Retirement Planning: 9 Moves To Make If You’re Worried About Economic Downturns
Written by
Nicole Spector
Edited by
Kristen Mae
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Whether you lived through the Great Depression or have been on the edge of your seat through the Great Recession, planning for retirement is challenging in any environment, but especially during times of economic crisis. It’s hard to know exactly how much you’ll need to set aside and, perhaps more importantly, to save enough to cover unexpected expenses.
There always seems to be a slight case of economic recovery in the United States anytime a new administration enters the White House. However, combined with the wide vanishing of pension plans, skyrocketing interest rates, the rapidly rising cost of living, questionable unemployment rates and the grave possibility of Social Security running dry in 2035, the average American is constantly doing long-term financial crisis prep.
Though the Fed doesn’t necessarily expect an economic recession will hit soon, that doesn’t mean one won’t. As everyone learned after the COVID-19 pandemic, which sent the economy into a freefall and slashed jobs across the board, one can happen at any moment, causing many to halt saving for retirement or make hardship withdrawals from their retirement plans.
Nonetheless, experts recommend that you don’t live in fear, but instead, get prepared. It’s always a good idea to prep your finances for a recession because, with the nature of the American economy, one is bound to happen sooner or later.
So, how then, do you plan for retirement while also being duly concerned about economic output? Here are nine moves to make retirement planning easier.
Increase Your Emergency Fund
If you’re worried about a coming recession, beef up your emergency fund. In fact, this is a smart move even if you’re not worried about an economic downturn.
Dre Villeroy, the CEO of Beyorch, recommended having around six months’ worth of living expenses set aside, in an easily accessible account (ideally a high-yield savings account).
Re-Evaluate Your Retirement Timeline
The rather unfortunate truth of the matter is that you may need to delay your retirement should the economy take a turn for the worse.
“A recession can significantly impact your retirement plans, so it’s important to reassess your timeline and make any necessary adjustments,” said Michael Collins, the founder and CEO of WinCap Financial. “You may need to delay retirement or save more aggressively to weather the storm.”
Take Advantage of Catch-Up Contributions
Time is of the essence for all of us, no matter our age, but if you’re over 50, you should be extra aggressive in your retirement planning strategy.
“If you’re over 50, you can make catch-up contributions to your retirement accounts, such as a 401(k) or IRA,” Collins said. “These higher contribution limits can help you boost your retirement savings in the years leading up to a recession.”
Diversify Your Portfolio
Hedging against risk and protecting your retirement savings from the full impact of a recession with a well-diversified portfolio.
“This means investing in a mix of stocks, bonds, and other assets to spread out your risk,” Collins said.
Consider a More Conservative Investment Strategy
Retirement planning isn’t one-size-fits-all-all, though some recommendations apply to everyone. Make key investing moves according to where you are in your life and how much longer you plan to work, especially if you are close to retiring.
“As you get closer to retirement, it may be wise to shift your investments to a more conservative strategy,” Collins said. “This means reducing your exposure to riskier investments and focusing on more stable options, such as bonds or cash.’
Pay Off High-Interest Debt
Millions of Americans bear the burden of debt, wiping out their savings and forcing them into financial insecurity. Do your best to pay it off now.
“If you have high-interest debt, such as credit card debt, make an effort to pay it off before a recession hits,” Collins said. “This will free up more of your income to be put towards retirement savings.”
Consider Downsizing
Whether it’s moving into more realistic real estate or selling possessions you no longer use, many people downsize in retirement. Why not go ahead and do it ahead of the momentous transition?
“If you’re approaching retirement and have a larger house or expensive car, consider downsizing to reduce your expenses,” Collins said. “This can free up extra money to put towards savings and help you weather a recession.”
Explore Alternative Income Streams
“You could also explore alternative income streams, such as starting a side business or investing in rental properties, which can provide additional financial security,” Villeroy added. “Many opportunities exist that require very little money to be invested and offer high returns.”
Consult with a Financial Advisor
You don’t need to do this all on your own. You stand to land in a better position if you work one-on-one with an expert.
“A financial advisor can provide expert guidance on how to prepare for a recession and protect your retirement savings,” Collins said. “They can also help you create a customized retirement plan that takes into account your specific goals and risk tolerance.”
Caitlyn Moorhead contributed to the reporting for this article.
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