Building your retirement nest egg.

THE EARLIER YOU START PLANNING AND SAVing for retirement, the better off you will be. Experts are universally agreed on this single point. At the same time, it's never too late to start. But your age, amount of time until retirement, and family and financial circumstances will play a crucial role in determining your best strategy.

The following two couples began their young marriages with similar goals: home ownership, early retirement and the financial security to maintain both comfortably. But they started out at different places on the life cycle, which vastly affected the expert advice they each received on saving and investing.

The Smiths are new parents in their 20s, and this represents their first real foray into the realm of financial planning. While they are already saving toward retirement they are more intensely focused on paying for day care and building a college fund for their son. For them, even early retirement is a distant dream.

For the fortysomething Kelleys, however, early retirement looms just around the bend and, with no young children to worry about, they're in the midst of preparing for the next phase of their lives and their careers.

These two couples represent different levels of money management experience, and their short-term money-building strategies are quite distinct. But their long-term goals remain similar. And each proves the point that when it comes to developing a financial plan, there's no time like the present--whatever your age.

LIFE IN THE NINE-TO-FIVE LANE

When Sean Smith played professional football as a defensive tackle with the New England Patriots in 1989, he lived a jet-set lifestyle, making $110,000 a year. He bought a new car, thousand-dollar suits and paid for his stepbrother's last years in college. He was also quite generous with his mother and his girlfriend, Pamela.

"We'd go to St. Thomas at the drop of a dime, or I'd fly Pamela to see me at $1,000 a pop every other weekend," Smith recalls. "I wasn't saving that money. We were young and spending."

But in 1992, the gravy train came to a grinding halt when Smith got cut from the team and had to take a nine-to-five job. What he had saved from his football days was spent on the formalities of getting married to Pamela in April of that year. These included a $6,500 ring and $15,000 in wedding expenses.

Unlike many financially naive athletes, Smith had gotten some good advice but he ignored it. "I had an excellent agent who preached saving, but I had a good time," he recalls. "I was like the other guys on the team, just spending my money." Even after their marriage, the Smiths continued to spend freely.

When the Smiths received some sound financial advice about a year ago, however, they listened closely. Facing considerable debt and the birth of their first child, they had little choice. Sean, 28, now earns $34,000 a year as a criminal investigator with the Gwinnett County district attorney's office, 27 miles outside Atlanta. Pamela, 29, is an engineer with Cibavision-Geigy making $41,000 annually. Their combined $75,000 income is still less than what Sean was making as a professional athlete, and they've been feeling the pinch.

FOOTLOOSE AND FANCY-FREE NO MORE

With visions of early retirement floating in their heads, the couple got involved with Amway, thinking that a sideline direct-sales business would help them achieve that dream. They also started saving to buy a house.

By August 1993, the newlyweds had the money for a down payment and qualified on Pam's salary alone to buy a three-bedroom, 2,800-sq.-ft. home for $95,400 in Snellville, Ga., about 20 miles outside Atlanta. The Smiths currently pay $7,000 in property taxes a year, and $2,400 in property insurance. Their monthly mortgage is $793.

The stork was on their trail. In February 1994, when the couple found out they were expecting a baby, they decided it was time to get some professional financial help. Saving for two was one thing, but with parenthood looming, the couple became concerned about achieving their financial dreams, which included sending Pamela to medical school, retiring at the tender age of 45, buying a larger home, building a stock portfolio and sending their children to college.

The Smiths' first meeting with Saeed Khalif, a personal financial advisor with American Express in Decatur, Ga., provided a jarring wake-up call. They had $600 in savings, $250 in their checking account and, Khalif notes, no budget or financial plan to speak of. "There was no consistency about their spending plan," he says. "They were just living and having a good time. Sean wasn't even contributing to his retirement savings."

