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Retire really, really young
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October 24, 2000: 7:45 a.m. ET
If you want to stop working at 35, then you'll need to put your savings in high gear
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NEW YORK (CNNfn) - You're 22, with a $40,000 paycheck and dreams of retiring young - really young. You even toy with the idea of taking five years off now. Can you do it? What's the best strategy?
In response to a reader's question, Mark Groesbeck, director of financial Planning at Stanford Group, and a member of the financial planning association, said you'll have to put your savings plan in high gear.
Ask the experts a question
I wish you would offer some advice on retiring very young, like when you are 35 to 40 years old. For someone like me -- a 22-year old making $40,000 a year, who has no debt, rent of $400 per month -- is it better to stop working now and have fun for five years, or continue working (and saving) and retire an extra five years early at 55?
Is early retirement feasible for me? I have put away 15 percent of my salary in my 401(k), have a couple mutual funds and some risky stocks that will (hopefully!!) pay off. Perhaps you could offer some general advice?
An old adage says that happiness occurs when you spend less than you make, while sadness results when you spend more than you make.
If you can learn this principle early in life, then you may be able to retire earlier than 60 or 65. If you are able to save 10 percent of your income each year, you should be able to retire comfortably someday. If you want to retire sooner than 60, then you should plan on increasing your savings percentage.
Saving more is the first step. The second step is determining the risk you are willing to take to meet this goal of early retirement. Typically if you were young, I would recommend that you be more aggressive. If you are willing to be more aggressive you may get to your goal of retiring early.
Saving inside of tax-deferred investments like 401(k)s, Roth IRAs, deductible IRAs or variable annuities can also help your money compound more quickly. By not having to pay taxes on dividends and interest each month your money will grow faster.
Plan on placing the maximum contribution into your company 401(k). Make sure you get all of the company matching contributions available to you. Then, if you qualify, consider setting up a Roth IRA account. Contributions are not deductible, but once you get to age 59-1/2 you will be able to withdraw all of it growth tax-free.
Once you have maxed out these savings vehicles consider a variable annuity. Variable annuities don't have restrictions on contributions like retirement plans so there is no limit on what you can put into them.
The problem with saving in tax-deferred investments is withdrawals before age 59-1/2 may be subject to an early withdrawal penalty. So accumulating assets in a regular taxable investment account will also be important if you plan on retiring before 59-1/2. There are ways to access IRAs early without penalty, assuming you meet the rules for substantially equal withdrawals.
If you want to take five years off in the middle of life to relax, travel and have fun, you may want to build more investments outside of tax-deferred investments. When you take this "vacation" from work, remember that you will be losing out on the ability to put money in 401(k)s.
There is no easy answer to whether you should take a vacation in mid-life or just retire earlier in your 50s. A financial planner could model your current investments and saving habits to show you how each scenario would work and tell you how you could make either scenario work to your advantage.
Save as much as you can, educate yourself on the alternatives and consider using a financial planner to model your retirement objectives. 
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