Starting early for early retirement

NEW YORK (Money) -- Question: I'm 22 and make $75,000 a year. I contribute 10 percent of my pay into my 401(k), which is matched up to 6 percent. I also save another 5 percent in a regular brokerage account, plus an additional 10 percent that currently goes into emergency savings, but that within a few years will go into the brokerage account. The company I work for also has a pension plan. Am I saving and investing enough to be able to retire at 55 or perhaps even 50? -Ben, Conroe, Texas

Answer: Wow! You are one mean, lean savings machine. By my reckoning, if you add up what you're stashing in various accounts, you're basically saving 25 percent of your pay, plus your employer is kicking in an additional 6 percent, which brings you to a grand total of 31 percent of your salary. And you're in a retirement plan that will pay you a check each month when you retire.

Combine the early start you've gotten with the prodigious level of savings and throw in the pension, and I'm tempted to say you're a shoo-in for being able to call it a career at 50 or 55 latest.

But I won't say that.

Why? Well, even though you are doing exactly the right things, the fact is that so much can happen over the next 30 years that it would be premature to suggest you've got early retirement in the bag.

For example, you're 22 now and since you haven't mentioned a wife or family, I'm assuming you're single. If you do decide to marry and start a family, sticking to your current savings regimen could be a challenge. You'd be surprised at the demands that buying and a maintaining a home and raising kids can put on your income.

You may also encounter other bumps. You could find yourself without a job for a period of time because of a downsizing. Or you might switch jobs and end up at a firm that doesn't give as generous a match in its 401(k) or that doesn't offer a pension (only 20 percent or so of workers are currently covered by a traditional pension).

There are other imponderables and unknowns that could affect where you stand financially at 50 or 55. Your success at investing your money, the size of the returns the financial markets deliver, what sorts of pay raises and promotions you get, the health of the Social Security system, your own health and that of your spouse.

That said, you can certainly plug your current information into an online calculator like the Retirement Planner at our site or the Retirement Quick Check calculator available at Fidelity's site and you'll get an estimate of how likely you are to be able to retire at 50 or 55 or any other age you choose.

Question is whether at your age that projection is meaningful. Your life over the next 30 years isn't likely to play out with the predictability of a spreadsheet. Life's not that precise.

I don't say this to discourage you. I applaud you for what you're doing now and encourage you to keep it up. But the real test of whether you'll be able to retire early will come as your life and your career unfold.

To get a better sense of what you will need to do throughout your career to make sure you're still progressing toward your early retirement goal, I suggest you check out the Retire Early cover story I wrote for the April issue of Money Magazine. One feature of the story you may find particularly interesting is a chart that estimates how many times your salary you should have tucked away in savings at various ages (beginning with age 35) to have a legitimate shot at retiring at age 60. (In the online version of the story, we've turned the chart into an interactive calculator.)

You'll see that the numbers are challenging, although certainly achievable for someone who gets an early start like you and commits to diligent savings throughout a career. You'll also notice that the size of the nest egg you need can drop significantly if you get a sizeable pension from your employer or if you plan to work part-time in retirement.

Besides shedding light on the amount of money you'll need, the story also details some of the other aspects of planning for early retirement you'll need to think about - like figuring out what you'll actually do once you retire (you're not going to spend 40 years sitting on the beach or playing Canasta) and making sure you've got health insurance that will cover you until Medicare kicks in at age 65. You've still got plenty of time before you have to deal with these issues, but eventually you will have to address them if you want to be sure you've got enough resources to live they way you want once you leave your career job.

And while you're checking out the story, be sure to take a look at the section on IRAs, 401(k)s and taxes. Revving up your savings rate is fine, but if you can do it in a tax-smart way that maximizes your tax breaks from Uncle Sam and boosts the eventual size of your nest egg, so much the better.

At this point, though, the single most important thing you can do is keep socking away that cash at the rate you're doing it now. The longer you do that, the more likely you'll have the financial wherewithal to retire at 50 or 55, and start the next chapter of your life.

UnRetirement: Did you retire from work only to be forced - for financial reasons - to go back to work? Money Magazine wants to provide financial and career experts to give you advice on making the transition. Send e-mails to drosato@moneymail.com.

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