Why I’m Shooting for a $1,000,000 Nest Egg for my Early Retirement

Early Retirement Freedom

Written by Liz

Just your regular 27-year-old, queer, super-introverted, FIRE-chasing, frugal Singaporean, who lives a pretty good life while earning only a modest salary, but still plans to retire at age 40 with $1,000,000. Click here to read more

May 16, 2020

In a previous post, I explained how I currently spend only about $9,000 to $10,000 in a year.

This would put my retirement nest egg at anywhere between $225,000 to $250,000, based on the 4% rule.

However, I spend so little right now only because I currently live with my parents and I pay them rent at a 50% discount to the market price.

When I move out in approximately 2 years (that’s the plan, at least), I expect my expenses to increase by a fair bit. How much then, would I need to retire? This is what I explore in this post.

I went through my numbers and considered the following variations of FIRE:

  1. Bare-Bones FIRE;
  2. Lean FIRE;
  3. Regular FIRE; and
  4. Fat FIRE.

Note: All currency stated in this post is in Singapore dollars (S$).

Bare-Bones FIRE

What is Bare-Bones FIRE?

As the name suggests, bare-bones FIRE is when you have 25 times your bare-bones expenses saved up. In other words, your nest egg provides you with enough passive income for only your necessities. There is no room in the budget for many, if any, luxuries.

Bare-bones FIRE is attractive for those who are dying to quit their jobs to start afresh, or to take a sabbatical, without worrying about how to pay the bills. Bare-bones FIRE shortens the runway to financial freedom dramatically, as it’ll take you much less time to save $300,000 as compared to $1,000,000.


What is My Expenditure and Nest Egg in Bare-Bones FIRE?

After doing the math, I expect my budget to look like this, assuming I continue to stay in Singapore:

Category Monthly Expenses (S$)
Rent and Fees$550
Household and Utilities$105
Living Expenses$37
Monthly Total$1,072
Yearly Total$12,864 ($1,072 x 12)

Based on the 4% rule, I’d need to save up only $322,000 ($12,864 x 25) to be financially free.

This $322,000 has to exclude retirement contributions, since the Singapore Government doesn’t allow us to have much control over our retirement accounts anyway. Excluding retirement accounts, I had slightly north of $180,000 as at April 2020.

This means that I need to save up at most $142,000 more ($322,000 less $180,000) before I can be bare-bones FIRE. This should take me no more than 3 years to save up, assuming that I work full-time as well as have a solid side hustle. 3 years isn’t a long time, and it’s freeing to know that I am able to quit my job in the near future, should I choose to do so.

Current Net Worth

Required Nest Egg

Years of Full-Time Work

Hacking My Way to Bare-Bones FIRE

In order to get to bare-bones FIRE as soon as possible, I need to reduce my 3 biggest categories of expenses, which is household, food and transport.

Household: I would find a very small minimalist place to rent out, far away from the city centre. That way, rents would be cheaper. And it doesn’t matter much that the location isn’t convenient, since I don’t need to hold down a job anyway.

Food: Although I love eating out, this is something that has to go. I would spend only on groceries, and cook at home 100% of the time.

Transport: I would take only public transportation. It’s dirt-cheap compared to private transportation.

Why I’m Not Shooting for Bare-Bones FIRE

Although I don’t love my job and the office culture, I’m not yet completely repulsed by it. I understand the need to sacrifice a few years in the office, for decades of freedom down the road.

So yes, while I plan to quit my job in 2021 to figure out what I want to do, and to make a career change, I see this more as a mini-retirement of a fixed period (1 year) where I go back to work after it ends, rather than an open-ended early retirement on a bare-bones budget.

However, if it ever gets to the point where I loathe my job and my health suffers, being bare-bones FIRE will be handy tool in my pocket for me to quit my job pronto.

Quitting My Job

Saying goodbye to a toxic job – Probably one of the best feelings in the world?


What is Lean FIRE?

There’s no fixed definition as to what Lean FIRE is. Some believe that Lean FIRE is something you achieve when you save up 25 times your annual expenses on a lean / not-many-frills-involved kind of budget. Others believe that Lean FIRE is where you spend less than $40,000 a year, and therefore need to accumulate a nest egg of less than $1,000,000 to support your needs.

For the purposes of this post, we’re going with the latter definition – If you plan to accumulate less than $1,000,000 for your retirement nest egg, that’s Lean FIRE.

I see a difference between Bare-Bones FIRE and Lean FIRE.

For me, Bare-Bones FIRE is just about survival. It’s a temporary solution to escaping a job that you hate. The Bare-Bones budget contains no frills at all, no travel, no dining out, nothing.

On the other hand, Lean FIRE is about living out the rest of your life on a lean budget, which may or may not involve a few frills. If you plan to shoot for Lean FIRE, you should be comfortable and happy doing so. After all, it’s a lifestyle choice, not a temporary solution.


