It was the best of times; it was the worst of times. -- "A Tale of Two Cities," by Charles Dickens

A pair of financial milestones was passed last week. The Dow Jones Industrial Average set a new high of 1,065.49 on Wednesday. On the same day the Social Security old-age trust fund announced that, to cover this month's benefit checks, it would have to borrow from another fund for the first time in more than 40 years.

For the average investor these disparate milestones signal increased responsibilities as well as increased opportunities along the road to retirement riches. And expectation plus fear equal confusion.

"Those who still have discretionary income to invest seem to panic in hard economic times," said LeCount R. Davis, president of the metropolitan Washington chapter of the International Association of Financial Planners. "They want to double their money by putting it into questionable ventures and tax shelters; they are vulnerable to scams."

On the other hand, Edward S. Dove III, a Silver Spring financial planner, finds investing easier today "because there are so many alternatives. A couple years ago, when gold and condos were the rage, I was recommending caution, remaining liquid. Today I am more confident."

During the past year the country has been in the throes of deep recession, with unemployment surpassing 10 percent. For some of those out of work, financial planning has taken on a new meaning: how to conserve or liquidate one's assets to survive. For others, economic conditions have created unparalleled chances for investment.

Recession and demographics have also taken their toll on the Social Security trust funds. There is a growing recognition that whatever is done to rescue Social Security will have an impact on retirement benefits by the turn of the century.

Inflation and recession have affected corporate pension policies. Some companies have curtailed cost-of-living allowances for retirees. The trend away from defined-benefit plans toward defined-contribution plans may result in "unforeseen detrimental effects on the income of future retirees," according to the Employee Benefit Research Institute. Changes in the tax code last summer will reduce the amount wealthy professionals can contribute to their pension plans.

Conversely, the switch will mean more workers will receive benefits. A recent study for the American Council of Life Insurance predicts that by the year 2000 about 85 percent of all married families and two-thirds of singles can expect benefits from at least one person's pension. Moreover, for them, pension and Social Security benefits combined will replace three-quarters of pre-retirement income on an after-tax basis.

Personal savings, the third leg of the retirement income stool, have risen to their highest rate in years, 8 percent of disposable income, as a result of the recession as well as the Reagan administration's policy of creating tax incentives for saving. High interest rates have added to the value of savings. Consequently, interest income now amounts to just over 14 percent of total personal income, according to the Bureau of Economic Analysis, compared with about 8 percent in 1970. Moreover, interest income, which equaled dividend income after World War II, is now six times greater.

But lower interest rates may alter that ratio. During the last big recession, the growth in interest income slowed from 19.7 percent in 1974 to 7.6 percent in 1976. Data Resources, Inc., a Massachusetts consulting firm, predicts that growth in interest income will slow to 14 percent in 1982 from 24.9 percent last year. The projected growth for 1983 is just 9.8 percent.

In the year just ended, fixed-income securities had an outstanding performance. The total return on long-term Treasury securities amounted to 43 percent, according to The Wall Street Journal, compared with a 21 percent total return on Standard & Poor's 500 stocks. Experts differ on whether the bond boom or the stock market rally will continue into next year.

The American public's two-year love affair with money market mutual funds has hardly cooled since the average interest rate paid by taxable funds fell from a peak of more than 17 percent in January 1981 to roughly 8.8 percent. Inflation has also dropped in that period to around 4 percent so the real rate of return has diminished only a small amount, from 7.3 to 5 percent.

The ease, liquidity and proven safety record of these funds (and imitations by banks and savings institutions) indicate this kind of account will be around for quite some time as a bona fide vehicle, particularly for small or unsophisticated investors. Moreover, it is likely money market funds as well as deposits will be insured in the future.

One of the most significant trends of the past year has been the growing popularity of tax-free investments. Once municipal bonds were considered suitable only for millionaires. But "bracket creep" and the packaging of municipal bonds in small units has made them attractive for the millions.

Yields on tax-exempt bonds have held up well compared with those on corporate bonds and other taxable investments because institutions aren't buying "munis" as heavily these days. The gap is being filled by individuals. Many Americans who got their first taste of tax-free income when they bought All Savers certificates have discovered tax-free money market funds, municipal bond funds and unit investment trusts, closed end funds of "munis." Sales of these are booming. The advent next July of the 10 percent withholding tax on interest and dividends may well push more people toward tax-exempt bonds.

For a person in the 50 percent income tax bracket, the latest seven-day average rate on tax-free money market funds, 5.47 percent according to Donoghue's Money Fund Report, amounts to the equivalent of 10.94 percent, whereas the taxable fund pays just 8.81 percent. At those rates, anyone in or above the 38 percent tax bracket would do better with the tax-free fund.

(To determine whether a tax-free investment is more advantageous in your tax bracket than an equivalent taxable one, subtract your bracket from 100 and divide the yield by that figure. If the resulting quotient is larger than the yield on the taxable funds, the tax-free investment would give you a better return.)