Before long, Sylvia was in well over her head. “I was up to a balance of nearly $7,000, and paying interest rates as high as 39.99 percent on seven different cards,” she says. “I realized that I was going to have a very hard time ever paying that off and I became very depressed.”

In today’s economy, Sylvia’s story is far from unusual. Americans hold an estimated 610 million credit cards, and the average household with credit card debt carries a balance of nearly $16,000.

With so many people owing so much, a large debt settlement industry has emerged. By way of unsolicited phone calls and advertisements on radio and television—usually late at night when the debt-ridden presumably are sleepless—these companies make promises of fast, painless relief. “We’ll cut your bills in half!” the ads promise. But, as the old adage states, if something sounds too good to be true, it usually is. According to a recent investigation by the Government Accountability Office (GAO), the debt relief industry is rife with fraudulent and deceptive practices that often leave people only more in debt, sometimes facing multiple lawsuits and bankruptcy.

Here’s what’s behind those promises of miraculous debt reduction. First, the firms tell you to stop paying your bills. After your creditors haven’t been paid for several months, the strategy is for the debt settlement attorneys to go to your creditors and offer them a lump sum payment for far less than the amount owed. It actually can work. The catch is that you’re stuck paying fees to the debt settlement company that may be close to—or even exceed—the amount you’ve saved. Plus your credit rating is shattered. In the worst case scenario, you might pay thousands to the debt relief company and still fail to reduce your debt in the slightest. These companies’ actions are “appalling beyond words,” said Senator John D. Rockefeller (D-WV), who ordered the GAO investigation. “These debt settlement companies are kicking people when they are down.”

There is a legitimate alternative to all this. It’s called “debt consolidation.” Such programs are usually managed by nonprofits following strict ethical guidelines that help you group your debts together into one payment (often using your home as collateral) so that your interest rates can be lowered.

In part due to the GAO investigation, new federal laws went into effect in October of 2010 that make it more difficult for unscrupulous debt relief firms to continue doing business as usual. But industry insiders warn that the new laws will not protect consumers from all fraud and deception. If you are in debt and can’t find your way out, consider the following tips to help you distinguish good help from bad.

1. Check under the hood. Look for a nonprofit credit counseling agency—not a for-profit “debt settlement” company. The nonprofit should belong to either the National Foundation for Credit Counseling (NFCC) or the Association of Independent Consumer Credit Counseling Agencies (AICCCA) or both.

These organizations set ethical standards that all member agencies must follow.

2. Beware extravagant claims. Legitimate companies aren’t going to cut your debt in half—or anything close.

3. Refuse up-front costs. Charging fees in advance is typical among the firms investigated by the GAO. Some of these companies demanded hundreds or even thousands of dollars on day one. A legitimate nonprofit agency will charge you no more than $50 a month, often less, and only after they’ve worked with you to lower your monthly credit payments by at least that amount, says Gail Cunningham, spokesperson for the NFCC.

4. Do a background check. Ask the Better Business Bureau and your state Attorney General’s Office if complaints have been lodged against any credit counseling enterprise you approach.

Sylvia Mitchell finally landed a fulltime position with the Transportation Security Administration. At the same time, she sought help from a nonprofit agency called InCharge Debt Solutions (a member of both the NFCC and AICCCA). With its help, she was able to consolidate her loans, lower her payments, get control over her budget, and, over two years, reduce her credit-card debt to zero. “I’ve learned my lesson,” Sylvia says. “No more credit. From now on, it’s just cash and carry for me!”

National Foundation for Credit Counseling (NFCC). In addition to the main website, you might want to explore www.debtadvice.org, which offers a wealth of information on budgeting and the smart use of credit. The MyMoneyCheckUp tool will help you assess your debt, and to decide if you need help digging out.
Contact: 800-388-2227. www.nfcc.org

Association of Independent Consumer Credit Counseling Agencies (AICCCA). The AICCCA represents the common interests of member agencies to ensure that all who seek help with their debt problems receive the highest quality of assistance.
Contact: 866-703-8787. www.aiccca.org

Council of Better Business Bureaus. Check with the Better Business Bureau (BBB) and with your state Attorney General’s Office (below) to see if any complaints have been lodged against any credit counseling enterprise you approach.
Contact: 703-276.0100. www.bbb.org

National Association of Attorneys General. Visit the website (below) and click on the colorful map of the United States to find your home state’s office of the Attorney General.)
Contact: www.naag.org

That worry helps explain the popularity of annuities, financial products designed to generate a steady cash flow as long as you live. But today’s annuities are very different from yesterday’s pensions, says Christopher Jones, CFP, principal of Las Vegas-based Sparrow Wealth Management: “They certainly are not for everyone, and choosing the right one is crucial.”

