Retiring In a Recession – What You Need To Know!

We discuss the challenges that a market downturn can introduce if you’re retiring in a recession. As well as some things you can do to help mitigate a portion of the potentially negative impact an economic downturn might have on your portfolio and overall retirement.

Key Points:

• Talk to a professional
• Revisit your numbers
• Health checkup on portfolio
• Reconsider your retirement decision
• Seeks ways to cut back on expenses

Overall, we look at five key considerations you should be prepared to examine if you find yourself entering retirement during a recession.

You’ve worked hard, planned well, and tried to do everything by the book so you could retire at a certain time, doing so with the confidence your savings and plan would serve you well in retirement.

And then suddenly something happens and the economy starts to get funky. Things beyond your control start to cause issues, such as Covid 19. The next thing you know growth slows, the economy gets out of kilter, companies get nervous, layoffs begin to occur with frequency, the markets sour, productivity suffers, and we slide into a recession.

“OMG – I’m supposed to retire…this can’t be happening. Will I’ll possibly be retiring in a recession?!”

This scenario sound familiar? It definitely does if you are looking to retire in the near term…anywhere from very soon to the next couple years.

What now? You may be asking yourself this question this very minute.

Fortunately, not all is a disaster. Let’s pull back the curtain and examine the issue of retiring in a recession.

As we begin to examine the issue of retiring during a recession and what will likely be other accompanying challenges, such as a struggling market, and as is the case currently, a very tough inflationary environment that doesn’t look poised to recede anytime soon, the very first thing to do before retiring is #1 on our list – talk to a professional.

In fact, each item in our list is something you should talk about with the advisor. The discussion and steps you take based on such a meeting could make all the different in your retirement, both near, and more importantly, long term

Talk to a Retirement Planner Professional

Wherever you’ve previously stood on the issue of utilizing a retirement planner or financial advisor, if you find yourself ready to retire in a recession, it’s definitely time to consider discussing your situation with a pro before making any moves. Retiring in a recession most definitely qualifies as just such a time.

It’s actually rather disturbing that nearly 70 percent of Americans don’t have a written retirement plan according to the American College of Financial Services. If ever there was a time to have a written plan, or a plan at all, entering retirement would be such an occasion.

Frankly, there are many reasons why you should have a plan and a qualified advisor when approaching retirement, a number of which are covered below, but without doubt the biggest might be the fact you will likely have experienced a decline in your savings during an economic downturn…perhaps a big decline.

In the past that might not have mattered so much, as you had time to recover. But this time is different. You no longer have the luxury of time and the ability to recover from the current downturn.

The old norms of reduce risk, maintain XX%/ZZ% allocation in your portfolio, and keep your annual spending to 4% of your portfolio value, simply aren’t going to be enough to get it done.

Many of your assumptions will have changed, or gone completely by the wayside, so adjustments will likely be needed in terms of your retirement plan and how to manage the savings that remain.

The good news is the fact that working with a retirement planner at this point can make all the difference in the world, as they can look at all the pieces and then help you recalibrate your plan, make decisions and alleviate much of the stress and anxiety…and provide clarity when you most need it to move forward.

Revisit Your Numbers

 

Whenever we create a budget of any type, be it the regular monthly household budget, made for a trip, college savings for our kids, and certainly long term, like retirement, we need real, dependable numbers to work with.

This enables us to make reliable assumptions, allowing us to forecast our finances with a high degree of confidence, which is necessary when it comes to creating a dependable budget.

Goes without saying that an economic downturn resulting in a recession, and generally a market turndown, is a downer when saving for retirement.

But when it occurs when you are actually ready to retire, with no time left to recover, it becomes more than a bummer.

You are now forced to face the reality that your assets and net worth have probably been diminished by some amount, so you will be retiring in a recession with fewer savings.

That now becomes your starting point in terms of assets you take into retirement, which in turn probably means the numbers and budget you have created and were set to rely on are now incorrect and can’t be relied upon.

While this is not good news, it’s simply a reality you need to deal with.

The best place to start is to rework your numbers, which should involve working with a professional. They can help you assess what moves can be taken to counter, to the fullest extent possible, the damage done to your savings.

They will likely also look at strategies and the use of tools you may not have previously considered – those that can help you weather the nearer-term storm and continue to rebuild your portfolio value prudently over time so you won’t outlive your savings.

Health Checkup on Portfolio

Speaking of which, reworking your numbers and determining what damage may have occurred to your savings will definitely include looking at all the assets that constitute your portfolio.

Whether you realize it or not, many people can’t afford to switch everything to safety when retiring, especially given they will be foregoing the income they have relied on for decades. In order to survive they will need at least some growth drivers (for example – stocks) in their portfolio. The key is finding the right balance (allocation) in the safest manner possible.

A decline in your portfolio heading into retirement may affect what you thought would be your allocation model. Again, in working with a retirement planner or financial advisor, they can look at all the available tools and strategies that will help address your situation, while also ensuring they’ve mitigated taxes and risk to the fullest extent possible.

