How to Survive In This Economic Environment

Rather than sulking and licking one's wounds over the downturn in the stock market, the deepening recession, higher unemployment and deficits higher than at any other time in history, it is time to regain control of your economic future, particularly if you are in retirement or approaching retirement.

If you are near retirement, a simple rule of thumb to help you make up the dollars that you have lost in the market is to take the amount of your losses and divide that number by the amount you save each year for retirement.

For example, if you are down $50,000 and you save $10,000 each year, then you may have to work an extra five years to reach your retirement income goals. You could also invest more aggressively, but that is tantamount to rolling the dice, and I don't recommend it.

If you have more than $2 million left in your retirement nest egg, you may want to take advantage of the downturn in the market and gift stock to your children or grandchildren, benefitting you by reducing the value of your estate.

Your relatives will also benefit in that they will get more shares of stock than they would have received in an up market.

If you can't wait for the stock market to recover, you may wish to purchase single premium immediate annuities to generate guaranteed income for yourself now, since when your nest egg is invested in securities and bonds, you really can't afford to withdraw as much from your funds each year as could be generated by the purchase of a fixed annuity.

The reason is that your retirement funds may go down in a future year, and, over time, withdrawing too much each year might deplete your funds entirely.

As I have mentioned in prior columns, it will make sense to purchase these fixed annuities from several different life insurance companies to take advantage of the protection afforded by the South Carolina Insurance Guaranty Association.

Every life insurance company that does business in South Carolina must participate in this program, and it protects you for fixed annuity purchase amounts as large as $300,000 in the event the issuing company becomes insolvent.

Again, if you are fortunate enough to have $2 million or more in retirement assets, you will probably be looking at a comfortable income in retirement, and I would consider swapping your big house in Aiken for a condo here and another at your favorite vacation destination.

It would not be a bad idea to keep a close eye on the new Congress and administration to see what changes they will bring about in estate taxation.

Remember that if you have more income than you need, it may make sense to start gifting assets now to your loved ones to avoid paying estate taxes later.

Here are some things to also consider:

• Do not, under any circumstances, increase your debt level.
• Reduce your spending so you spend less than you earn.
• Before you buy anything, ask yourself, "Do I really need this?"
• If your investment portfolio is keeping you awake at night, then reallocate your assets to reduce risk.
• If you are still employed, then be thankful and strive to be better stewards of your finances by establishing a budget and sticking to it.