In 2012, the first wave of the estimated 79 million baby boomers in the country turned 65.

Whether or not they're ready financially to retire is an open question. A sluggish economy, low interest rates and a volatile stock market have hurt many people's retirement nest eggs. Many have lost jobs and businesses, along with their dreams of a comfortable retirement. What's more, they're told to plan on living longer, a major worry given escalating health care costs.

Despite the challenges and fears, many are plunging into retirement or at least testing the waters. Here, we present three individuals who are looking retirement squarely in the eye and detail how their advisors are helping them prepare to (hopefully) live out their sunset years in style. (Client names have been changed to protect their privacy.)

WHEN PLANS GO AWRY
Rich and Rachel Wright didn't have extravagant plans for their retirement. Aside from wanting to spend time with their three grandchildren, they wanted to make sure that they would have enough income to meet their everyday needs.

Both were in their mid-50s and wanted to retire at 60. What they couldn't have known when they met with Peter Knittle, an advisor with ESL Federal Credit Union in Rochester, N.Y., is that one of them would not make it to 60.

Knittle listened to the couple during his first meeting with them three and a half years ago. They were concerned about possible income shortfalls after (and possibly even before) they retired.

Rich, who was still working, drew an annual salary of $50,000; Rachel had retired from the workforce. The couple wondered whether they would have enough to live on once Rich stopped working. They planned to collect Social Security at their full retirement age of 65, and worried whether they would have enough income before tapping their Social Security benefits.

The couple had $600,000 between them in 401(k) plans and another $100,000 with another broker. Neither Rich nor Rachel had a pension.

After listening to the couple, Knittle had them meet with a certified financial planner. The planner confirmed the couple's worst fears: They indeed would have a shortfall. The income gap was due to the fact that the couple was relying strictly on Social Security and their 401(k) money without any type of guarantees, Knittle explains.

Knittle recommended that Rachel put a part of her 401(k) plan from a former employer into a variable annuity with an income rider. This way, when she turned 591/2, she would be able to draw an income from the 401(k), which had about $200,000 in retirement savings. The income from the 401(k) would act as her pension plan.

Knittle also recommended that Rachel move the rest of her 401(k) plan savings into an advisory account managed portfolio, along with the $100,000 the couple had at the competing broker. In addition, he advised Rich to put his 401(k) plan with his current employer into an advisory account.

These measures would help the couple comfortably meet their income needs, Knittle says.

Fate, however, would force Rich and Rachel to alter the financial plan just one year later. Rich was diagnosed with leukemia and died within four months.

"We had to completely change our focus," Knittle recalls. "Obviously it was a tragic situation for her, for her grandkids, for everybody involved, even for me. I had to take a step back and take a look from an outside point of view."

Without her husband's salary and without a job, Rachel had no regular income other than a small amount from an insurance policy her husband had. Knittle recommended that Rachel move her husband's 401(k) savings into a beneficiary IRA advisory account, so she could start taking income.

Rachel would be able to reduce what she was taking from her husband's beneficiary IRA account by half once she started drawing money from her variable annuity at the age of 591/2. This way, Knittle explains, Rachel would "continue to meet her income needs but not draw down the account as much."

Fortunately, Rich's health insurance that he had through his employer covered most of his medical bills, so Rachel was not left with any big medical expenses.

"I believe she is on her way to a comfortable retirement although we both know there could be some bumps along the way," says Knittle. "She knows that I will always be there along with ESL to help her along those difficult times."

RETIREMENT AFTER DIVORCE
After her divorce, Dorothy Drake, 50, wondered if she would have enough money to retire and maintain her lifestyle.

"When you start dividing up assets, you tend to lose a good chunk that you may have been counting on for retirement one day," says Adam Smith, an advisor with FM Investment Services, the investment services division of Farmers & Merchants State Bank in Angola, Ind.

Drake had about $115,000 in retirement savings. She had approximately $100,000 in a 401(k) plan and $15,000 in a Roth IRA.

As part of the divorce settlement, Drake received about $300,000, which came primarily from the sale of the couple's lake home and vacation home. She used the money to buy a modest home in rural Ohio and stashed away $140,000 of the remaining $200,000 into a brokerage account.

"In rural Ohio, you can get a pretty nice home in town for less than $100,000. It's not the same housing market as on the West Coast," explains Smith, who has advised Drake for two years.

Smith reviewed her life insurance policy and found that it was outdated. "We priced it out and found that we could exchange that into a new policy that gave her more cash flow," says Smith. The new "paid-up guaranteed policy" saved Drake $36,000 a year in insurance premiums. The new policy provided a death benefit of $200,000, less than the $250,000 under the old policy, but it "completely removed all premiums for the rest of her life," Smith notes.