You buy an annuity by forking over a lump sum, and, in return, the annuity company agrees to pay you a set amount of cash each month for the rest of your life. Why annuities? Bonds generate steady dividends too, but you’ll get more monthly cash from the annuity. That’s because of something called the “mortality premium,” which is a polite way of saying that annuity providers will pay you more today because when you die they, not your heirs, will grab your principal. The mortality premium gets larger for every candle on your birthday cake. The very best candidates for an annuity are older (65+) and have expectations of living a good long time.

You are probably a good candidate for an annuity if…

You’re not certain you have enough money coming from Social Security and your savings to cover your basic expenses in retirement. Say you’ve crunched the numbers (see “What’s Your Retirement Number”) and have calculated that you’ll need to tap $1,000 every month from personal savings, but that’s really more than your nest egg can handle. Buying an annuity that pays out $1,000 a month will allow you to sleep at night.

You are probably a bad candidate for an annuity if…

You have a good-sized nest egg, are in little danger of running out of money, and can stomach a bit of market risk. “The return you’ll get on a diversified portfolio will very likely be much greater than what you’ll get on an annuity,” says Jones. In addition, your heirs—not the annuity company—will get your money when you pass away.

The standard annuity is a fixed-income annuity. To receive a guaranteed $1,000 a month, a fixed annuity today would cost a 65-year-old man roughly $165,000 (about $175,000 for a woman because women usually live longer). You may choose to purchase add-ons such as a “joint-and-survivor” benefit, which allows your spouse to continue collecting if you die in exchange for reduced cash flow while you’re alive.

The other kind of annuity is called a variable annuity. Unlike the fixed annuity, this option ties your cash payments to underlying investments. The payout fluctuates, but you still get security. However, Jones warns that variable annuities, often pushed by aggressive salespeople, can be incredibly complex and expensive, and often don’t deliver as they promise.

Ready to start shopping? Kerry Pechter, publisher of the online newsletter Retirement Income Journal and author of Annuities for Dummies, offers the following tips and caveats:

• Buy only from a strong company. You may be around for several more decades; you want a company that will be around, too. Choose only companies with the very highest credit ratings. Ratings are listed on the websites of the providers.

• Compare offers. Prices change frequently, and during any given month the best deal might shift from one carrier to another. You can compare prices easily online. The following sites will give you competitive quotes from top-rated companies: Fidelity.com, ImmediateAnnuities.com, and IncomeSolutions.com (that last one is available only to customers of Vanguard and fee-only financial planners).

• If you are concerned about inflation (and you should be), don’t put all of your money into an annuity. Leave enough aside to invest in stocks or buy an annuity with inflation protection (which costs a bit more but adjusts annually to reflect cost-of-living increases).

• Because annuities pay you based on current interest rates, and interest rates are now very low, you might want to “ladder” your annuities by putting some money into an annuity today and buying another every year for several years.

• If you feel a bit lost, you might think about getting an unbiased expert to help. Consider a fee-only financial planner; find one at napfa.org.

If he can save enough by the time he’s 60, Stoloff can see himself quitting his day job at Chrysler. But will he be able to save enough? And just how much would “enough” be? Stoloff, despite his mechanical engineering skills, doesn’t know. “I should, but I haven’t really run the numbers,” he admits.

Stoloff is both unusual and usual—unusual in that few Americans have been “saving, saving, saving,” but usual in his admission that he has yet to run the retirement numbers. According to a recent survey done by the Employee Benefit Research Institute (EBRI), only about four in 10 workers have ever actually tried to calculate how much money they will need to have saved by the time they retire.

