23 Biggest Ways To Recession-Proof Your Retirement

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The stock market cratered on May 5 when the Nasdaq lost 5% of its value on the index’s worst day of the year, and the Dow suffered four-digit losses. The Fed just issued the biggest interest rate hike in 20 years to try to stave off the highest inflation in 40 years, which continues to hover around 8.5%.

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With big investment banks like BOE predicting a major economic downturn, and small businesses across the country predicting the same, it seems that there’s now a widespread agreement from Wall Street to Main Street that America is headed toward a recession — if it’s not in one already.

For young people with time to recover, a major economic contraction is just another storm to be weathered. For those entering or about to entire retirement, however, a big hit to their portfolio now can translate into a big reduction in their retirement lifestyle for years to come. 

Poll: Does April’s Stock Market Dip Concern You?

GOBankingRates asked the experts what older Americans should do to protect their life savings from the wrath of a constricting economy, and here’s what they said.

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Don’t Panic

Panic leads to panic-selling, and when investors make fear-based decisions to get out of their investments for a loss while they still can, they not only sell low when stocks are down, but they tend to miss the recovery when things turn around.

“Even if you’ve just retired or you’re planning to retire a year or two from now, don’t panic,” Charlie Nelson, CEO of retirement at Voya Financial, wrote in a LinkedIn blog post.

Nelson noted how quickly America bounced back after the 2008 global financial crisis.

“The U.S. economy contracted by 0.1% in 2008 and 2.5% in 2009, he wrote. “But, by 2010, the economy was growing at pre-meltdown rates, and stocks largely recovered by 2013.” 

In 2020, the pandemic recovery was even faster. On March 9, 12 and 16 of that year, the Dow lost 7.79%, 9.99% and 12.9%, respectively, according to Forbes. But the crash was over by April, and by the end of summer, the market had recouped those gains and then some and went on to finish the year at new highs.

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Continue Contributing To Your Retirement Accounts

If the markets are down as your retirement draws near, you might be tempted to stop contributing to your 401k or IRA. Don’t act so impulsively.

You can generally keep your 401k with your former employer or roll it over into an individual retirement account. If you do decide to keep your retirement plan after you retire, you should keep contributing to it while stocks are trading at a discount so you can reap the gains when the market recovers later on down the road.

“This is the time to be buying — when the market is very low to be in a good position to grow that portfolio when the recession wanes,” said Brian Burke, founder of SellYourMac.com.

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Diversify Your Assets

The point of diversifying your assets, according to Adrienne Ross, CFP, founder of Clear Insight Financial Planning, LLC, is both to spread out risk for investments that perform poorly and to capture the upside of investments that do well.

“There is never a bad time to diversify with an eye on retirement income,” said Adam Goetz, a partner at Burstin & Goetz in Pittsburgh and president of MassMutual’s advisors’ association. 

“It is crucial to build retirement assets that are non-market correlated. Laddered bonds, money market funds and cash values inside of life insurance policies can all be powerful tools.”

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Invest In ‘Real’ Assets

Real assets include precious metals, commodities, real estate, land, equipment and natural resources.

People nearing retirement should “work [their] way into real assets over the next couple years as they begin to go on sale,” said Phil Town, founder of Rule #1 Investing.

Dennis Notchick, a certified financial planner for Stratos Wealth Advisors, suggested gold as an ideal real asset to invest in because at present, “gold is doing well and will probably continue to do well.” As Capital.com points out, gold is the “king of safe havens” from recessions and other market turmoil.

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Decrease Your Stock Exposure

Recession or no recession, a long-held theory says to reallocate your portfolio to become more conservative as you age.

“As you enter your 50s and progress into retirement, you should gradually increase your exposure to bonds and decrease stock exposure,” said Brett Tharp, CFP, an advisory live training specialist at eMoney. “Target-date funds are a convenient way to accomplish this.”

If you’re not sure how much to allocate to bonds, follow this standard: 

“One rule of thumb is to keep at least 60% of your assets in high-grade bonds if you’re only a few years away from retirement and increase it to 70% or more when you retire,” said Andrew Latham, content director for SuperMoney.

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Use a Bucketing Approach

In addition to spreading out your investments across different assets, you should also have a mix of investments intended for short-term and long-term retirement funding.

