You might have seen the acronym FIRE – it stands for Financial Independence, Retire Early. To me, the FI part is more important – I want to reach financial independence in Malaysia.
Imagine waking up in the morning, thinking, eh, I don’t feel like working today, so you just… don’t. And still be okay financially, with no consequences.
That’s the dream, isn’t it? I want that. I want that so bad.
The topic of financial independence and early retirement has been on my mind for the longest time, but I admit I’m afraid. I’m afraid to find out the amount I need to get there. I’m afraid the number will be too big that it’ll discourage me, instead of motivating me. I’m afraid to think of the sacrifices I have to make.
Which is why I’m forcing myself to write this article. Let’s force out all those jumbled thoughts and put them in a linear, clear format.
How to reach financial independence in Malaysia
Based on the articles and resources I’ve read about the topic, here’s how one can reach financial independence in Malaysia:
- Do all you can to earn money, until you reach the amount you need
- Chuck it all in investments, allowing it to earn interest
- Make withdrawals that’s enough to fund your lifestyle, forever
The key is to have a big enough amount so the money doesn’t run out before you die, because that would suck.
There are two ways to calculate how much money you need to reach financial independence in Malaysia:
First way: 25x your annual expense
One of Mr Money Moustache’s most popular post is called The 4% Rule: The Easy Answer to “How Much Do I Need for Retirement?”. A popular FIRE advocate and OG personal finance blogger, he argued that one needs roughly 25x their annual expenses for early retirement.
Now, the maths is based on (1) US-centric figures and assumptions, which is not the same for Malaysia, and (2) oversimplification of 7% annual return rate and 3% inflation rate (the numbers are not that predictable).
Regardless, 25x your annual expense is a simple enough calculation to use to guesstimate your FIRE number. For example:
- If your annual expense is RM40k per year, your FIRE number is RM1m
- If your annual expense is RM60k per year, your FIRE number is RM1.5m
- If your annual expense is RM120k per year, your FIRE number is RM3m
And so on. You could, in theory, aim to hit the number then hire a financial planner who can do a personalised calculation for you – maybe its enough, maybe its not, it all depends on your envisioned retirement lifestyle.
But I know some of you are hardcore DIY-ers, and want to calculate your own FIRE numbers and/or want better accuracy, so here’s the second way:
Second way: Calculate your FIRE number from your variables:
The ‘variables’ are:
- What is your ‘post-retirement’ lifestyle and how much it is expected to cost
- Your life expectancy (the average life expectancy for Malaysian women is 77.6 years old. Let’s just round that up to… 85… just in case)
- The inflation rate
- Your average return on investment (5-8% is a good benchmark)
The calculation is easy in theory, but figuring out the variables are hard. How would I know how much I need after retirement? Even my year-to-year expenses varied a lot – I spent an average of RM8600 per month in 2017 and an average of RM4900 per month in 2016.
And what kind of post-retirement lifestyle do I even want? I haven’t decided. How much would that cost? Will I be healthy or need medical assistance then?
Oh well. Let’s just do the calculations first. I found a couple of calculators online.
Calculation #1 – Annuity calculator
To calculate the amount I need, I tried Calculator.net’s annuity calculator first. After playing around with the numbers, I found out that I can withdraw RM5,000 per month for 53.6 years if I have RM810,000 in investments now.
I thought I solved the ‘how much I need’ part, but on closer inspection, no I don’t. The scary part is the inflation.
You don’t really notice it on a year-to-year basis, but it’s clear as day in the example above. I don’t want 83-year-old me to live on an equivalent of RM677 only per month! I want comfort in my old age!
Calculation #2 – Post-retirement calculator
So obviously I need to find a calculator that takes inflation into account. No wonder they call it ‘the silent killer’.
I found this Rich, Broke or Dead calculator which answers the question: If I start out with $X dollars at the beginning of my retirement, will I run out of money before I die?
The calculator is not the most suitable for my case (for example, they use US inflation rates), but it’s still nice to be able to play around with the numbers.
According to the results, RM1,950,000 invested at age 30 will give me 99% probability to withdraw RM60,000 annually (inflation-adjusted!) until I’m 85 years old!
Holy shit that’s a big number. I am nowhere near there. I am nowhere near reaching financial independence in Malaysia.
There it is. The emotion I was trying to avoid, too scared to confront. I’m overwhelmed by this amount. I doubt my ability to earn this much in my lifetime.
Then, immediately after that thought: the crushing realisation that I lack self-confidence in my own earning potential.
Quick, an inspirational quote to stop all this worrying and anxiety:
… that subsided it somewhat, but still.
I know I can only do the best I can, and dammit I am trying to be good with this saving and earning money thing.
I know I could be in a worse financial position.
I know I am lucky to actually enjoy the work I am doing now.
I know that worrying now is worrying twice.
So… no rush, Suraya. Reach financial independance at your own pace, don’t worry too much about retiring early – as they say, it’s the journey, not the destination.
Whatever it is, remember you’re planning for 85-year-old you, but don’t forget there’s no guarantee you’ll even reach that age. So save money, yes, but remember to live like each day is your last, too.
Even though I don’t want to worry too much, I sure as heck will try my best to increase my likelihood to reach financial independence in Malaysia.
Two things make financial independence in Malaysia easier:
- Low post-retirement expenses, and
- High income AND savings rate to reach the number needed
Let’s look into both:
Low post-retirement expenses
I’ve been using RM5,000 per month to guesstimate the amount I need for my post-FI life. In my head, the amount is just enough to cover the essentials (rent, insurance, food, transportation, etc), cover the expenses of my passion projects.
I can live on less, definitely, if I try. For example, I could move to a cheap country, which saves money on the essentials and satisfies the wanderlust element.
Thankfully, I’m in no rush to decide on a post-retirement lifestyle. I’m still young, and can take the time to try out different ways of living.
So that brings us to the second part of FIRE:
Getting the amount needed
After doing the calculations, it’s clear that I need around RM2, maybe RM3 million to safely call myself financially independent. The number might change as I grow older or if situations change, but it’ll do as a benchmark for now.
A lot of people in the FIRE community make sacrifices to get the amount they need, faster. I’ve seen people:
- Adjust their accommodation arrangement to lower their cost of living – move to rural areas, move with the parents, live with housemates
- Choose to not have children
- Live extremely frugal lifestyles
- Bust their asses off to earn extra income
- Stick with high-paying, but high-stress jobs
The more sacrifices they make, the faster they FIRE. Therefore FIRE communities also act as a support group of sorts, full of encouragements.
It’s a nice community, however I can’t say that I like all of its aspects. It can be a bit too money-obsessed, even for me. I’m okay with slowly getting there, as long as I enjoy my life.
Do you plan to FIRE?
In Malaysia, I know a few people who are consciously working towards FIRE. I’ve gotten emails from readers who shared their journeys. Some shared the lack of support from family and friends, who didn’t understand the rush.
How about you? Have you ever calculated the amount you need? Which calculator did you use? Also, what do you plan to do after you retire early?
Let me know. Share your thoughts in the comments section.