Why is that? For some, no doubt, retirement seems simply too far away—so why even bother thinking about it? For others, “They are probably too scared to do the math,” says Jim Otar, CFP, a financial advisor based in Ontario.

You’ve heard that ignorance is bliss, but you may not wind up so blissful if you get to the age at which you wish to retire and suddenly realize that the bills aren’t going to pay themselves. So please consider rolling up your sleeves and joining us for just a few moments of quick and simple arithmetic.

This exercise boils down to subtracting your estimated expenses from your estimated income. The math is easy. Doing the estimating is the tricky part.

No one can read the future, but to give yourself a clue, look at how much you’re living on today and figure you’ll probably be spending a bit less. After all, you’ll likely be putting fewer dollars into the gas tank, having fewer lunches out, your kids may have finished college and left the nest, and your house may be paid for. Your tax hit should also be less—partly because your income should be lower and partly because investment and pension income is typically taxed less heavily than earned income. Also, you’re no longer saving for retirement!

On the other hand, some costs may go up; you might find yourself spending more for travel and recreation, and—if health problems crop up—more on medical costs not covered by Medicare.

For a ballpark estimate, most people find that they need somewhere between 70 and 90 percent of their pre-retirement annual income. For a more precise number, tally up your costs below.

YOUR EXPENSES
My Estimated Monthly Costs at Retirement for:
_ Food
_ Clothing
_ Housing (rent/mortgage)
_ Utilities
_ Insurance (home, auto, life, medical, long-term care)
_ Transportation (car payment, bus, train)
_ Taxes
_ Gifts
_ Recreation
_ Leisure travel
_ Cable and phone service
_ Household maintenance
_ Debt payoffs (other than mortgage)
_ Miscellaneous
_ Total monthly expenses
_ Total annual expenses (monthly expenses x 12)

YOUR INCOME
Calculating money coming in is usually a lot simpler than estimating expenses. Let’s run those numbers.

My Estimated Monthly Income at Retirement is:
_ My Social Security (If you don’t know your S.S. payout, go here.)
_ Spouse’s Social Security
_ Part-time work
_ Pension or annuity income
_ Rents or other sources
_ Total monthly income
_ Total annual income (monthly income x 12)

Ready to do the math? Subtract your annual expenses from your annual income. The result for most people is a negative number or shortfall. This is the amount you’ll have to contribute from your own savings each year, as shown in the equation below:

INCOME – EXPENSES = SHORTFALL

For instance, if you think you will need $50,000 a year to live comfortably and you expect to receive $20,000 a year from Social Security and other income, you will have to pull $30,000 a year from your nest egg ($50,000 – $20,000 = $30,000).

Multiply your shortfall by 25 to get your minimum target retirement portfolio (assuming you wish to retire in your mid-60s). In the case above, you would multiply $30,000 by 25 and come up with $750,000. Why 25? Because that would allow you to pull 4 percent a year from your savings, and—provided you have a well-balanced portfolio—your savings, studies show, will have good chance of lasting as long as you do—at least 30 years.

CLICK HERE for our quick guide to retirement calculators.

Quick and Easy

Employee Benefit Research Institute

AARP

Not So Quick and Easy (but Very Detailed)

Jim Otar’s Retirement Optimizer (Note: The free trial version includes all the features of the full version, except that you cannot change your current age, which is preset to 55. The full version costs $99.99.)

A Middle Ground

FIREcalc is not as quick as the AARP or ERBI calculators, but it’s also not as detailed or time-consuming as Otar’s calculator.

Susan Ellis, 78, a retired U.S. Department of State worker residing in Washington, D.C., lives partly on a pension and partly from her savings. Those savings are half in stocks and half in bonds, with the lion’s share of those bonds being Treasuries. While Ellis’ stocks sagged in the recent recession, her Treasuries more than held their own. “Having part of my portfolio in U.S. government bonds provides me with great comfort,” says Ellis. “It helps me to sleep at night.”