“For retirees or near-retirees, we suggest using a bucketing approach for your investments, where you should have a mix of investments that fund spending now, soon or later — not just one big pie chart with a bunch of assets for one goal,” said Rob Williams, managing director of financial planning at Charles Schwab. “If someone is closer to retirement and needs part of their savings sooner, then that money should be invested more conservatively.”

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Consider a Roth IRA Conversion

If you think the stock market will have a chance to rebound before you want to retire, you might consider converting a traditional IRA to a Roth IRA, said financial advisor Travis Cook, president and CEO of Convergence Financial.

“The ideal time to fund a Roth IRA is when the market is low, and by converting to a Roth IRA, you can convert a greater number of your investment shares due to the market decline,” he said. “Even though converting your traditional IRA to a Roth IRA means you’ll have to pay some taxes now, you’ll be paying fewer taxes than you would down the road when your investments were up because the current value of your portfolio is probably lower.”

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Come Up With a Plan for Retirement Income

Planning for retirement includes ensuring that you will have income streams once you stop working your day job.

“Focus on your income plan as much, if not more than your accumulation plan,” Cook said. “Far too many plan for retirement as if it’s a single destination at a specific time, and therefore only plan to grow their assets as high as they can. While this is extremely important, you also need to build a plan to monetize that asset and provide a relevant income stream for potentially three decades or more. What if market volatility becomes the norm? What if low-interest rates bring on inflation? What if retirement for you and your spouse lasts well beyond three decades? These are all considerations in building your retirement income plan.”

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Consider Deferred Annuity Options

One underrated and often-maligned security offers an excellent combination of both income and security when used correctly — annuities. 

“Take this opportunity to also look to integrate some programs with more protection built-in while still allowing for upside growth,” Goetz said. “There are some efficient deferred annuity options in the marketplace that can complement a well-diversified investment portfolio and give significant growth potential, but also give some peace of mind for the next market correction.”

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Consider Working Part Time in Retirement

Without income-generating assets, staying employed offers guaranteed income in retirement.

“It’s important to keep working as long as possible even if it’s not in a full-time role,” said Steve Gickling, founder and CEO of ETLrobot. “Having some type of gig role to put your talent to work can supplement your retirement for all market conditions. Plus, it’s a good way to keep the mind and body sharp during your retirement years.”

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Create a Retirement Budget That Isn’t Dependent on Market Conditions

Goetz recommends “building a detailed and realistic budget in retirement” that includes knowing which income you will use for which expenses.

“Try to separate ‘wants’ — travel, entertainment, etc. — from ‘needs’ — housing expenses, food, taxes, insurance, etc.,” he said. “For the needs column, link expenses to guaranteed income sources, such as Social Security, pensions and income annuities. This approach can take a lot of pressure off of the income that is needed to be generated off of investment withdrawals as adjustments can be made if market conditions allow for it. It is much better to take that trip around the world off of an IRA withdrawal following a great market year.”

You might even practice living off your expected retirement budget to ensure you have budgeted correctly. Since you typically spend less during retirement than in your income-producing years, “doing so can also help you put aside more money for retirement because you won’t be spending money on unnecessary expenses,” said Chalmers Brown, co-founder and former CTO of Due.

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Create a Fund for the ‘Expected Unexpected’

Especially during volatile times, it’s important to have access to liquid funds.

“We recommend all investors set aside cash for emergency expenses,” Williams said. “Retirees or near-retirees should have enough cash to cover at least one year of expenses, and those not yet in retirement should have three to six months of expenses.”

Rather than thinking of this as an emergency fund, Ross finds it more constructive to think of this as “a fund for the expected unexpected” — because life happens.

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Cancel Unused Subscriptions

GOBankingRates found that Americans waste $348 a year on subscriptions they’re not using. Now is the time, as Thomas Smyth, founder and CEO at Trim advises, “to get your financial house in order. Go through your credit cards and cancel any unused subscriptions,” he said.

If you don’t want to search and eliminate manually, apps like Truebill can help you find recurring subscriptions automatically.

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Look For Ways To Save On Fixed Expenses

There will, of course, be some expenses you are unable or unwilling to eliminate. For these expenses, look for ways to save on costs.

