You’ve worked all these years looking forward to the day when you could retire. Now you can actually see the light at the end of the tunnel. You figured you could work for eight or ten more years and then kick back. The job is good, the investment in the 401K and IRAs are solid and moving up.

Piece of cake, right? WRONG! Things have changed and you have just realized that the light at the end of the tunnel is a train coming straight at you. Suddenly things aren’t as secure as they had seemed. Suddenly people around you are being laid off and there are rumors that the company will be moving out of state. Your conviction that the company can’t do without you is unraveling. Senior employees are being asked to train junior employees as their own backups (“just in case you can’t work”) and you know there isn’t enough work for the junior employee as it is. Is there a message here?

Your retirement fund is in shambles with values 50% less than they were two years ago and you have little hope of full recovery in the near future. And if you should be laid off that fund could be a primary income source until you find another job. Another job, you say? The LA Times says it could take years for employment levels to reach pre-recession levels. As the years go on you will find yourself competing with a bigger and bigger replacement pool, most of whom are younger than you.

That million dollar equity you had in your home is now 300K and it will take many years to recover.

What if the ax has already fallen? What are you going to do? You can collect unemployment, but in the State of California if you are laid off today you could only collect for 26 week unless Congress passes another extension. The last extension only passed by a couple of votes so it is not likely that a new extension will be passed.

If you are 62 or older you can apply to Social Security for early retirement. The payment will be greatly reduced depending on how many years you have left until full retirement and during this interval you are restricted on how much you can earn in a job or business.

You can start eating into that 401K or IRA but if you under 59-1/2 you will be paying a penalty. And remember, you will be drawing on these funds at greatly reduced values and those funds will have to last a lot longer than you originally thought.

What are your choices at this point? Well, there aren’t many. You can tough it out, cut back on your lifestyle and hope something comes along. You can become a consultant. You think? As it happens, the market for consultants has dried up as companies try to retain their regular employees. Or you can consider creating a second income by starting your own business.

I speak from experience. I left the corporate world years ago with a really good skill set. I worked as a consultant, gained a lot of experience and rarely had a week go by between assignments. My last three assignments collectively were for nearly 10 years so I figured if I could hold out for just a few more years I would be set for retirement.

That is until this past December 2009 when I was replaced by a recently laid-off permanent employee. No problem, I’ll just start checking for another assignment. And checking, and checking and checking.

Now, eight months later I am still checking but I have an advantage over the many people in the same position. Years ago I realized that it was stupid to rely on a single income source and decided to find something my wife and I could do together from home as a backup and create a second income. We “drilled our well before we were thirsty” and thank heaven we did. The income we created from our business did replace my wife’s work income and she was able to retire. Because of that decision, while we are not rich, we are able to survive, buy groceries, pay health insurance and the mortgage and not dig into our savings.

(to be continued)