Treasuries give many investors similar peace of mind. “When there is fear and turmoil in the markets, people seek safety; Treasuries fulfill that role admirably—and they always have,” says Christopher Philips, a senior analyst with the Investment Strategy Group at Vanguard Investments. Indeed, during this past recession, Treasury bonds were the only place to seek safety, adds Philips. “U.S. stocks were down, so were foreign stocks, real estate, and corporate bonds … every kind of major investment lost value, except for Treasuries.”

According to data from Morningstar, while U.S. stocks fell in value 46 percent between October 2007 and March 2009, long-term Treasuries rose by 25 percent. In the recession prior, between March 2000 and September 2002, U.S. stocks fell by 38 percent, while long-term Treasuries soared 40 percent. This zigzagging pattern of returns between stocks and government bonds has existed for decades, which is why smart investors, wanting to dampen volatility in their portfolios, own Treasuries.

The “catch” with Treasuries—in fact, all bonds, but especially Treasuries—is that they produce modest returns over time. Since 1926, per Morningstar data, stocks have returned 9.8 percent a year, while long-term Treasuries have generated 5.4 percent. If you mixed-and-matched, combining 60 percent stocks with 40 percent Treasuries, the average yearly gain of your portfolio would have been 8.6 percent.

To make Treasuries a part of a balanced portfolio, consider this:

• The first step in constructing a portfolio is to determine what portion you want in stocks and what portion bonds. The higher the return you desire, and the more volatility you can stomach, the more you want in stocks. Important note: Bonds in the past 20 years have done exceptionally well (see chart on page TK), but the relative return on bonds to stocks may revert to long-term norms, says Philips. “Treasuries have done very well in the past 20 years because bonds tend to shine when interest rates fall … but when rates rise, bonds tend to not fare as well.”
• Whatever your allocation to bonds, consider putting roughly 40 percent of that into conventional Treasury bonds, recommends Philips. The rest could be in corporate bonds (which tend to return slightly more than Treasuries), municipal (tax-free) bonds, foreign bonds, or inflation-protected Treasury bonds (discussed below).
• Treasuries, like all bonds, may be purchased with various maturities: short-term, intermediate-term, or long-term. In general, the longer the maturity, the higher the return, but the greater the price swings. Philips recommends that you shoot for the middle—“intermediate-term” bonds that mature in about seven years.
• You can buy individual U.S. Treasuries, free of trading costs, by going to Treasurydirect.gov. Or, you can buy a fund of Treasuries, which allows for instant diversification of maturities and ease of management. Choose a fund with low costs. Options include the SPDR Barclays Capital Intermediate-Term Treasury fund (ticker symbol ITE) or the Vanguard Intermediate-Term Treasury fund (VFITX).
• Add TIPS. Treasury Inflation-Protected Securities (TIPS) are a different breed of Treasury that offers little interest, but is adjusted for inflation twice a year. Consider allocating a part of your bond portfolio above and beyond conventional Treasuries to TIPS, suggests Philips. Like conventional bonds, TIPS can be purchased individually through Treasurydirect.gov or as a fund. Options include the Vanguard Inflation-Protected Securities fund (VIPSX) or the iShares Barclays TIPS fund (TIP).

Whichever way you decide to go to buy Treasuries, once you do, your sleep, like Ellis’, will likely improve, too.

Only the first question is easy. The traditional IRA allows you to sock money away and get an immediate 
tax deduction. But when you eventually withdraw the funds, you pay tax.

The Roth, in contrast, gives you no deduction stepping in, but you pay zero tax when taking the money out. In other words, the traditional IRA offers tax-deferred growth; the Roth offers tax-free growth.

The ability to convert from the traditional to the Roth is nothing new. That’s been allowed since 1998. As of January 1, 2010, however, there is no longer a $100,000 income cap on who can convert to a Roth. Now anyone can. All you have to do is pony up the taxes due. But just because you can convert does not mean that you should.

“For many people the conversion can make enormous sense. For others it can be a disaster,” says Robert Keebler, CPA, MST, a partner in the accounting firm of Baker Tilly Virchow Krause, LLP, in Appleton, Wisconsin.

Which group are you in? Here’s how to tell:

Will your future tax rate go up?

