5 Money Mistakes Boomers Must Avoid in a Recession
Written by
Cindy Lamothe
Edited by
Amber Barkley
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No one likes the word “recession.” It brings to mind tight budgets, stressful news headlines and that nagging feeling you should probably cancel all your streaming subscriptions — even if you don’t want to.
According to Fidelity, a shrinking economy can cause a cascade of stressful ripple effects, including lower employment, deteriorating stock market results and higher borrowing costs for consumers and companies.
For boomers, navigating a downturn comes with its own set of challenges. Whether you’re nearing retirement, already enjoying it or somewhere in between, avoiding certain money mistakes can make all the difference.
“I’ve worked with retirement planning for ages, and I keep seeing the same wealth-killing mistakes,” said Andrew Lokenauth, money expert and owner of BeFluentInFinance.
Below are some of the biggest financial slip-ups boomers should dodge when the economy hits a rough patch — and how to come out stronger on the other side.
Panic Selling Is Absolute Poison to Your Portfolio
Watching the market tumble can feel like you’re on a rollercoaster with no seatbelt.
When the headlines scream “Recession Incoming!” and your retirement account starts shrinking, it’s natural to want to do something. But here’s the thing: Panic selling is usually the worst move you can make.
Lokenauth watched countless clients dump their stocks in March 2020 when everything crashed — and consequently miss out on one of the fastest recoveries ever. “Those knee-jerk reactions locked in permanent losses. Just terrible.”
Taking Social Security Too Early
Taking benefits early can shortchange you in a big way over the long haul.
Here’s a reality check during a recession: Claiming early out of fear can limit your flexibility later on. Higher monthly benefits down the road could be crucial if the economy stays rocky, inflation eats into your savings or healthcare costs spike — which they often do.
“Sure, the guaranteed income feels safe during scary times, but I’ve run the numbers hundreds of times,” said Lokenauth.
He said claiming at 62 instead of waiting till 70 can cost you $100,000 or more in lifetime benefits. “The math doesn’t lie.”
Raiding Retirement Accounts Early
Something that Lokenauth said makes him cringe is raiding retirement accounts early.
First off, if you pull money out of most retirement accounts before age 59½, you’ll likely get hit with a 10% early withdrawal penalty, plus you’ll owe regular income tax on that money.
That can be a nasty surprise come tax season — not exactly the relief you were hoping for.
But beyond the penalties, the bigger issue is this: Every dollar you take out now is a dollar — or more — you won’t have working for you later.
“I had a client pull $50,000 from his IRA during the last recession for ‘safety.’ Between taxes, penalties and missing the recovery, that decision cost him about $130,000 in future wealth,” Lokenauth said. “Made me sick to watch it happen.”
Ignoring Inflation Is Another Brutal Mistake
Your cash might feel cozy sitting in a savings account, but it’s actually shrinking by 3% to 7% each year.
When the economy takes a dip, it’s easy to get focused on immediate financial problems, like your job uncertainty or stock market drops. But here’s the truth: Inflation doesn’t stop just because the recession is in full swing.
In fact, it can make things even worse.
For boomers, you may already be on a fixed income or near retirement, and inflation is a silent thief. As the cost of living rises — whether it’s groceries, gas or healthcare — your money simply doesn’t stretch as far as it used to.
According to Lokenauth, this means your purchasing power — the value of your money — is steadily shrinking. If you’re not actively planning for it, this can become a huge burden, especially over time.
He said he keeps about 6 months of expenses in cash. “Anything more is just bleeding value.”
Cutting Back on Maintenance and Healthcare
One mistake that gets overlooked, according to Lokenauth, is cutting back on maintenance and healthcare to save money.
When times are tight, it’s natural to look for areas to cut costs. But some cuts can have long-term consequences — especially when it comes to maintenance and healthcare. Skimping on these crucial areas might save you a few bucks now, but, as Lokenauth put it: Those “savings” often lead to way bigger expenses down the road.
“My uncle tried skipping his blood pressure meds to cut costs,” he said. “Ended up in the ER. Cost him $25,000.”
Overall, he highlighted that protecting wealth in or approaching retirement isn’t about fancy strategies. It’s about avoiding big mistakes and staying disciplined when everyone else is losing their heads.
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