6 Risks You Face if You Retire in a Recession

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The job market is strong and unemployment is low, but inflation is high, interest rates are rising and stocks are in a bear market. Those circumstances haven’t changed much for months, and many of the same bank executives, policymakers and pundits who predicted a recession this summer now expect the worst to arrive in early 2023.

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Although the economy has fended off a full-fledged recession so far, it’s still teetering on the brink — and that puts a lot of anxiety into near-term retirement planning. If your original timeline had you collecting your final paycheck in the next few months, you have to consider that your target date could coincide with an ugly economic decline. 

If that happens, the question becomes: Should I retire in a recession? 

Optimistically, inflation could begin to wane and stocks could start to rebound, but planning for the best-case scenario leaves a lot to chance. 

Instead, make a decision based on an honest assessment of the risks that come with retiring in a recession in case that’s how it plays out. 

If it does, this is what you’ll be up against. 

Recessions Are Nest-Egg Shrinkers

Recessions can quickly whittle down nest eggs from ostrich to robin, and what seemed sufficient during rosy economic times might not offer the same feeling of security if the pessimists are proven right. Home values typically drop during recessions. When houses lose value, homeowners have less of the equity that so many retirees factor into their long-term strategies. 

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Also, recessions tend to coincide with bear markets, which drain value from the stocks that retirees spend decades accumulating inside their IRAs and 401(k)s.

Your Cost of Living Could Outrun Your Savings

When the country is in a recession, either interest rates, inflation or both are usually high. High-interest rates make it more expensive to borrow money. High inflation sends prices up and forces retirees to spend more money to maintain the same lifestyle. Eventually, the Federal Reserve lowers interest rates to spur economic growth, but that reduces their savings yields. 

Rising living costs, expensive loans and dwindling assets are all scary roadblocks that should give pause to anyone who’s considering leaving their income behind when the economy goes south.

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You Could Lose Your Part-Time Job

Even before the pandemic, more Americans were working part-time well into retirement as improved late-life health made it possible and longer life expectancies made it necessary.

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That trend has only gained momentum in the post-pandemic era.

The problem is that both the Great Recession and the pandemic showed that employment outcomes tend to be much worse for older employees — particularly part-time workers — during economic downturns. Steep job losses and high unemployment are hallmarks of recessions, and according to reports from the Population Reference Bureau (PRB) and the Economic Policy Institute, older part-time workers are often the first to lose their jobs when businesses cut back during lean times.

You Might Not Be Able to Re-Enter the Workforce

High unemployment is a key indicator of a recession, and for retirees, it can be a double-edged sword. When companies lay off workers and slash jobs, a growing number of people compete for fewer open positions.

According to the Bureau of Labor Statistics, the youngest and oldest employees are most likely to be shut out of tight job markets that recessions create.

The nest-egg-shrinking realities of recessions can force retirees back out into the job market — but when they get there, they often find that getting hired for a suitable position is much harder the second time around. 

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Your Health Could Suffer

The PRB report cited a collection of data showing that recessions can be just as harmful to your health as they are to your wealth — especially for older Americans. During recessionary times, job losses and other periods of involuntary unemployment are linked to greater instances of mental health issues like depression. 

Other data links recessions to diminished physical health and well-being in older populations. When negative economic forces batter assets and make daily life more expensive, retirees are sometimes forced to redraw the line between wants and needs — and things like healthy food and preventative health care become luxuries.

You Could Outlive Your Money

According to Forbes and the National Bureau of Economic Research, the average recession lasts about 17 months. That’s a long time to push back the finish line if you’ve spent years anticipating your pending retirement date. But if you’re able to ride out the storm, you might be able to stretch your savings for many more years by postponing the big day.

At a minimum, adjust your plan to account for higher spending, diminished assets, and more financial stress — and get ‘I can always’ out of your retirement-planning vocabulary. 

“I can always go back to work.” Not if you can’t get hired. “I can always sell my house.” Not necessarily — and you’ll likely forfeit precious equity even if you can. “I can always sell my stocks.” True, but in a bear market, you’ll probably sell at a huge loss from which you’ll never have enough time to recover. 

Keep in mind that the average household lost one-third of its net worth during the Great Recession. If you don’t want to outlive your money, leaving the gate during a recession is a risky way to get started.

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About the Author

Andrew Lisa has been writing professionally since 2001. An award-winning writer, Andrew was formerly one of the youngest nationally distributed columnists for the largest newspaper syndicate in the country, the Gannett News Service. He worked as the business section editor for amNewYork, the most widely distributed newspaper in Manhattan, and worked as a copy editor for TheStreet.com, a financial publication in the heart of Wall Street's investment community in New York City.
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