With the federal debt mounting and personal income tax rates lower than they’ve been in decades, taxes overall are likely to rise. But what about your personal tax bracket? That is perhaps the single biggest consideration in deciding whether to convert.

“If you are paying 30 percent in taxes today, or 30 percent tomorrow, you are, in a strict mathematical sense, going to be no better or worse off by converting,” says Keebler. If you expect your taxes to rise in future years, however, you are a good candidate for conversion. If you expect your taxes to fall, which might be the case for a highly paid professional looking to retire soon, the conversion will probably not make sense.

When will you need the IRA funds?

The longer you have before tapping the funds, the more the Roth can grow tax-free and the more the conversion will help secure your nest egg. If you plan to use the funds within the next three to seven years, converting to a Roth probably won’t work to your advantage, says Keebler. If, on the other hand, you plan to not touch the money for decades, or perhaps never touch the money—leaving it to your kids, for example—the Roth conversion may add substantially to family wealth, he says.

Do you have the cash to pay the taxes now?

If you convert, say, $20,000 of your traditional IRA to a Roth this year (you can choose to convert all or part of your traditional IRA), you will likely owe income taxes (both federal and state) on the $20,000. If you are in the 30 percent total tax bracket—assuming the $20,000 doesn’t push you up into a higher tax bracket—you’ll have to cough up an extra $6,000 ($20,000 x 30 percent) by tax time. Or, you can take advantage of a special law currently in effect that allows you to defer recognizing the conversion income until you file your 2011 and 2012 tax forms. “Either way, the conversion will be more advantageous if you have the cash outside of your IRA to pay the tax,” says Scott Jacobsmeyer, CFP, president of Argent Wealth Management in Round Rock, Texas. In addition, he warns, if you pay the tax due out of the IRA and you are not yet 59 1/2, you may be subject to a 10 percent penalty.

Fortunately, you don’t need to figure this all out today. To convert for tax year 2010, you need to make your move by the end of December. And there’s always next year … and the year after that. “In fact,” says Jacobsmeyer, “for many people, partial conversions over a number of years (so you’re not taking too big a tax hit in any one year) might be the best strategy of all.”

A rash of media stories called for abandoning the diversified portfolio, rejecting buy-and-hold investment, or adopting new tactics, such as market timing (jumping in and out of the stock market in the hopes of buying low and selling high) and cherry-picking (banking on one or possibly a handful of investments that you think will do better than all the others out there). Other stories have advocated just keeping your money under the proverbial mattress.

Investors are listening. According to the investment resource Morningstar, $573 billion in cash flowed into low-yielding but secure money-market funds in 2008 when the stock and bond markets (other than Treasury bonds) were suffering the most. As soon as the stock and bond markets started to come back in 2009, so did the investment money.

We’re here to tell you that you might want to think twice before following the pack and abandoning the tried and true—the well-diversified, broad portfolio of stocks and bonds and cash that you pretty much buy and hold—and jumping onto any bandwagon that promises to do better. Here’s why:

1. Cash is costly. Keeping your money in cash (money-market funds, savings accounts) may spare you from market volatility, but in the long run, the return on a diversified portfolio of 60 percent stocks and 40 percent bonds still clobbered cash. According to Morningstar, the respective 30-year returns on the diversified portfolio, after accounting for inflation, were three to four times that of a portfolio held in cash.

2. Markets are unpredictable in the short run. If you’re thinking that you’re going to keep your money in cash and pop into the markets at just the right time, think again. Pro investors often can’t even time the markets, says Cathy Pareto, MBA, CFP, president of Cathy Pareto & Associates, a wealth management firm based in Coral Gables, Florida. “Studies show that investors who buy and hold a diversified portfolio, rather than try to rush in and out of investments, tend to do much better.”

3. Specific winners and losers are unpredictable, too. If, instead of diversifying your portfolio, you try to zero in on individual securities or small segments of the market, you may be adding to your risk, but not your return. “People are often overconfident in thinking they can pick one stock or perhaps one industry that is going to do well,” says Don Bennyhoff, CFA, a senior investment analyst at Vanguard Investments. “Professional investors often do a very poor job when they attempt such picks—the average investor won’t even do that well.”

