There has been a lot of chatter recently by economists and news outlets using the word “recession”. Understanding that it could happen and understanding how to handle it are different matters. If you are someone who is nearing retirement or in retirement that has no strategy, you may be right to worry. Planning for a recession involves making a plan for other financial eventualities. If you prepare, you may be face the future with more confidence. When the threat of a recession exists, recall there are two retirement variables within our control. How long we work and how much we save. Within this framework, there are several other things to consider about recessions and retirement.
The first point to remember is to live within your means. Depending upon your lifestyle going into the recession, it might require preparation and practice. The first step is to find out where your money goes. Are you spending the same amount, or more, of your income? This may require figuring out exactly where your money goes. It will be easier to trim your budget with this information. Less spending might not be fun, but spending is always in your control. This can be important as you head into a recession and your income may be less.
A second element is to potentially reduce your budget. Once you have trimmed the obvious low hanging fruit, you can focus on bigger ways to reduce your spending if need be. You need not make these bigger cuts now. For instance, could you cut out your Starbucks excursions once per week? Twice per week? Could you also cut other nonessentials such as eating out or buying that new television or entertainment center? Could you decrease transportation expenses? Remember to work on these changes together with your spouse. Small sacrifices over time will snowball into bigger savings down the road.
A third item to remember during or to prepare for a recession is to devise a plan to help cash reserves. The point of building up cash reserves is to prevent liquidating your stocks. Let us heed the advice of well-meaning investment planners: have an emergency stash with several months of expenses. This stash should carry us through losing our job or another financial emergency. More cash reserves maybe necessary during retirement to help against an economic downturn. Remember that regardless of what financial markets do, you still have the responsibility of food, housing, transportation, and healthcare. You more than likely do not want to decrease your savings and outlive your money.
A fourth point to remember is to be patient with the market. It is tough to see losses on paper. But, remember that the loss is only on paper and that it is not gone until you withdraw it. The market always bounces back, so if you sell, you will not see the benefits of the recovery. The market is cyclical and will (eventually) recover.
A fifth factor to consider is to work a few extra years before retirement or work a part-time position during retirement. Crunch the numbers and determine what benefits you could receive if you worked a year or two longer. Any work you do before/in retirement can increase your retirement money.
Last, consider that an annuity can combat recession. Annuities may be referred to as “protected lifetime income”.
We are here to help you plan for your retirement, regardless of the market or economy. Let’s focus on your savings and your goals.