Financial Plan Beats Panic Every Time

Time of transition So planning is critical. The sooner workers pare expenses and repay debt, the easier the transition to retirement (or semiretirement) will be. Think ahead to where you might find part-time work if a 2012 recession takes more full-time jobs away. Belonging to community and volunteer groups gives you a valuable network to tap.

Consider selling your home and buying or renting an apartment to slash your housing expenses. Buyers will show up if you knock enough money off the price. Fiserv, which tracks the real estate market, thinks that prices will stabilize by the end of 2012, although that depends on where you live and whether the economy grows. Again, you can't predict. Your living arrangements should follow your budget and needs, not your dream of a better price next year.

Sticking with stocks As for investing, people with long-term savings shouldn't give up on stocks. True, for more than a decade major U.S. stocks have zigzagged up and down with no net gain in price. But if you're in blue-chip mutual funds — and reinvesting dividends — you're probably making money anyway. With dividends, stocks have returned an average 5.2 percent a year for the past 15 years, according to investment research firm Ibbotson Associates.

The new, conservative advice concerns how much to have in stocks during the critical five years before you'll need your savings to live on. Some financial planners think you should dial back to as little as 20 to 30 percent, with the rest in high-quality bonds or bond mutual funds, including Treasuries.

For income, dividend-focused stocks and mutual funds continued to do better in 2011 than the market in general. But the future is unforeseeable. Charting a careful course beats a panic every time.

Also of interest: Ways to prepare for the next market dip. >>

Jane Bryant Quinn is a personal finance expert and author of Making the Most of Your Money NOW. She writes regularly for the Bulletin.