JonathanBurton

SAN FRANCISCO (MarketWatch) — Jo and Al Lineberry were expecting a smooth and stress-free retirement when life intervened.

Two years ago, the Lineberrys were corporate executives in Minneapolis with successful and lucrative careers. Then Al was laid off, and Jo lost her job nine months later. Today, Al’s new job pays one-third of what he used to make, while Jo is employed part-time.

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Like millions of Americans who have painfully watched their home’s value collapse and their 401(k) crumble, the Lineberrys are being forced to make major lifestyle changes they never imagined.

We didn’t have to worry too much about money, Jo said. Now, if we can’t pay cash we don’t buy it. We have taken no trips at all. We’d always go out to the nicer restaurants; now it’s Red Lobster, Olive Garden — with coupons.

Critics might be quick to say the Lineberrys brought this on themselves, with their fancy dinners and frequent vacations. Except that in planning for their financial future, the couple was doing everything right. They’d diligently paid off their mortgage and didn’t tap the home equity to buy more things. And they’d been textbook savers, maxing out 401(k) contributions so that Jo, 51, and Al, 60, could retire early.

That goal is most likely out of reach for the Lineberrys. But they do have options: Spend less; work longer; save more; take greater investment risk, reassess financial goals.

Indeed, those are the basic choices for anyone close to retirement or already retired who hopes to rebuild their investment portfolio. Maybe they’re not ideal, but they are the new reality for people who’ve been hit with a series of body blows in a short time. See MarketWatch’s complete coverage of Retirement in Peril.

The game has changed, said Nathan Dungan, founder of counseling firm Share Save Spend, which teaches families about money matters. People say, ‘I was on track. I was doing everything correctly, and the bottom dropped out. Through no fault of my own, I am now in this difficult spot.

Difficult — and shocking. At money and investing seminars, Dungan directly confronts people’s feelings of helplessness and loss, bringing up the five established stages of grief — denial, anger, bargaining, depression and acceptance. These are tough things to face, he said, but facing them and getting a plan of action is empowering. It’s when we don’t face it that anxiety continues to build and our situation doesn’t get any better.

What can you do? Look backward — not to regret but to remember how it felt to experience terrifying volatility and uncertainty as the financial markets melted down. Then live forward — think hard about what you hope to have in coming years and map out how to get there. If that dream involves more risk than you’re willing to take, you’ll either have to scale back or extend your horizon.

Replacing lost wealth

It’s natural when you lose money to want to make it back. Research shows that the pain of financial loss is much more acute than the satisfaction of a gain. Losses of course are particularly hard on retirees, who no longer have the time to recoup them and need regular income from a portfolio.

Pressing needs often lead to unrealistic expectations. People come to us and say ‘You fix it; I want you to take more risk to get me a higher return,’ said Scott Kays, an Atlanta-based financial adviser.

Taking too much risk is what got them in trouble, he added. Sometimes advisers are tempted to take too much risk to help the client get that money back faster. It’s a trap for clients and advisers. The steps I’m going to take are no different than I would take for someone just building their portfolio.

Do you really want to know the quickest ways to replace lost wealth? It’s not by pouring money into stocks or other speculative investments. The answer is to follow a financial plan that brings down the cost of your lifestyle.