Their dream of early retirement at 45 suddenly seemed a fantasy. It was time to get real. For starters, the carefree spending had to stop: It was causing their credit card debt to spin out of control. The Smiths had three Visas, a Home Depot card, and Sears and Chevron cards--all were maxed out.

Their total credit card debt was about $8,000, and one card's interest rate was a towering 21%. "They were in control of paying the monthly bills, but they weren't aware of how much they were losing by not actually saving that money," says Khalif, who consolidated the debt using their lower interest cards and formulated a repayment schedule. Within six to eight months, the cards were paid off and a valuable lesson had been learned. But there was more to be done.

DOLLARS AND SENSE

Khalif determined that the Smiths' involvement in Amway was a money drain, partly because they weren't deducting business expenses, and partly because their profit margin didn't justify the amount of money or energy they expended on the business. "They weren't deducting the wear and tear on their car, the cost of the starter kit and the purchase of refreshments for meetings," says Khalif, adding that these costs totaled about $6,000. Once he deducted these expenses, the Smiths were surprised to find that they'd only made a profit of about $40. The couple has since stopped selling Amway, with Sean conceding that he wasn't the salesman he thought he could be.

Neither of the Smiths were enrolled in 401 (k) plans. Khalif immediately remedied that situation. Sean's employer matches 6% of his monthly $100 contribution, and he also maintains a $1,000 individual retirement account with American Express, which gathers 16% interest a year. Pamela contributes $350 a month from her paycheck to a thrift savings plan offered by her company.

On Khalif's advice, the Smiths also traded their term life insurance policies for universal policies of $100,000 each, at a cost of $65 a month. Finally, Khalif set up a mutual fund for the couple and an education fund for their son, Kristopher, who was born in November 1994. The growth funds are called International and New Dimensions, respectively.

In addition to financial advice, Khalif offered the Smiths some practical advice. To fulfill their dreams--including Pamela's of becoming a doctor--they would have to make very real, immediate and ongoing sacrifices, he warned.

REALISM AND RESPONSIBILITY

Overall, the Smiths are a typical family with commonplace dreams. Until they hired Khalif, they saved in the short term for what they wanted and otherwise spent freely. Now, they plan for the future and invest in the stock market. "Their financial future depends on aggressive saving and investing, and continuing to streamline their expenses," Khalif says. Even with that, he adds, they are unlikely to be able to retire before age 62.

It's been a year since the Smiths received their budget from Khalif and, since each received a raise at work, they've fallen off the budget bandwagon. Circumstances change, Sean notes, and budgets must change along with them. Despite the necessary sacrifices, he and Pamela have started planning for her to begin medical school next year. She is taking two pre-med courses at Georgia State University paid for by her employer. They will take out loans to pay whatever portion of tuition she doesn't receive in grants. Still, Pamela admits, "It's going to be tight."

Luckily though, the Smiths now have a much clearer understanding of what that means than they did before seeking Khalif's counsel. They are prepared and willing to make whatever adjustments are needed, without sacrificing the long-term gains they've made so far. "Basically, he's made us aware that we're still young but that time is running out to save for retirement," says Sean. "He's got us on a pace now that's left us some cushion."

A budget has its purpose. But ultimately, the Smiths realize that its success or failure lies with them and their everyday decisions. "I think Saeed's plan can help us if we do the right thing," Sean says.

READY TO RETIRE-A FIVE-YEAR PLAN 

William and Victoria Kelley of Southfield, Mich., have been doing the right thing for years now--and it's already begun to pay off. At 49 and 40, respectively, they are laying the financial groundwork necessary for them to retire in five to 10 years and launch their own trucking business.

In fact, William, a manager who is just three years shy of qualifying for a full pension from Chrysler, wants to get started on the business even before he retires. With that in mind, he and his wife of three years are heavily focused on staying out of debt and beefing up their retirement funds.