4. Costs are bigger than you think. When you buy and sell (whether popping in and out of the market, or gambling on individual stocks or market sectors) there are substantial costs involved, says Bennyhoff. The “spread” (the middleman’s cut) on stocks can be as high as several percentage points. There is often a commission or markup to pay the broker on any trade of a stock or bond, and fees on fund swaps are not uncommon. You may also pay higher taxes on a shifting portfolio than on a buy-and-hold one.

5. Look at the bottom line. The downturn of 2008–2009 was unusual in the manner in which so many investments, and entire classes of investments, turned sour at the same time. Still, diversification paid off, assures Bennyhoff. Bonds overall didn’t do quite so bad; some bonds, namely Treasuries, did very well. Certain segments of the stock market even shot off like rockets in the second half of 2009. Overall, if you had a highly diversified portfolio of 40 percent bonds, 30 percent U.S. stock, 20 percent foreign stock, and 10 percent cash, your portfolio on September 30, 2009, would have earned you 4.25 percent annually, or 51.63 percent cumulatively, over the prior decade. “Despite what you may have read, diversification and patience hasn’t entirely let us down,” says Bennyhoff.

Russell Wild, MBA, is a NAPFA-registered financial advisor who has written nearly two dozen books, including Index Investing for Dummies and Bond Investing for Dummies.

“Most people simply don’t want to do tax planning, often fearing that it is too complicated. But tax-loss harvesting isn’t very difficult, and some people — especially with most investments beaten down — could truly save a bundle.”

Tax-loss harvesting refers to selling investments you’ve lost money on and asking Uncle Sam to essentially share the pain. Here are five easy steps to make that happen. Be aware, however, that you must act by December 31 to take a deduction for 2009.

Step 1: Peruse your portfolio
Chances are that you lost value on your investments in the past couple of years, but to tax-loss harvest, you must have lost value in a taxable (non tax-deferred) account. IRAs and 401(k) plan losses don’t count. What you’re looking for, in most cases, is either a stock or a stock fund that has fallen in price since you purchased it.

“Since the markets have dropped dramatically, many of your holdings will likely fit the bill,” says Kazan. In investment-speak, the price you paid for a security is known as the “cost basis.” So you are looking for a cost basis greater than today’s market price. If your investment papers do not list cost basis, you’ll need to contact a representative at your brokerage firm or mutual fund.

Step 2: Sell your losers
Selling the securities — after finding the cost basis — is where many people freeze. “It’s often hard for people to sell securities that have lost value. They feel like they are locking in their losses,” says Kazan. That’s true, in a sense, that you would be locking in your losses. But (as you’re about to see in Step 3) losses aren’t always such a bad thing.

Step 3: Seal your nest egg
Simply having sold a loser, you have experienced what’s known in the tax business as a capital loss, and capital losses are generally tax-deductible. So far, so good! Now you have just two main things to be careful of. First, the “wash-rule”: Don’t ask why, but the IRS will disallow any tax deduction if you repurchase the same security within 31 days … so don’t. But being out of the market for a month presents you with a second potential problem: The market will heat up, and you’ll be left out in the cold. The solution is to “seal” your portfolio by buying a similar (but not identical) security. You can then keep your proxy, or, if you prefer, sell it after 31 days and repurchase your “old” security. And here’s where selling your depressed security should not be seen as anything horrible: Your proxy is going to be similarly depressed and poised for a like price pop if the market starts to boil.

Step 4: Garner your profits
Suppose you bought a stock or a stock fund for $10,000 several years ago, and the market value has since swooned
to $6,000. If you sell, you will have a capital loss of $4,000. You can use that $4,000 in one of two ways, explains Will Holt, CPA, with Financial Symmetry, Inc., a financial planning firm in Raleigh, North Carolina. First, you can apply the entire amount to offset any capital gains (gains from selling a security at more than you bought it for).

But even if you have no capital gains this year, you can still deduct up to $3,000 from your regular income when calculating your taxes owed. “That’s a substantial saving for minimal effort,” says Holt. The remaining $1,000 of your capital loss can be written off next year’s (2010) taxes. And if you pay state income taxes, you likely can write off some of those, too. Invest your total savings, and it will grow with compound interest over time. “Your simple tax-loss harvesting, which took you perhaps a few minutes, could wind up adding significantly to your wealth,” says Holt.

