Advice for baby boomers and twentysomethings.

• Author: Lizzio, Joseph P.

IN 1996, the first wave of baby boomers, the largest generation in U.S. history, will turn 50. They are beginning to enter their "pre-retirement" years, a milestone that for prior generations has meant planning for a retirement future. However, significant numbers within the baby boomer generation have put off or simply ignored saving for retirement. A 1991 study conducted by the Investment Company Institute found that just 17% of boomers identified retirement as a chief financial goal. Those who believe that Social Security and pension plans fully will meet their retirement needs when they're 65 may be in for a rude awakening. Together, these plans probably will provide less than half of the approximately 75% of pre-retirement income baby boomers will need to maintain their present standard of living in retirement.

The retirement challenges they face are greater than those of prior generations. In order to preserve their present lifestyles in retirement, late-starting savers are going to have to put aside more money and accumulate retirement dollars faster.

Boomers will need more money than their predecessors to support longer lives. Better health practices and advances in medicine point to more people enjoying a longer, more active retirement. Meanwhile, Social Security will provide approximately 18% of boomers' retirement income, and up to 85% of Social Security benefits may be taxed. For the younger boomers (those born after 1960), the Social Security retirement age is scheduled to reach 67 and may go higher.

Company-sponsored defined-benefit pension plans may be scaled back and fewer employees may qualify for them. Instead, more and more, the focus is likely to be on company-sponsored defined-contribution plans, such as 401(k)s, that offer workers the opportunity to contribute a portion of their income to save for retirement. With defined-contribution plans, the onus to fund the plan for retirement rests with the employee, not the employer.

Though their preparation is lagging, the good news is that, with the proper planning, many in this group can make a comfortable retirement a reality. Not only are today's baby boomers entering their peak earning years, but many are part of two-income families, which often signifies a large discretionary income. This potential for savings, combined with a strong desire for a comfortable lifestyle, should encourage them to put aside more funds during these high-income pre-retirement years. In...