William learned the value of saving years ago: During Chrysler's lackluster '80s, he was laid off twice--once for two years. Although he received unemployment payments, William had not saved adequately and so was forced to live from check to check, month to month. After that experience, "I decided I would never be broke again," he says. "I promised myself I would always save after that." He has invested through Chrysler's 401 (k) plan for 12 years.

Marrying Victoria three years ago did not change his financial plans. As a single woman, she had invested in bonds and brought her credit card debt way down before they married. "I didn't want to go into marriage with a lot of debt," she says. "Being married you take on different responsibilities. You are no longer doing things alone. You have to think of the other person."

But that doesn't cancel out each individual's dreams. Victoria's retirement plans, in addition to working on the trucking business with William, include possibly transforming one of her hobbies --floral arranging--into a full-fledged business. She has already supplemented her salary as a machine operator for the U.S. Postal Service by occasionally selling some of her creations. The couple also want to do some traveling.

ENTREPRENEURIAL VISIONS AND DEBT-FREE DREAMS

Like many people, the Kelleys want to retire debt free and live comfortably in their own home. They have no credit card debt, and their only current debt is the mortgage on their house. They won't specify the amount, but houses in their neighborhood range from $150,000 to $240,000. The couple, whose monthly fixed household expenses now total $2,500, want to repay the balance of their mortgage before making the transition from workers to retirees. "Our goal is to be debt-free within 10 years," William says.

In order to achieve all their goals, William and Victoria know they have to intensify their current savings program. Although the Kelleys have made a good start, they have generally been conservative investors. "We weren't too familiar with the market and didn't want to take too much risk," William says. "We were getting ready and learning about savings, investing and staying out of debt." Besides purchasing the house, they have spent money on other things. For example, William has put two of his four children from a previous marriage through college.

Now, the couple need to invest more aggressively to achieve their goals and replace their current combined annual salary of $140,000 when they retire. Gail Perry-Mason, vice president of investments at First of Michigan, is assisting them in reallocating their assets. She points out that it's important to diversify investments for the long term to keep up with inflation and to pay taxes.

FEAR NO MORE

Despite their fear of the market, the couple has managed to salt away approximately $175,000 by investing in CDs, money market funds and William's 401 (k) plan. But they are still a few hundred thousand dollars away from the $350,000 to $400,000 they want to save before making the transition from workers to retirees.

To speed the process, Perry-Mason is gradually easing them into the equity market, recommending that the couple transfer 30% of their savings to equity mutual funds and 20% to fixed-income funds. She notes that an easy way to compute the percentage you should invest in the equity market is to subtract your age from 100. If you're 40, for instance, you should be investing 60% of your money in stocks. Perry-Mason's stock picks include Motorola and Deere & Co., which she recommends for their steady earnings, strong track records and long-term growth potential.

The remainder will be invested in liquid investments, such as CDs and money market funds. Here, Perry-Mason recommends the Putnam Family of funds. The Kelleys have so far invested 20% of their savings in the market, to be increased each month until the 50% allocation is attained.

For William's 401 (k) plan, Perry-Mason has recommended that he allocate 20% to aggressive growth equity, 10% to international equity, 20% to fixed-income, 20% to growth and income, 10% to money market and 20% to growth equity funds. Since Victoria does not have a defined contribution plan, she plans to begin saving on a tax-deferred basis by contributing money to an IRA.

Your asset allocation will change as you age and as your needs change. Typically, the closer you get to retirement, the more money you'll want to allocate to fixed-income funds, which are less risky than equity funds. But if you're starting your retirement savings later in life, like the Kelleys, equity funds will provide higher returns than fixed-income funds to help you reach your savings goal.

Whatever your goals or your specific investment approach to meeting them, Perry-Mason suggests that you give your portfolio an annual checkup to make certain that your current strategy is working, just as Khalif advised the Smiths. "If it's not going in the right direction then it's time to reevaluate," she says. For now, Perry-Mason is meeting with the Kelley's on a monthly basis to reevaluate their portfolio.