What is My Expenditure and Nest Egg in Lean FIRE?

After running the numbers, I discovered that I would spend $16,800 a year on a lean (yet still very comfortable) budget.

CategoryMonthly Expenses (S$)
Rent and Fees$750
Household and Utilities$105
Groceries and Dining Out$200
Living Expenses$37
Transportation $100
Discretionary (Travel, Entertainment, Gifts, etc.)$80
Monthly Total$1,402
Yearly Total$16,824 ($1,402 x 12)

You might notice that my Bare-Bones budget and Lean budget don’t differ too drastically. I increased expenditure only in areas that I care about – Rent, food, travel, and gifts.

On $16,800 a year:

  • I’m able to rent a studio apartment in a condo with all the facilities I could ever need (like a pool and a gym).
  • I’m also able to go on cheap holidays to low cost of living countries around South-East Asia.
  • I’ll be able to eat more meat and buy better food, with a larger grocery budget.
  • Gifts are no longer out of the question when it comes to special events.

These things are important to me. Even though I could retire earlier by cutting these things out of my life, that’s not something I would want to do.

Dollar Beer in Cambodia

Drinking S$2 beer in a fancy bar in Cambodia.

In order to retire early, based on the 4% rule, my nest egg would have to amount to $421,000.

Although this is only $100,000 more than my required bare-bones nest egg, it offers me a lot more perks (explained above). It’s quite exciting to know that I could actually retire with just $421,000, and still live a comfortable life.

My current net worth puts me at only 57% away from retirement. About 5 more years of full-time work and battling lifestyle inflation should allow me to retire with this nest egg.

Current Net Worth

Required Nest Egg

Years of Full-Time Work

Why I’m Not Shooting for Lean FIRE

However, I’m not shooting for Lean FIRE, because my girlfriend and I want to:

  1. Eventually start a family;
  2. Purchase our own apartment; and
  3. Go for more holidays / travel the world together.

All these things don’t come cheap.

And that brings us to Regular FIRE.

Regular FIRE

What is Regular FIRE?

Most folk shoot for Regular FIRE, which is in between the two extremes of Bare-Bones FIRE and Fat FIRE. This would typically require them to accumulate a nest egg of about $1 million, which is where I currently stand as well.

What is My Expenditure and Nest Egg in Regular FIRE?

After running the numbers, I discovered that I would spend $35,000 a year if I were to spring for a few more luxuries in life, such as buying my own apartment.

CategoryMonthly Expenses (S$)
Mortgage and Fees$1,500
Household and Utilities$200
Groceries and Dining Out$250
Living Expenses$37
Discretionary (Travel, Entertainment, Gifts, etc.)$200
Monthly Total$2,917
Yearly Total$35,004 ($2,917 x 12)

You might notice that the main increases in expenditure between my Regular FIRE budget and my Lean FIRE budget again involve only the things that I care about – Family, household, food, travel, and gifts.

In addition to this annual expenditure, I would also put some money aside for housing and for the costs of pregnancy, which would be split equally between my girlfriend and I:

Housing Costs: $20,000 per person*
Fertilisation Treatment: $5,000 per person
Pre-Natal Care: $3,000 per person
Childbirth: $6,000 per person

*As for my housing downpayment and other fees, I’ll be able to use my retirement accounts to make most of this payment. As such, I don’t expect to have to fork out a lot of money out of pocket.

For my one-time expenditure, I expect to be able to save this kind of money in at most 1 year of full-time work. For the sake of simplicity, I will not be including these one-time expenses in my calculation of my nest egg.

In order to be financially independent, based on the 4% rule, my nest egg would have to amount to $875,000 ($35,000 x 25).

Why then, am I shooting for a $1,000,000 nest egg instead of just $875,000?

Why I’m Using a 3% (and not 4%) Withdrawal Rate

Being a conservative person when it comes to risk, I plan to accumulate a nest egg of a cool $1,000,000 and draw down only 3% or $30,000 a year.

This is in contrast to the 4% rule, where I’m allowed to draw down 4% or $40,000 a year.


3% vs. 4% Withdrawal – The Difference between 0% and 22% Failure

The famous Trinity study found that if you withdraw 4% from your portfolio of 50% large-cap stocks and 50% long-term high-grade corporate bonds at the start of every year, there’s a 95% chance of survival over a 30-year period. (Thanks goes to Four Pillar Freedom and The Poor Swiss for their great articles on this study.) That’s where the 4% rule came about.

However, the limitation to this study is that it looked only at 30-year periods. Since I plan to retire in my early-40s, barring any unforeseen health complications, I could easily live another 40 years, or maybe even 50 years.