“It’s likely that you’re overpaying for your cell phone bill and for services such as cable TV and internet,” said Leslie Tayne, founder and managing director the debt solutions law firm Tayne Law Group. “Shop around and see if you could save by switching, and in the meantime, call your service providers and see if there are any ways for them to lower your bill, either temporarily, permanently or both. The lower your cost of living, the more of a cushion you’ll have for the unexpected events in life. This means a good work-through on your budget now and for retirement.”

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Negotiate Any Outstanding Debt

Ideally, you won’t take your debt with you into retirement. This means focusing on paying down any debt you have now, including your mortgage, credit card bills and medical debt. Consider calling your lenders to ask for lower interest rates to make this goal more attainable.

“Negotiate all of your bills — especially medical bills,” Smyth said.

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Contribute Money to Savings Every Week

Your investment accounts should not be the only place you hold retirement savings, as they are obviously vulnerable to a recession, market crash, or other economic trouble.

“Set up a high-yield savings account and move money into it automatically every week,” Smyth said.

“High-yield savings account” has been a bit of an oxymoron for many years, but with the Fed raising rates by the highest amount in 20 years this week to fight inflation, higher yields could be back on the menu soon.

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Open a Savings Account Instead of a CD

If you don’t need immediate access to funds, financial advisors often suggest opening a certificate of deposit (CD). These accounts offer higher yields than a savings account — but not until interest rates tick up a little further.

“There are many online savings accounts that will pay more than the average 12-month CD rates currently available,” said Ross.

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Put a Pause on Major Purchases

Your focus should be on saving, not spending, which means reevaluating any plans to make major purchases.

“If you had been thinking about a vacation or new car, hit pause and ask if that still makes sense right now,” said Amy Diesen, vice president of retirement plans at Ameriprise Financial.

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Don’t Be Overly Generous With Children and Grandchildren

One sure way to come up dry in your later years is to over-indulge your posterity or to keep the gravy train rolling for older birds who should have left the nest long ago.

“Some adult children may look to their retired parents for financial support,” Diesen said. “If this may be the case for you, be judicious about taking on your adult children or grandchildren’s expenses. Remember — your grandchildren may be able to take out a loan for their education, but you won’t be able to acquire a loan for your retirement expenses.”

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Have a Plan for Collecting Social Security Benefits

Collecting Social Security can help you delay the need to dip into your other retirement assets — which is especially useful if your portfolio has recently lost value.

“Social Security can be an excellent supplement for your retirement income,” said Mack Bekeza, CFP at Millennial Wealth Management. “To know what your expected benefit can be, go to SSA.gov, create an online account and make sure that your earnings history is accurate and your estimated benefit should appear. Although the benefit won’t take care of all of your income needs, it is still worthwhile to utilize. Also, remember that there are numerous Social Security strategies to maximize your benefits.”

One way to increase your benefits is to delay collecting them.

“Delay starting to take your Social Security benefits as long as possible,” said Jon Bradshaw, founder and president of Codebase.com. “That way, you can have those additional funds to help you during all types of potential recessions that may hit during retirement. It can mean a few extra hundred dollars a month, which can be valuable on a fixed income.”

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Hold Off on Withdrawing From Retirement Accounts

If you’re nearing retirement, avoid making any withdrawals from your retirement accounts until it’s absolutely necessary — especially when the market is in a downturn.

“Taking distributions now will lock in losses, reduce your principal and make it difficult to achieve a sustained lifetime withdrawal,” said Kelly Crane, CFP, chief investment officer at Napa Valley Wealth Management.

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Take Care of Your Health

Health care costs are among the biggest expenses for nearly all retirees — but a lot of the power to lower those bills lies in your hands. 

“To recession-proof your retirement when you are close to retirement, focus on maintaining good health to minimize otherwise unnecessary healthcare costs that consume your retirement funds,” said entrepreneur and online influencer John Rampton. “It’s also good to plan for Medicare and purchase supplemental medical insurance to protect your retirement money.”

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Seek Professional Guidance

Whether you are nearing retirement or still have time to plan, the best moves to recession-proof your retirement can vary from person to person. Getting expert advice can help ensure you’re on the right track.

“If people need guidance, working with an advisor is helpful to map out a financial plan,” Tharp said.

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Andrew Lisa, Gabrielle Olya and Nicole Spector contributed to the reporting for this article.