply decided to hop on the DINK bandwagon.
For DINKs, it’s advisable to consider circumstances such as disability and frail health, which may lead to you requiring assisted living, so it is crucial to have sufficient insurance coverage and budgeting living expenses that include hiring a caretaker or nurse.
Nominating a Power of Attorney will also ease any anxieties of not being able to manage your disability or health issues and final affairs.
Putting DINK and FIRE Together – How Far Can You Go By Forgoing Children?
First thing first, it’s important to note that choosing not to have kids doesn’t automatically grant you an easier path to achieving FIRE. After all, some couples may decide to spend more on leisure activities like travel or entertainment instead. It all depends on how quickly you can build up to the sum you need to retire.
Having said, here’s a simple study of how much earlier a DINK couple may be able to retire. We’re going to have to rely on a lot of assumptions, so your mileage may vary.
Case study – Matt and Joanne
- Age: 30
- Combined monthly take home income: S$12,000
- Savings rate: 50% (annual spending budget of S$72,000)
- Target retirement sum: S$1.8 million (25 times annual spending)
- Investment returns: 10% per annum (index fund: SPY)
|Retirement sum after 5 years||S$483,500|
|Retirement sum after 10 years||S$1.26 million|
|Retirement sum after 12.5 years||S$1.81 million|
Assuming all goes according to plan, Matt and Joanne would be able to reach their retirement sum of S$1.8 million (equal to 25 years of annual spending, as per FIRE rules) in around 13 years – or at age 43.
However, given that the average Singaporean lifespan of 85.7 years, this means that Matt and Joanne will need their S$1.8 million to last a long time – around 43 years.
Let’s apply the 4% Rule and see what happens.
We put the S$1.8 million into a conservative portfolio that returns 4% each year, and let’s just say we’re lucky enough to enjoy a perfect inflation rate of 2% per year. Our imaginary couple would run out of money in 33 years, around 10 years short.
Clearly, that won’t work. But to make the numbers fit, Matt and Joanne can choose to increase their savings rate, earn more money, lower their monthly budget during retirement, or push their retirement further back.
Should DINKs Follow the FIRE Movement?
Perhaps the lesson in all this is that if you’re trying to achieve financial independence, not having to pay the costs of having children will definitely be helpful. But even then, it requires a high degree of discipline and sacrifice in order to achieve your financial independence.
You should also put contingency measures in place, such as having an appropriate level of insurance coverage, so as not to derail your retirement budget too much. You might choose to save part of your CPF Life payouts as an emergency fund, which we have not included in our calculations above.
While pursuing financial independence is an alluring goal, it is not as simple as the FIRE movement may make it out to be. It is advisable to sit down with an experienced financial planner to draw up a realistic and actionable plan for the best chance of success.
Saving and investing are great money habits to have, no matter whether your goal is to retire early or not. Read our research on the best savings accounts and best online brokerages to find the ideal platform for you.
Cover Image Source: Unsplash
The article originally appeared on ValueChampion.
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