(MONEY Magazine) – The week after they handed over the keys to the new owners of their San Diego security business, Bob Lawrence, 50, and his wife Cheryl, 47, decided to indulge themselves. For the first time in memory, they spent a worry-free two days watching a golf tournament, enjoying the game that for years they had been too busy to play. The next day, Bob went back to the office to begin work as a part-time commissioned salesman for the company he'd just sold. Says Lawrence: "I spent 22 years being the boss. Now I'm a part-time employee."

His career downshift is part of the Lawrences' early-retirement plan. With the $525,000 they are getting from selling their firm, together with their $350,000 in real estate assets and $257,000 in savings, Bob and Cheryl have enough capital to declare their liberation from the daily grind. But without the extra $20,000 to $30,000 Bob expects to make selling safes and secured-entry systems, he and Cheryl could never afford the extras--like trips to Europe and a better set of golf clubs--that will make their retirement worth living.

The couple's plan is instructive for the millions of Americans who are either dreaming of retiring before 65 or are being forced out early by corporate downsizing. First, you are going to need assets that add up to the high six figures before you can even think of kissing the office good-bye. And even then, say the experts, work in some form is likely to remain part of the picture for years after your official leave-taking.

According to Laurence Stybel, CEO of Stybel Peabody Lincolnshire, a career consulting firm in Boston, two factors make early retirement exponentially more expensive than the traditional strategy of 65-and-out: your increasing life expectancy and your shorter job tenure. (For more on accumulating the assets to finance the traditional retirement at 65, see the cover package beginning on page 88.) The first means you'll need more savings so you don't run out of money, but the second gives you less time to build that critical mass. A comfortable early retirement is possible, as the experience of the Lawrences shows. To pull it off, however, you must face up, as they are doing, to reality:

--You will need to live on a budget. The drill is familiar: Gather your canceled checks over the past couple of years and see where your money is going. Factor in any events that may reduce your expenses, like moving or the graduation--finally!--of your last kid from college. Be realistic: You may need to buy your own medical insurance if your company does not provide benefits for retirees. Your travel expenses are likely to rise and your tax bill will not fall as far as you might expect in retirement--especially if Congress decides to save Social Security by taxing a larger portion of beneficiaries' retirement checks.

--You will need a plan. The difference between an early-retirement daydream and a serious plan is that the latter puts a price tag on the fantasy. Ideally, you want to accumulate enough assets to see you through your ninth decade without a reduction in your standard of living. How much will that cost? Brace yourself: If you hope to retire at 55, you must have saved--at a conservative estimate--the equivalent of $235,000 in today's dollars for every $10,000 you will need to live on.

--You will need to save and invest aggressively. Look at the 4.9% savings rate in this country, and you'll realize that you aren't the only American who isn't socking away enough for retirement. As a rule of thumb, think 10 and 10 to meet your goals: Aim to save at least 10% of your gross income and earn an annual average return of 10% on that money. Tilt your holdings substantially toward stocks and stock mutual funds--and then hold on for the ride.

--You will need to work after retirement. At 55, you can quit your job, but you'll likely have to earn some kind of paycheck until you are at least 65 in order to postpone dipping into your retirement accounts. A retirement job needn't be a grind, however. You can choose to do something less stressful than you do now without worrying about maximizing your salary. Besides, a life of complete leisure is not necessarily heaven on earth; after all, 40 years of fishing is a lot of worms.

Here's how three couples who range in age from 27 to 50 are planning for their early retirement:

QUIT THE JOB, NOT THE WORK FORCE

The Lawrences first contemplated the possibility of early retirement five years ago, when the strain of running a company with more than $1 million in sales took its toll. The couple had purchased a locksmithing business for $15,000 in 1974 from Cheryl's father, a retired Navy man. Over the years, they had expanded it from a simple one-man lock and key service into a $1.4 million enterprise that sold security systems for homes, autos and businesses and employed 16 people. But owning a 24-hour-a-day business required sacrifices. "We were always on call," recalls Bob. "It was like being a trauma surgeon." They rarely had time for their car-racing passion, and Bob gave up golf. When they tried to throttle back, the business stopped growing. Meanwhile, they were living on about $80,000 a year.

The more they thought about packing it in when Bob turned 50, the better they liked the idea. So late in 1995, the Lawrences sought out San Diego financial planner Raymond J. Lucia to determine how big a nest egg they would need to realize their dream. His assessment of their situation was sobering: Generating a retirement income of $5,000 a month for 40 years--what they originally thought they'd need to live on--required at least $1.5 million in total capital. Since the couple knew they'd never be able to accumulate such a hoard from San Diego Security's profits, they decided to sell the business and convert the company's income generation potential into cash.

In 1996, California Commercial Security agreed to pay $525,000 to the Lawrences for San Diego Security. The couple received $100,000 in cash and is getting the remainder at 8% interest during the next 10 years in monthly installments of $5,200. Their buyer agreed to keep leasing San Diego Security's building, which the Lawrences own, for the next decade at $2,750 a month. As a result of these transactions, the couple can look forward to an income of $7,950 a month--more than they earned as sole proprietors.