Reconsider Your Retirement Decision – It’s a Recession After All!

No doubt it will be disappointing and unnerving to experience the financial uncertainty that a recession would bring while entering retirement. Very bad timing, indeed!

Making matters worse, all the planning and mental and emotional preparation will come into question as well, with one of the biggest uncertainties probably being whether you can now afford to retire.

It’s a hard question, but one you may well have to ask. Continuing to work is something many people will have to consider, be it remaining in the current job full or part-time for some period, assuming the job is still available.

If you’ve previously given advanced notice, or at least let your work know you plan to retire in the foreseeable future, they themselves may have made plans for your exit. As such, remaining in your current job, even for just a couple of years, may not be an option.

Talking with your employer about the possibility of remaining full or even part-time might just be your best option.

There’s also the route many people take, which is consulting for your employer for a period after retirement, which can be a win-win for both sides.

Another option might include consulting for other companies, utilizing the skills and expertise built up over many years during your career.

Then there’s starting a new career doing something you’ve wanted to do for years – an endeavor that you have a passion for, or that involves a hobby you’ve engaged in and might want to turn into a business.

The fact is none of us are promised a rose garden in life. While it will surely feel like a kick in the teeth to have to delay retirement when you’ve been looking forward to moving on for some time, it actually happens to people quite often.

Such being the case, deciding to remain in the workforce may help buy you time to recover from some of the damage done to your portfolio during a recession and market downturn.

Retiring In a Recession is Tough – Try To Cut Some Expenses!

Pretty sure this is the last thing you are going to want to hear, but let’s face it, no matter what stage we are in life, without an unending source of moolah, what and how much money we can spend on THINGS in life (emphasis retired life) is a BIG reality.

Sure, we get it. Who wants to spend their golden years living frugally, especially after envisioning and planning to be able to tour exotic locales, lounging on beaches, and putting in countless rounds of golf in our retirement?

Again, there are no promises of rose gardens and life has a habit of messing with our plans.

But you can help yourself in this regard. There’s a good chance you have room to tighten the belt without completely eliminating fun and enjoyment in your retirement, even if your portfolio has taken a hit.

GOBankingRates, a personal finance portal, estimates that Americans can save more than $5k annually by simply cutting back on some discretionary spending, such as non-necessities, including coffee, eating out, entertainment, clothing, ride shares, and alcohol.

Travel is another big-ticket item. Cutting back on the number of trips each year, taking shorter vacations, domestic versus international, and remaining closer to home – those are measures that can significantly reduce the impact of travel on your retirement budget.

Eliminating any debt you’ll carry in retirement is another area to focus on if possible, as it will ease the monthly burden in time.

Then there are the memberships you might have, be it the local golf club, spa or gym, different subscription services, car wash club, etc. While Netflix, Amazon Prime, HBO, Hulu, and countless other streaming services you’ve added over the years may seem essential, on top of the $150 or so spent monthly on simple cable TV and Internet, there’s certainly room to economize.

One way to motivate yourself when it comes to tightening the belt in retirement in order to cut expenses is considering the fact that for any activity or service where you spend an average of $100 per week, that adds up to $400 per month and nearly $5k per year. For many people, they may be looking at more than one such activity or service (individually or collectively) where this might be the case.

That is a significant amount you might find that you need for healthcare and long-term care in retirement, which is sure to consume a larger part of your monthly budget after you retire than you may have planned for.

One Last Note

Speaking of healthcare and long-term care, you definitely want to consult with a qualified financial planner regarding these issues and how you will fund them in retirement. Healthcare tends to be one of the costliest expenses for retirees. According to the 2022 Fidelity Retiree Health Care Cost Estimate, the average couple aged 65 will spend approximately $315,000 on health care costs in retirement.

Food for thought and definitely something to discuss with an advisor to ensure you are prepared before you retire.

So, I’m Retiring in a Recession, Now What?

Working hard and saving so you can enjoy your retirement are honorable endeavors and to be commended.

But as is often the case, life can have other plans than what you have envisioned. One of the most gut-wrenching is finding you have less to retire on than what you planned.

Retiring in a recession is no small matter and requires some thought…and quite possibly some tough decisions and adjustments.

Given the magnitude of what you might be faced with and the decisions that will be necessary, as they will impact the rest of your life, it is important not to try to “go it” alone.

You should take advantage of expert help and advice that could potentially make all the difference in terms of how you spend your retirement.

If you aren’t presently working with someone, it makes sense to start now as you face retirement.

A good one can help you identify what your needs, goals, and desires are, and help you set realistic expectations in terms of where you stand currently and what can potentially be done to help get you closer to where you want to be.

We’d be happy to review your existing plan or build a new one specific to your situation. Our overall approach is to incorporate a holistic model that considers all your assets, tools, and accounts, with the goal of providing a comprehensive plan built specifically to your needs and goals in retirement.

If you’re ready to take the next step and talk to a team of financial advisors and retirement planners who put your interests first, Schedule a call today!