Hidden Risks Of Retiring Early: Insights From A Financial Guru Who Retired At 34

Sam Dogen, a leading figure in the FIRE movement and founder of Financial Samurai, highlights a critical oversight many early retirees make: failing to account for life's unpredictable changes.

Underestimating future living costs and lifestyle shifts can lead to financial strain, especially when unforeseen expenses arise, he tells CNBC.

Dogen, who managed to retire at 34, shared his journey from a modest life planned on a fruit farm in Hawai'i to a more costly existence in San Francisco with his family — a testament to the need for flexible financial planning.

His initial retirement income of $80,000 a year eventually proved inadequate as his family grew and expenses increased, leading him to generate $380,000 in passive income by 2023.

"The idea was to live on $80,000 and see how it goes. Three years later, maybe my wife could join me and negotiate a severance package of her own. My hope was, OK, we generate at least $100,000 after three years when she leaves as well, because there’s two of us to pay for now. Because we gotta pay for for health insurance and just day-to-day life," he said. 

"And, yeah, that was it. Just us two in Hawai’i when it was cheaper. My grandfather had a fruit farm that he needed workers to tend to the mango trees. And our goal is to live a really simple life on the fruit farm in Hawai’i," added Dogen. 

Coast FIRE: Despite this success, Dogen emphasizes the dangers of Coast FIRE (financial independence, retire early). This strategy relies too heavily on future market returns without accounting for life's uncertainties, he argues.

"If you do Coast FIRE, it might force one partner to be in an suboptimal situation, where one has to work and provide health care and insurance and whereas the other one is supposedly retired early, and chilling," Dogen said during the interview. 

The FIRE strategy often involves calculating a "FIRE number," representing the money needed to retire early. This figure is based on the assumption that one can safely withdraw 4% of their portfolio annually.

Yet, Dogen argues that this method does not sufficiently consider the dynamic nature of personal and economic circumstances over time.

In conclusion, Dogen advises those in the FIRE community to prepare for the future by considering a wider range of outcomes and building a financial plan that can adapt to changing circumstances.

This approach ensures a more secure retirement and averts the risk of being unprepared for life's inevitable surprises.

Now Read: How Being A 'Lousy Employee' Fueled Mark Cuban's Success: 'I Was A Know-It-All'

This story is part of a series of features on the subject of success, Benzinga Inspire.

How can you invest in early-stage startups if you don’t know the founders? Easy. Click here for a list of startups you can invest in today.

Benzinga may receive monetary compensation from the issuer, or its agency, for publicizing the offering of the issuer’s securities in this article. Please see 17b disclosure linked in the offering circular for more information.

This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Image: Pixabay