Step 5: Fine-tune the process
If you are unfamiliar with tax-loss harvesting, you might want to bring in the assistance of a financial professional, at least until you feel comfortable with the process.

“There aren’t too many potential snags, but there are some,” says Holt. Be careful when buying and selling mutual funds if there’s a load or short-term redemption fee. Be aware of the commissions you pay for trading individual stocks or exchange-traded funds. And finally, know that the IRS rules can be a bit tricky regarding what constitutes a “similar, but not identical,” security. “There’s a bit of a learning curve with tax-loss harvesting, but the potential savings are great enough that it is well worth putting in the effort,” says Holt.

Russel Wild, MBA, is a NAPFA-registered financial adviser who has written nearly two dozen books, including Index Investing for Dummies and Bond Investing for Dummies

According to Sonja Lyubomirsky, Ph.D., professor of psychology at the University of California, Riverside and author of The How of Happiness: A New Approach to Getting the Life You Want, happiness, in the long run, provided you are not living in poverty, really does not depend on how rich you are. Numerous studies, she says, make that point rather conclusively. (Happiness, as we’ll see in a minute, is much more about relationships and attitudes.) But in the short run, things can be very different. We become accustomed to a certain level of material wealth. Should that level adjust either up or down, our mood is likely to swing with it. And that, according to Dr. Lyubomirsky, is why you are feeling blue.

What to do about it? There are several options. You can wait until you naturally adjust to your new level of wealth (whatever that is); wait until the economy starts cranking again and your nest egg makes a welcome comeback; or you can follow these tips to lift your spirits, regardless of which way the economic winds may blow.

Buy experiences.

“Spending your limited money on experiences, things that help us make connections — time with friends, a French class, traveling with family — tends to have a much larger impact on happiness than spending money on mere material possessions, such as dining room furniture or new kitchen cupboards,” says Dr. Lyubomirsky.

Forget about status symbols.

Advertisers spend billions to drive us toward one particular brand or another. But spending your money, especially in hard times such as these, on expensive, trendy products (handbags, perfumes, or mineral water in fancy, odd-shaped bottles) is money down the drain as far as adding to your happiness, says Dr. Lyubomirsky. “These brand allegiances do nothing to enhance your well-being.”

Separate needs from wants.

“Many advertisers count on the fact that we don’t reflect. Becoming mindful — taking time to think about whether or not we really need something — can go a long way toward having a better life,” says Tal Ben-Shahar, Ph.D., author of The Pursuit of Perfect: How to Stop Chasing Perfection and Start Living a Richer, Happier Life. “We are vulnerable to advertising when we’re mindless. That’s when we don’t notice its effects. Even worse, we don’t notice the wonderful (often free) things in our lives; we do not stop to savor.”

Love what you have.

“Happiness is not a function of what we have, but rather a function of what we appreciate. Studies show that people who regularly express and experience genuine gratitude for what they have — family, a meal, work, wealth — are happier, healthier, and more successful in the long run,” says Dr. Ben-Shahar. He suggests that you might want to keep a journal in which you take daily written notes of all that you are most grateful for.

Reset your goals and ambitions.

“Your happiness is not about high versus low expectations, but about right versus wrong expectations,” says Dr. Ben-Shahar. “If we expect additional income or wealth (assuming our basic needs are already met), accolades, or the attainment of certain goals to make us happier, then we have wrong expectations. These things do not contribute to our well-being other than in the form of a temporary high,” he says. “If, however, we expect that spending quality time with those we care about, acting kindly, and expressing gratitude regularly will make us happier, then we have the right expectations, and we are likely to achieve happiness.” And that’s true, he says, regardless of whether the economy is cruising or sputtering.

Russell Wild, MBA, is a NAPFA-registered financial advisor who has written nearly two dozen books on finance, including Index Investing for Dummies.

Few — amateurs and financial professionals alike — anticipated anything like the 57 percent drop in the Standard & Poor’s 500-stock index over the 17 months prior to this March. No one can be sure if the worst is over. But out of this greatest sag in our economy since the Depression, some important lessons can be gleaned.

