The scary media headlines about the impending doom and gloom in the economy have certainly caused much anxiety for many people. The dramatic declines in world stock markets have compounded the problem causing many retirees or those approaching retirement to panic and go through sleepless nights thinking about how to finance their retirement.

Amidst all this negativity it is hard to keep a positive attitude. However, according to Nick Murray, “wealth is not determined by investment performance but by investor behavior”.

According to Jim Fullerton, former chairman of the Capital Group, “one significant reason why there is such an extreme degree of bearishness, pessimism, bewildering confusion, and sheer terror in the minds of brokers and investors alike right now, is that most people today have nothing in their own experience that they can relate to, which is similar to this market decline.” Let me see if you can guess when Jim Fullerton said this. Although it sounds like he could have uttered it yesterday, he actually said it on November 7, 1974 at the end of the severe bear market caused by the OPEC oil crisis that caused a 44% decline in the S & P 500 index.

While it may feel like “it’s different this time”, the fact remains that since the beginning of the twentieth century, the US economy has experienced 21 recessions. So recessions are a fact of life in North America. While at the beginning of the twentieth century and before the beginning of World War II, recessions happened regularly every three to four years, in the last twenty five years we have only experienced two recessions: July 1990-March 1991 and March - November 2001. So may be that is why we are not as used to them as our parents or grandfathers used to be.

According to the National Bureau of Economic Research (NBER) an organization in the US that is the arbiter of recessions, since 1950, the average length of a recession in the US has been 12.7 months, with the longest recessions lasting 16 months (November 1973 - March 1975 and July 1981 - November 1982).

Given the fact that according to NBER, the current US recession started in December 2007, we are already in the 12th month of this recessionary cycle. Therefore, even if it is going to be one of the longer recessions experienced in the post-war years, it should be reaching its end by the middle of 2009.

The stock markets on the other hand are leading indicators and usually start declining before the economy turns sour as they foresee a downturn coming, and they start rising while the recession is still going on. With world stock markets trending downwards since October 2007, we are getting close to the point where markets will hit bottom, although it is extremely hard to predict exactly when this will happen. The rampant pessimism among investors and the incredibly high amounts of cash sitting on the sidelines are all contrarian indicators pointing to a reversal in market trends in the near future.

So how can we survive and thrive during these recessionary times? Here are some financial strategies for people in different stages of life.

RETIREES

The current market downturn is no doubt most disconcerting for retirees who need to sell their stocks or mutual funds to provide retirement income. Here are some useful strategies for retirees:

• Do not panic and do not make knee jerk reactions to daily news.
• Take a long term approach to your investments and keep in mind that although you are retired you do not need to cash your entire portfolio now so most of your losses are paper losses at this point.
• Review your portfolio holdings to make sure you are still comfortable with the risk level and with the underlying holdings in your mutual funds or stocks.
• If you are not comfortable with the risk level, make a decision based on facts and act on it.
• If you don’t need the minimum RRIF withdrawal for retirement income, transfer the units of your mutual funds or stocks out to a non-registered portfolio in kind so you do not have to sell them.
• If you have enough emergency funds set aside for one year, try using those funds for income and changing your withdrawal method from monthly to annual and postpone your minimum RRIF withdrawal for next year to December to give your portfolio time to recover.
• Look into variable annuities with guaranteed minimum withdrawal benefits to protect your portfolio from depletion due to withdrawals in market downturns while keeping your exposure to the market to participate in future growth.
• Revisit life annuities for a portion of your retirement portfolio as you may be pleasantly surprised by the guaranteed returns.
• Review your estate planning and long term care planning taking into account your current portfolio value to make sure the estate planning strategies and insurance plans you have put in place are still adequate.

EMPLOYEES

There is no such thing as a stable and risk free job in this world any more. However, you may feel relatively secure in your position or you may feel insecure due to the current economic conditions. If you are among the latter group then consider the following:

• Review your monthly cash flow and budget and try to cut down the unnecessary expenses.
• Start setting money aside in liquid investments such as treasury bills, money market funds or high interest savings accounts for emergencies and in case you lose your job. Tax Free Savings Accounts can be an ideal vehicle for doing this.
• Apply for a line of credit and apply for the highest limit you qualify for based on your current income. This is a rainy day fund that you have to apply for when you don’t need it because if you wait until you desperately need it then it would be very hard for you to qualify for it.
• If you own your home, apply for an equity line of credit. This is a line of credit that is secured against the equity in your home, so the banks charge the lowest interest rate on it (usually prime if you have a good credit history). Again this is a rainy day fund and with real estate prices heading lower the sooner you apply for one, the higher the limit you are likely to qualify for.
• Review your retirement planning with your financial advisor so you will have a good idea of how soon you can retire and what sort of savings you will need to do that. That way you will be ready to make a decision and evaluate a severance package should one come your way and will not have to make hasty decisions.
• Review your insurance and group benefit plan at work and if you feel insecure about your job, then make sure that you apply for personal disability insurance while you are still working as your long term disability plan at work is not portable and you cannot convert it to a personal plan if you are laid off or leave your job.

THE SELF-EMPLOYED AND BUSINESS OWNERS

If you own a business or are self-employed, an economic downturn can have a direct and immediate impact on your cash flow and business operations, so it is important that you properly plan for it. Here are some measures you should consider:

• Review your monthly cash flow and budget both on a personal and business level and try to cut down the unnecessary expenses.Build up a cash reserve for emergencies or to tide you over during lean months. You can do this by setting up a high interest savings account for your business.
• Increase the limit of your revolving line of credit based on your current financial statements that are likely to be better than the next financial statements if the economy deteriorates in the coming months.
• Apply for an equity line of credit on your personal home and if you are married ask your spouse to apply for a personal line of credit based on his/her income. Remember these are only meant to tide you over during tough economic times and should not be used for consumer purchases unless you absolutely need to dip into them.
• Review your insurance and risk management plans. You need to make sure your coverage is adequate to ensure your family is protected and to ensure ongoing operation of your business. You also need to review your monthly premiums and look into ways of making your coverage more cost effective.
• Be on the lookout for acquisitions. Recessions are great opportunities for mergers and acquisitions and another business’s loss can be your gain.

Tina Tehranchian, MA, CFP, CLU, CHFC is a branch manager and financial advisor with Assante Capital Management Ltd (Member CIPF) in Richmond Hill, Ontario and can be reached at (905) 707 - 5220 or through her web site at www.tinatehranchian.com. The views and opinions expressed by the author are not necessarily those of Assante Capital Management Ltd.