If you are 45 or 50, and are now just starting to consider retirement planning, you are NOT going to retire at 55. Period. And you are not going to retire at 60 either...
If you are under 30 years of age you have some time. Retirement at 55 is not hard, but it does take time and it does take discipline. The younger you are, the easier it is. The moral of this sotry is "start early".
The process is very very simple. Save money, invest it wisely, give it time to grow, and don't touch it. Here are the specifics:
Invest your money where it grow without being taxed-to-death. You have several options. You can do IRA's, Roth IRA's, 401(k)s or a few other options for self employed individuals. Generally speaking the mechanics are similar (except for Roths): Tax a few pretax dollars, stick em in a retirement account, invest them, leave em alone, withdraw and pay tax when you retire.
If you have company matching contributions on 401(k) , use it. Many companies will give you fifty cents for every dollar you invest in your 401k (up to 5 ot 6 % of salary). Stick a $1000, and the company kicks in $500. That is an immediate 50% return on your money. Once you;ve hit the maximum for company contributions, stick money in Roth IRAs (if you are younger).
Once in the accounts buy into a diversified portfolio of mutual funds. Forget pouring all your money into company stock. If you are young invest heavily in stock mutuals, with little bond exposure. I'm 37 and I;m about 85 stock mutuals, and 15 Bond. About 25% of my money (both stock and bond) are in global/foreign mutuals. If your are under 30 you might want to consider 90% stock /10% bond. As you get older you genrall decrease stocks and increase bonds.
How much to contribute?: How much to you want to retire at 55? I'd shoot for 15% of income. If you are salting away a measly 5%, you will not get there. Period.
You need a LOT of money to retire at 55. If you live to 85, thats 30 years of expenses you have to cover. A half million dollars sounds like a lot doesn't it? Its chump change, and a recipe for disaster. If you retire in twenty years, at age 55, inflation will be doing some evil things. Everything that costs $1 today will cost $2 then. A nice modest income of $35,000 today will need to be $70,000 then to be equivalent. If you retire in twenty years at age 55 with $500,000 in cash, you'll be out of money before you can draw social security (if it even exists)...
How much do you need to retire at 55? That depends completely on your expenses. I'm targetting a very modest amount of about $35,000 per year (or whatever it takes to equal that in 2025). given modest growth and modest inflation, that magic number is about two million dollars...
If you are 30, and want to retire at 55, you have 25 years. Invest $5000 a year at 7% and you will have roughly $340,000. That aint enough. make it $10,000 a year and you'll have just over $1 million at 55. Again, that ain't enough. You have but two options: Save more now, or delay retirement to 60, 62, 65. (or both)
You are NOT going to accumulate Two Million by sticking $1,500 a year into an IRA. It's going to take some serious saving and some serious investing. My recommendation is this:
DO direct deposit. your contributions come directly out of paycheck, and into your 401K and Roth IRA. Every week you gety paid, your contributions go directly in. No fuss no muss. Make the contributions 15% or income, and 20% would defintiely be better. Learn to live on the remaining 80 or 85%. Invest the contribs in a diverse portfolio of well managed mutuals and forget about the market ups and downs. Just chug along ignoreing teh whole damned thing, and make those weekley contributions. You'll have nothing at first, but inside of a few years it will start to snowball. THere will be times you 'loose money" . Ignore them. There will be times you make money. Ignore those too. Just keep investing. In 20 or 25 years there will be asizeable nest egg.
The recipe is simple: Invest a lot, Invest early. Invest automatically. Forget about it and let it grow.