Here are a few tips from the pros to help you recover — and then some — in the years ahead.

Be True to Yourself
“It’s one thing to say you can stand to lose, say, 25 percent of your portfolio; it’s quite another to actually see it disappear,” says Matthew D. Gelfand, Ph.D., CFA, CFP®, managing director and chief investment officer of Lynx Investment Advisory in Washington, D.C. “Many investors discovered that they weren’t quite as able to handle risk in reality as they were in the abstract.” Gelfand suggests that moving forward, you seriously question how much volatility you can truly stomach. “Put market risk into very concrete terms. If your portfolio today is worth $300,000 and you have two-thirds in stocks and the stock market again tumbles by half (assuming the worst-case scenario), you will be left with $200,000. How exactly will that affect your current lifestyle and your retirement plans? Could you live with that?”

Diversify Your Portfolio Intelligently
As you know from just about any other investment article you’ve ever read, diversification is all-important. But a lot of people who thought they were well-diversified before the recent debacle really weren’t. “It’s still important to diversify within your stock holdings, but as we’ve seen, you should pay much more attention to making sure you divide your portfolio into stocks, bonds, and cash,” says Christine Benz, director of personal finance at Morningstar, a leading provider of independent investment research. Stocks offer the potential for highest return, but also position you for potential loss. Although getting the optimal mix of stocks, bonds, and cash involves many factors, a good rule of thumb, says Benz, is to not invest any money in the stock market that you might need in the next seven to 10 years. “Prior to the recent collapse, most financial professionals were saying five years, but that clearly isn’t long enough,” she says.

Trust in Uncle Sam
Within the bond side of your portfolio, diversification is also key. During the dark days of 2008, when stocks were sinking fast, corporate bonds surprisingly sank, too. U.S. Treasury bonds, in contrast, soared by nearly 14 percent. “Corporate bonds were overestimated to hold up during the financial crisis, and the diversification power of U.S. Treasuries was underestimated,” says Benz. She suggests that a good portion of your bond holdings, at least one-fourth, should be in bonds that hold the full backing of the U.S. government and tend to rally in times of financial worry. Treasury bonds come in two basic flavors — conventional and inflation-adjusted, otherwise known as TIPS. You can buy both kinds directly from the U.S. Department of the Treasury at treasurydirect.gov, or you can purchase them in fund form through a company, such as Vanguard (vanguard.com) or iShares (ishares.com), that offers various Treasury fund options at very low cost.

Don’t Lost Faith
You don’t want to go overboard and invest all of your money in the safest securities such as Treasuries or CDs, warns Frank Armstrong III, CLU, CFP®, AIFA®, founder and principal of Investor Solutions in south Florida and coauthor of Save Your Retirement. In order to recoup whatever you lost in the recent downturn, you’re going to need the growth power of stocks. “The stock market has seen serious slides in the past and has always come back to recover nicely,” says Armstrong, who has more than 35 years experience in the securities and financial services industry. “Stocks, over the long-run, have far outperformed bonds and CDs in the past, and will very likely continue to do so in the future,” he says. In only two months after the stock market’s low on March 9, the Standard & Poor’s 500-stock index soared approximately 35 percent — in the absence of any good economic news. Armstrong sees that as a sign of the stock market’s resilience. He recommends that you invest in stocks through low-cost index mutual funds or exchange-traded funds that track large segments of the market. Consider such fund options from Vanguard, Tiaa-Cref (tiaa-cref.org), or State Street Global Advisors (spdrs.com).

Destroy Your Debt
Perhaps one of the biggest lessons learned from the economic turmoil of late is the peril of debt, says Morningstar’s Benz. “The whole crisis, which started with our financial institutions’ overindulgence in debt, carries a strong lesson for individual households,” she says. “We all need to look at our personal balance sheets and make certain that debt doesn’t drown us.” Start by trimming your credit card use and then perhaps begin to chip away at the principal of your mortgage, suggests Benz. “As you near retirement, one of your goals should be to enter that phase of life with as little debt as possible.”