Self-made millionaire who retired at 34 says the classic retirement model is dead: 'You just have to count on yourself'

In a conventional viewpoint, it was believed that American retirees could depend on three primary income streams to sustain their way of life: pensions, Social Security, and personal savings.

In recent years, the traditional "three-legged stool" for retirees has become unstable.

Although public sector workers often have access to pensions, private companies have mostly eliminated them, leaving employers to fund workplace retirement plans. Only 15% of private industry workers had access to a pension in 2022, according to Bureau of Labor Statistics data.

The funds used to pay Social Security benefits are predicted to run out by 2035, meaning that without Congressional action, retirees will only receive 83% of their expected benefits.

According to Sam Dogen, an early retiree, founder of Financial Samurai, and author of "Millionaire Milestones," to achieve a comfortable retirement, you may need to reimagine the retirement model.

"You can't rely on a pension or Social Security. If they're available, consider them a bonus. Ultimately, you must depend on yourself."

In 2012, Dogen, now 47 years old, had earned enough in passive and portfolio income to retire from his 9-to-5 job at the age of 34. He achieved this through what he calls a "new three-legged stool" model, which he claims can benefit both early retirees and traditional retirees alike.

Leg 1: Tax-advantaged savings

Dogen asserts that a vestige of the traditional model, such as a tax-advantaged retirement account like a 401(k), remains a crucial tool for retirement savers.

If you are part of a workplace plan, such as a 401(k), you have the opportunity to receive "free money" through matching contributions from your employer. Additionally, you receive tax benefits when you contribute or withdraw funds from these accounts.

To avoid penalties from 401(k)s and individual retirement accounts, it's beneficial to save money that can grow through compounding until retirement age.

Dogen advises prioritizing contributions to retirement plans, such as maxing out 401(k) and IRA or Roth IRA, and making it automatic so that it is not touched until age 59½.

In 2024, employees under 50 can contribute a maximum of $23,000 to their 401(k) and, if they meet certain income requirements, up to $7,000 to their IRA.

Leg 2: Taxable investments

After consistently contributing to retirement accounts, you can start investing in taxable assets, such as a brokerage account or real estate.

Dogen believed that owning these types of investments was all about amassing as much wealth as possible.

While you'll be subject to capital gains tax on any profits earned from these investments, they offer a level of flexibility because the money is not tied up until retirement. This allows you to receive a steady stream of income in the form of stock dividends or rental income before you retire. This could help you achieve an early retirement or ease the pressure on your tax-advantaged accounts to provide retirement income.

Dogen advises employees to contribute more than their maximum retirement contributions to their accounts, which may be challenging. However, if possible, aim to double or triple the value of this portion of your portfolio by the time you're 60 years old, he suggests.

Leg 3: X factor

Everyone can work on an "X factor" to save money.

"He suggests that you should engage in a side hustle or utilize your skills to generate income before or after work."

In his youth, Dogen taught tennis lessons, and later started his website as a side project while working in investment banking.

Dogen says that not only has his supplemental income grown, but it has also led to more opportunities, including book deals. He adds, "It's just fun."

If you view this aspect of the stool as "work more," it may not be particularly thrilling. However, if approached correctly, it could lead to honing a talent or expanding on a favorite pastime, potentially allowing you to turn it into a successful business in the future.

Dogen believes that having the flexibility to adapt to financial situations is key to achieving a sense of security.

"Having another way to make money not only provides security but also satisfaction because you become an expert at something you enjoy."

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