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Greatly influenced by the aging of the current baby boomer generation, over the next 10 to 20 years our country will experience the largest number of individuals reaching retirement age in history. This number consists of those of us born between 1948 and 1964, including upper-income households, will face the enormous challenges of meeting the demands of ever increasing living expenses, while properly saving for retirement. Baby Boomers will also be strained trying to meet exorbitant education costs and successfully allocating a household income. This is when financial resources among various needs becomes even more complex.

As a society, we've become more accustomed to a certain lifestyle. A lifestyle that has become increasingly expensive to maintain, even for high-income households. It's no secret, in general, that our savings rate has not been as robust as it should be. Furthermore, increases in real estate prices, a more aggressive property and state income tax environment, and recent exponential increases in energy prices have made it more difficult to allocate resources to retirement funding. Given these on-going challenges, goal setting and fundamental planning have become even more important than ever.

Before we take a look at some of the core issues, here are a few statistics:

• Approximately 1/3 of those between the ages of 42 and 58 think they will have enough money to live comfortably in retirement;
• For Americans, ages 59 to 70, about 47% feel they will have enough money to live comfortably in retirement;
• A quarter of all baby boomers do not think they will have enough money to retire at all.

Compounding matters is the decreasing availability of defined benefit pension plans, the diminished role of social security, and the need to fund longer life expectancies. Consequently, most future retirees will have to completely self-fund retirement through their own savings. This period of time, which ranges from 20 to 30 or more years, can start with a "partial retirement." In this instance individuals slowly transition from a career to full retirement at some later age. Participation in part-time employment, self-employment, or some other form of less than full time employment will become more prevalent. This result is based on the financial needs of the retiree, the desire to be more active in retirement years and a greater life expectancy.

The inevitable cocktail party question we get as financial advisors is, "How much money do I need to retire?" My stock answer is of course, different for everyone. The process to evaluate this query really starts with an evaluation of an individual's or married couple's current living expenses and how that will potentially change in retirement. For many folks, evaluating what you may need in retirement is hard to ascertain and is an on-going process over many years. Although this may change over time, the good and bad news is that the earlier you start the better off you will be. When teaching the rudiments of personal finance to college age students, I am always fascinated by their reaction to calculations illustrating the effects of small incremental changes in savings rates, investment returns, and length of the accumulation period. The concept of present value, or more to the point, the effects of inflation, further enlightens and almost scares most people. The Federal government's measure of inflation (Consumer Price Index or CPI) suggests a rate of around 2%. But anyone who has reviewed his or her utility bills, property taxes, and gasoline receipts over the last few years will realize that our cost of living, especially in New Jersey, has sky rocketed. The overall influence of inflation and the idea of how the buying power of a dollar will change over the next 20 years may motivate us most when it comes to organizing our long-term financial plans.

Here's an example of this concept:

• If you were to save $20,000 per year over 20 years and get an annual investment return of 6%, you would have $735,700 after those 20 years.
• This $735,700, invested at the same 6%, would produce an annual income of $57,551 over the subsequent 25 years in retirement using both principal and growth.
• Perhaps more startling is that onceamounts to $23,863 in today's dollars.

This basic exercise should lead most of us of all income levels to better address our retirement planning needs. Here are a few additional thoughts that would apply to most:

• Starting with some high-level thinking and a "pencil and paper" approach, sketch out your goals and plans. Documenting your thoughts and putting things in writing tends to make them more real, more tangible, and thus, more attainable.
• Control and reduce debt, particularly where there is an adjustable interest rate involved.
• One goal would be to plan on being mortgage free by the start of retirement.
• The use of a professional service can lend a third-party, objective view to one's situation. Acting in many cases as a mediator to a married couple's differing views of what it means to prepare for retirement, and how and when to retire.

Clearly, maximizing pretax contributions to 401(k) and other such retirement plans is a good start. For those with access to other salary and bonus deferral plans, proper balance between current cash flow needs and savings is important. A level of sophistication in modeling one's retirement planning is of the utmost importance. This analysis can tell us what our income potential is, given certain assumptions, influence us to alter our savings strategy and, most importantly, create a roadmap as to how we need to invest our savings in order to achieve our goals. This roadmap will allow one to revise risk tolerance and asset allocation appropriately.

The process of planning for retirement is complex. It is an on-going process in which we've just scratched the surface. Other critical issues to consider can involve the impact of the ever-increasing cost of health insurance, evaluation of long-term care insurance needs, the nuances of formulating a suitable investment strategy, and making proper use of various employee benefits plans.