“A worldwide recession seems likely soon. Wise retirees will take steps now to blunt its’ impact.” – Lawrence Castillo
Signs point to the possibility of a severe economic downturn in 2022-23, and many retirees feel some panic. Stress during economic times is normal. Still, it’s critical that you remain clear-headed, flexible, and focused on your long-term objectives. During a recession, you need to make the best decisions possible to offset the impact on your finances. While you still have time and resources available, you should create a plan for dealing with a chaotic economy and its ultimately adverse effects on your wealth.
You should calculate basic monthly expenses. Many Americans operate on a transactional basis without understanding where their money goes. You’ll want to know where every penny of your money goes in a recession. You should list all recurring expenses such as your mortgage, food, water, utilities, insurance, and other payments made regularly. While you’re making this list is an excellent time to add your account numbers, usernames and passwords, and additional vital information.
Later, this will help you if you need a family member’s assistance with bill paying. Creating this list may also give you ideas about where you can save money.
You will want to let go of the “4%” Rule. Like many retirees, you may have built your retirement plan around William Bengen’s famous “4% Rule” theory. The 4% Rule says that most retirees can safely withdraw up to 4% of their portfolio without worrying about running out of money. However, many financial advisors have criticized this rule-of-thumb in the 21st century. Experts say that retirees will typically need to withdraw far less to avoid depleting their retirement savings, especially in recessionary times. If you’ve built your retirement around the 4% rule, you may want to talk to your financial advisor about revising your plan.
Is it time to rebalance your portfolio? Asset diversification is crucial during all phases of a person’s financial life. You always want a healthy mix of assets designed for growth and safer, more stable investments. However, during retirement, your approach to diversification may be drastically different from when you were growing your savings. Long market runs may have left your wealth more exposed to risk. Your advisor can guide you to discover the correct portfolio balance for you when the economy turns iffy. If you haven’t rebalanced your portfolio in a long time (or ever), you’ll want to meet with a retirement income specialist immediately.
Add more “safe money” products if you haven’t already.
Adding guaranteed income products, which are not impacted by market volatility, allows some retirees to weather a recession without severe losses. Having a guaranteed income stream provided by an annuity or certain types of permanent insurance means you have something predictable and resistant to market downturns.
Eliminate debt whenever possible. Dragging heavy debt with you into retirement is never a great idea. During a recession or economically unstable period, having too much debt is worse. If you have to get a side hustle or part-time job, paying off debt should be one of your highest priorities.
Educate yourself and partner with an expert. When things are hitting the fan is no time to go it alone.
Having a solid network of friends, family, and colleagues can do wonders to raise your confidence level and help stave off feelings of despair and isolation. A good financial advisor can be your best asset in tough times, educating you about money and providing advice and guidance. Your advisor will help you avoid making decisions based on fear that could negatively impact your nest egg. They are your best resource when preparing for a recession and safeguarding your retirement.
Summing it up: Recessions are inevitable. However, retirees can do things to help protect the wealth it has taken them years to accumulate. Adding safe money products and strategies under the guidance of a qualified retirement specialist will go a long way toward making retirement during a recession more successful.