Meanwhile, Lucia suggested the Lawrences reallocate their investment portfolio, which was 39% in cash and short-term government funds. He proposed an asset mix of 20% in fixed-rate annuities, 27% in an S&P 500 index fund, 24% in international funds and the rest in a smattering of domestic equity funds. The portfolio was designed to produce an after-tax return of about 9%, vs. the 7% the Lawrences could expect to earn from their old portfolio. When compounded over their 40-year life expectancy, that extra 2.16% is the difference between running out of money by age 91 and leaving $3,625,800 to daughters Tiffany, 20, and Tina, 28. In those 40 years, the combination of funds from the sale of the business, rent on their building, the eventual sale of that property and a more aggressive securities investment strategy will give the couple a comfortable lifestyle and a promise of a sizable estate. Says Cheryl: "Even if we live to 100, we know where our income is coming from."

RETIRE EARLY BUT LATER

Dave and Kaeleen Buckingham of Arvada, Colo. have the same dream of early retirement as the Lawrences. Parents of six-year-old Charlotte, they want to travel while they are still young enough to enjoy it. "My parents retired at 58 and spent the past nine years traveling and having fun," says Kaeleen, 39. As far as she's concerned, in 12 years when Charlotte's off to college, she and Dave could be on the road too. But financial planners warn that they may not be able to afford the footloose life quite as soon as they'd like.

Dave, 47, is a geologist employed by the U.S. Geological Survey. When he reaches 57 in 2007, he'll have completed 30 years of government service and will be eligible for a lifetime federal pension of $2,298 a month. Kaeleen, a computer programmer for Hughes Aircraft, wants out as soon as possible. "I'd like to be a stay-at-home mom," she declares.

Denver planner Janet L. McCoy of Sharkey Howes Wagner & Javer believes the Buckinghams can reasonably hope to retire early only if they are willing to scale their retirement spending down to roughly $35,000 a year from the $40,000 they estimate they could live on in retirement. Because they will have another 10 years left on their mortgage in 2007 when they both expect to retire, they may have to compromise on their travel budget to pay their bills.

One thing in the Buckinghams' favor now is that they are dedicated savers, putting aside more than 15% of their $101,000 income. Thanks to their aggressive saving habits, Kaeleen's 401(k), Dave's federal Thrift Savings Plan and both their IRAs will have ballooned to $610,147 by 2007, assuming a conservative 8% rate of return. But that's still not enough to support them comfortably in a retirement starting when Dave is 57. Observes McCoy: "They'd have a greater margin of safety if they postpone retirement until Dave is 62." Working that extra five years would give them another $351,939.

Setting a budget they can stick to in retirement will also be crucial for the Buckinghams. According to McCoy's calculations, if they quit when Dave is 57 and Kaeleen is 49 but they live to their mid-nineties the way their grandparents did, they can spend only $34,607 a year. Then by 2034 there will be an estate for Charlotte of $610,640. But all Kaeleen and Dave have to do is run over by just $1,242 a year for the next 40 years, and they'll wind up with practically nothing. The Buckinghams are confident they can keep their spending in line: "I think we can do it," says Dave. "My dad retired with a federal pension and about $1,000 or so in the bank, and he did okay."

DON'T COUNT ON A TREASURE CHEST

Options and operating systems are the wild cards in John and Leanne Norby's deck. The Mill Creek, Wash. couple have been married for four years, and their plans are vague but ambitious. "All we know at this point," says John, 30, "is that we might have kids, but we'd still like to retire by the time we're 50." Adds Leanne, 27: "That should be possible unless we have quadruplets."

The Norbys can afford a certain amount of wishful thinking because he is an employee of Microsoft, the software giant. Some 1,000 Microsoft workers are paper millionaires, thanks to the moon-shot trajectory of the company's stock and the generous stock options offered to employees. John, who trains the customer support staff and has worked for Microsoft for six years, already has options worth $174,000. Says Leanne, a part-time graphic artist: "They're like our magic treasure chest."

Because the Norbys are familiar with the miracle of compound interest, they are putting aside 9% of their combined income of $61,000. They have a total of $23,000 in Fidelity stock funds and Microsoft shares. They also own a three-bedroom house that they bought for $210,000 in upwardly mobile Mill Creek, and they are convinced it will appreciate by as much as $50,000 when the empty--and unsightly--lot next door is developed.

The couple's fiscal prudence is marred by the fact that they are spending more than they are making and are funding the difference out of the inflated Microsoft options. In '96 they exercised $14,000 worth to pay for a $4,000 operation to correct John's nearsightedness and $10,000 worth of new floors and carpeting in their house. Those expenses, along with others like $3,000 season tickets to Seattle Sonics basketball games and a $3,500 trip to the Caribbean meant that their 1996 outgo was 40% more than their income. "We know we can't rely on getting more options indefinitely," says John. "But if we do, it could make early retirement feasible."

No way, says Bellevue, Wash. financial adviser Jay H. Cowles, who evaluated the Norbys' freedom-by-50 plan. "They're not going to make it." The couple are simply not saving enough to make up for the possibility that Microsoft stock will flatten out in the future, and without at least an additional $12,500 a year in savings or a longer income stream from employment, they will run out of capital when John is about 66. "John and Leanne have to come to terms with the trade-offs necessary to ensure an early retirement," says Cowles. "That means compromising their current lifestyle to save more toward their goal."

Fortunately, the pair have a long enough time horizon to adjust their savings and their retirement assumptions. Moreover, as John is promoted, his income will rise, making it easier to boost their savings. But for now the Norbys may have the will to leave work before leaving middle age, but they don't have the main thing it takes to retire early: the money.