Barista FIRE: An Alternative Retirement Plan Which Could Actually Work
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Barista FIRE: An Alternative Retirement Plan Which Could Actually Work

profileXue Miao
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“My biggest fear is to spend all my time on work and never being able to do the things I want, before it’s too late.”

Nobody wants to work till they’ve got one foot in their graves.

highnunchicken working till death
Source: Highnunchicken

This is why when the Financial Independence Retire Early (FIRE) movement got introduced, it really caught…… fire.

(Please excuse the pun.)

For the uninitiated, the FIRE movement focuses on aggressive saving and passive investing, allowing individuals to be financially independent before the official retirement age of 62 (in Singapore).

The internet started to explode with FIRE fanatics teaching how one can retire early, and coupled these information with graphs and charts, showing us the money required for us to leave our day jobs.

Many followers of the FIRE movement suggest that the magic amount required for retirement to be 25 times your estimated annual living expenses.

Monthly ExpensesYearly ExpensesYou Will Need
(25 x Yearly)
$3,000$36,000$900,000
$4,000$48,000$1,200,000
$5,000$60,000$1,500,000
$6,000$72,000$1,800,000

This is based on the assumptions of:

  1. Portfolio is earning 5% annual investment returns
  2. A safe withdrawal rate of 4% from the portfolio after retirement (inflation-adjusted)

Looking at the numbers above, for a monthly expense of $5,000, one would need a portfolio of $1,500,000.

However, not everyone would be able to save that sum of money to leave the workforce, or have that amount of savings to be placed in the stock market to generate returns.

parks and recreation
Source: giphy

Here’s introducing the Barista FIRE concept!

Barista FIRE is a movement which focuses on followers having the option of quitting their traditional 9-5 jobs, but still have some form of part-time work (like being a barista, as its name suggests) to cover expenses.

harry potter choosing wand
Source: tenor

Example of Barista FIRE

Here’s a simple example to illustrate this concept.

Kygo is a 25-year-old who earns $96,000 a year. He has a yearly expense of $48,000.

After spending $48,000, he has $48,000 to save.

In order to become financially independent, he has to have a portfolio of $1,200,000 (25 x yearly expense).

investing 48k with 5 percent returns

Assuming he starts with zero savings, he would be able to cross his target portfolio at 41 years old.

Retiring at 41 years old definitely sounds a lot better than 62.

However, this means that he would still be spending his 20s and 30s stuck in a cubicle.

If Kygo has a job he loves, that would be a wonderful idea.

However, this is not the case for most Singaporeans, where job satisfaction is sadly lower than the global average.

the office jim no future here
Source: tenor

If Kygo belongs to Team Unsatisfied Employee, he might want to leave his job before turning 41.

He could do so if he adopts the Barista FIRE approach.

If Kygo would like to leave his job at 35, he would reach a portfolio of ~$700,000.

With a safe withdrawal rate of 4%, Kygo would be able to receive a yearly expense of $28,000 from his portfolio.

To meet his yearly expense requirement of $48,000, he just needs to find a part-time job which can fetch him $20,000 annually, or $1,670 per month.

In short, he now requires a side job that can supplement his lifestyle, as part of his financial needs already being met by his savings.

As compared to his office job which fetches him $96,000, he now has the flexibility to opt for a side hustle which could be considerably less stressful, and more meaningful or fun.

ooh interesting
Source: giphy

A huge win to this approach would be the flexibility of being able to go for ‘mini-retirements’, allowing us to have more time spent on doing what we love at a younger age, where we would be having more energy and be in better health to do so.

‘Mini-retirements’ are breaks that last for an extended period of time, and could be very beneficial in self-reflection and providing mental clarity.

Such breaks could be spent on traveling, pursuing a hobby, spending time with family, or simply just doing things that you love.

This option would not be possible when you are tied down by a full-time job, where vacation leaves are usually limited.

In addition, there are people who prefer taking this retirement game slightly slower, as a sudden leap into full retirement may even result in identity crises.

As such, Barista FIRE is an awesome middle-ground between full FIRE and retiring officially at 62.

i love this excited talent show
Source: giphy

That being said, little retirement breaks would take extensive planning, where finances have to be carefully considered and nicely thought out.

This is important in order for the approach to be sustainable.

 

Another benefit that comes from the Barista FIRE method as compared to the FIRE approach would be less reliance on your portfolio.

Instead of being 100% reliant on your stocks, you have a side income that earns you money and could you tide you through difficult economic periods (for instance, during a recession).

shocked barney stinson
Source: giphy

When adopting the Barista FIRE method, there are a few things to take note:

Earning More Than “Just Enough” to Reach Full Financial Independence

Taking the Barista FIRE approach means having to have a side hustle to supplement your expenses.

Therefore, in order to achieve full financial independence one day (i.e. not working at all), Kygo has to earn more than $1,670 in order to be able to continue growing his portfolio.

Balancing Between When to Retire and Building of Portfolio

As we can tell, the longer you’re able to tahan at your job, the bigger your portfolio pot could grow.

The earlier you leave your corporate cell, the smaller your pot would be. (like, duh.)

Therefore, if you enjoy your work, it is definitely better if you could stick it out for a little while, accumulating more cash before bidding farewell.

If you hate it like how Voldermort hates Harry Potter, it would definitely make sense for you to make your exit sooner.

It’s all about priorities.

Barista FIRE: An Alternative Retirement Plan to Consider

It’s lovely how retirement is no longer just about leaving the workforce when we are old and grey. We are now presented with different options, depending on our lifestyle and priorities.

By seeing examples of people successfully achieving it, it gives us a little more motivation to work towards our retirement dreams.

Are there any other ways of retirement we should look into? Let us know below!

 

 

 

 

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About Xue Miao
A millennial who is learning to adult. She doesn't believe in the rat race and hopes to live on a farm someday.
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