So, I ran my numbers through FIRECalc. Turns out, a $1,000,000 portfolio with a 3% withdrawal rate over a 50-year period saw a failure rate of 0%. On the other hand, a portfolio of $875,000 with a 4% withdrawal rate over a 50-year period saw a failure rate of 22%.

$1,000,000 Nest Egg, 3% Withdrawal Rate, 50-Year Period

0% Failure Rate

3% Withdrawal Rate

$875,000 Nest Egg, 4% Withdrawal Rate, 50-Year Period

22% Failure Rate

4% Withdrawal Rate

Unfortunately, a 22% failure rate is not a chance that I’m willing to take, so I’m sticking with the 3% withdrawal rate.


Dividend Payout Ratio

Another reason I chose to use a 3% withdrawal rate is because my investment portfolio pays out dividends of approximately 3% per annum. Here’s what my investment portfolio consists of, with the corresponding dividend yield of each asset class.

  • Singapore stock ETF, between 3 to 4%.
  • U.S. stock ETF, less than 2%.
  • International stock ETF, between 3 to 4%.
  • Bond ETF, slightly north of 2%.
  • Individual stocks, between 5 to 7%.

To combat the low dividend yields of my U.S. stock ETF as well as my bond ETF, I’ve been picking up more and more high-dividend-yielding stocks to increase my overall yield.

The plan for retirement is to live off just dividends for the rest of my life, as I don’t really feel comfortable selling off stocks to fund my lifestyle.

Other Considerations

Bridging the Gap with Enjoyable Income

You might have noticed that my yearly withdrawals of $30,000 a year isn’t enough to cover my yearly expenses of $35,000.

To bridge this gap of $5,000 a year, I plan to find sources of enjoyable income.

This could be from this blog, or from freelancing, or from part-time jobs (gasp, active work in retirement?). After all, I believe that work can be a wonderful thing, and I plan to never stop working as long as I enjoy it.

Having small sources of income in retirement will provide me with peace of mind as well, just in case I happen to see dividends of less than 3% for any particular year. If that happens, I wouldn’t have to draw down on my portfolio; instead, I could just ramp up the hours that I’m working for that year.


Why Not Aim for a $1,170,000 Nest Egg Instead?

You might also be wondering why I’m not aiming for a $1,170,000 nest egg instead, since a 3% withdrawal rate from this nest egg would amount to $35,000, allowing me to cover all my expenses instead of having to work part-time.

Well, I’ve 2 reasons for that.

First, saving an additional $170,000 means more years in the office. If the market does well, I could save this extra amount in just 1 to 2 years. If not, I could be in the office for many more years. That’s not something that I’m willing to do.

Second, my yearly expenses will not be as high as $35,000 forever. After I pay off the mortgage in 25 years, my expenditure will decrease drastically, as I would no longer have to pay the $1,500 a month (or $18,000 a year) to service my mortgage. This means I will be spending only $17,000 a year.

At this point, my $1,000,000 nest egg will be able to support all my needs, wants, and more.

I will then be free to spend my extra disposable income on whatever I please, like family, travel, and passion projects.



Why I’m Not Considering Fat FIRE

Fat FIRE is something you achieve when you save up 25 times your annual expenses on an above-average annual budget. To achieve Fat FIRE, you need anywhere between $2 million to $5 million or more in your nest egg.

I’m not considering Fat FIRE primarily because I don’t want to add another decade or two to my working life. I believe that time is too precious to spend a majority of my life sitting in a cubicle. In contrast, I want to go deep into my passion projects that I enjoy, whether they pay or not.

In addition, I don’t spend a lot of money, as I’ve already cut most of my extravagant habits from my life. My remaining guilty pleasures include only wanting to buy an apartment, spending on travel, and eating out.

With the exception of wanting to buy an apartment in Singapore, where real estate is extremely pricey, I’m convinced that I can still enjoy marvelous experiences without paying too much.

Even in my current financial situation, with just $180,000 in the bank (excluding retirement accounts) and financial independence nowhere in sight, I already feel contented and grateful for most of my days (with the exception of bad days in the office). There’s not much else in life that I really want or need that money can buy. What more could $5 million get me that could make me that much happier? Not much, if anything at all.

And for all those reasons, I’m not considering Fat FIRE. And I look forward to being Regular FIRE one day.

Michelin-Starred Sushi

Enjoying Michelin-starred sushi omakase in Japan. It was a blast. Price? ¥3,000, or US$28, or S$40. Don’t think you need a $5 million nest egg to enjoy this.

Are you Bare-Bones FIRE, Lean FIRE, Regular FIRE or Fat FIRE? What do you think about the 4% withdrawal rate? Is a $1,000,000 nest egg too little, or too much?

Thank you for reading!

Become a Millionaire and Retire Early on a Modest Salary Book Cover

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