Drake changed the beneficiaries on her life insurance policy from her husband over to her two children, ages 21 and 26. Both are living on their own.

Smith reviewed Drake's contribution rate to her 401(k) plan and recommended that she increase it to 10% from 4%. He also urged her to make maximum contributions to her Roth IRA, as Drake had not been contributing. Smith recommended that she maximize the Roth IRA to help diversify her sources of retirement income.

"I like to have a couple of buckets of money for a client when they retire — a tax-free bucket and a taxable bucket," says Smith. This provides flexibility that clients like to have, he says.

Smith helps clients choose which buckets of money to pull from to control their expenses in retirement. For large expenses, for example, it's better to pull from a Roth IRA to avoid a large tax bill, Smith explains.

Drake's restrictive 401(k) plan gave Smith another reason for recommending maximum Roth IRA contributions. The plan was extremely limited in its investment options, offering only the most generic of choices. The Roth IRA "gives us more control over where she can put the money," Smith said.

Smith also recommended that she use assets in her brokerage account to fill in any gaps that her 401(k) was not already exposed to. "We use that cash to rebalance her and take advantage of the environment we see right now," says Smith.

Smith is taking a balanced investing approach, with 55% of the funds invested in stocks and 45% in bonds. "We realized we didn't need to take excessive amounts of risk to get her to retirement," observes Smith. "We wanted to give her a nice, slow, steady more predictable path to retirement versus the 100% equity strategy."

Based on her assets and the amount of money she's putting away, Smith is convinced that Drake is well on her way to a good retirement. She has a steady job, which she enjoys and has held for 29 years, and expects to work for another 12 to 15 years. She currently earns in the range of $60,000 a year.

"Her lifestyle is not very extravagant. She lives in an area of Ohio that is fairly modest and the cost of living is pretty low," Smith says. "With her assets, she should have no problem living a comfortable retirement lifestyle."

STEADY GROWTH IN RETIREMENT
Christine Champeau, 45, never anticipated her husband would die so young. Soon after his death from a rare form of cancer at the age of 50, she called her husband's financial advisor to begin the process of organizing the estate.

Financially, she was in very good shape. She inherited $1 million from her husband, along with an IRA account totaling $300,000, which he had inherited from his mother. In addition, the couple had $450,000 in separate 401(k) plans and approximately $100,000 in cash assets.

Despite the sizable assets, Champeau was concerned about her cash flow per month and wondered if she would have to return to the workforce, says Jeff Alejandro, a financial advisor with Addison Avenue Investment Services, the investment services division of First Tech Federal Credit Union in Cupertino, Calif. Alejandro had worked with Champeau's husband — and played basketball with him — for four years.

Champeau did not want to be trapped in a job she didn't enjoy but she also didn't want to sacrifice her lifestyle, Alejandro explains. She had been laid off from work and stopped her job search when her husband was diagnosed with cancer.

"After he passed away, she went to work for a little bit, but now she's not working again. She knows that she has choices. It really comes down to whether she enjoy what she does," Alejandro says.

Alejandro helped Champeau create a budget. They took care of immediate concerns first. Champeau collected about $250,000 from a life insurance policy her husband had through his employer. She used that onetime payment to pay off the mortgage on the house and remodel the home, something the couple had long wanted to do but just never got around to. She also used the money to pay for funeral expenses.

Alejandro put the $1 million in non-qualified investments she inherited into laddered bonds, so she could live off the interest they generated. She currently draws about $34,000 a year from the portfolio he created, an amount that meets her current day-to-day living expenses.

The portfolio was set up mainly for income, but 30% was allocated to stocks so there also would be appreciation. "We definitely want to make this last because we don't want this money to ever run out," Alejandro says.

In addition to the $34,000 she draws annually from the portfolio, Champeau also takes out money every year from her husband's inherited IRA, as she's required to do by law. She takes money from this fund only when she needs to for things that "pop up" like travel and home remodeling, explains Alejandro.

The $450,000 she and her husband had in 401(k) plans was set aside strictly for growth. "You can't touch that for another 15 years. We're eventually going to take from it," Alejandro says. The money was invested in growth-oriented exchange-traded funds and mutual funds.

With the robust upswing in the market over the last 18 months, Champeau's entire portfolio has appreciated to over $2 million. "As long as we don't overspend and take on the appropriate level of risk, I'm confident that we can maintain her current lifestyle," Alejandro says.

In the next few months, Alejandro will be discussing her estate planning and long-term care, the next step in her retirement planning.

But the ongoing question continues to be, "Should I work?" Alejandro notes.

"I feel that this client will look for work in the future, probably something like a passion project or something part-time that she enjoys."