Should You Retire in a Recession?

Business people discussing retiring in a recession

Recessionary fears have lingered for months, fueled by massive job cuts, sluggish retail sales, and decreased manufacturing output. Retiring during uncertain times is a tricky proposition, so we’ve enlisted the help of financial experts and planners to help sort out the red flags and provide sound advice for those contemplating one of life’s biggest decisions. If retirement is on the horizon for you, get the facts before deciding to retire in a recession.

Retirement is a very personal question, so it’s important to take time to evaluate your finances and budget, according to Donny Gamble, CEO of Miami-based Retirement Investments, a financial literacy website. “Talk with a financial planner or retirement expert if you need additional guidance,” he says. 

Assessments and Recommendations 

Assessing your retirement income is critical if you retire in a recession, particularly during a potential downturn, asserts Ryan McCarty, a certified financial planner at Castle Rock Investment Co. in Colorado. 

That includes: 

“In turbulent economic times, it’s essential to focus on the things you can control,” McCarty contends. “This may involve reducing your expenses, such as downsizing your home or cutting back on discretionary spending. It may also include exploring ways to supplement your retirement income, such as part-time work or a side hustle.” 

Chen-Chen Huo, cofounder of Northern California-based investment and banking services provider Nexus, said potential retirees should consider two important questions.  

  • Are your investments and assets properly allocated to your risk level? “Retirement isn’t the time to push high-risk, high-reward investments,” Huo said. “Make sure that the retiree has the proper amount of safe, low-risk investments like bonds and treasuries, which do well during high-interest rate environments.”
  • Can you withstand and tolerate if the risky part of your portfolio dips 15% in the next year? “If not, reallocate,” Huo recommends. 

Healthcare costs may be higher during a recession, impacting retirement expenses. “Rising healthcare costs could put a strain on your finances during retirement, so make sure to account for this when calculating your budget,” Gamble said.  

Market Watch 

According to New York City-based CFRA Research, one of the nation’s largest independent research firms, the S&P 500 declined 8.8% during the four recessions since 1990. 

“If your financial plans would be devastated if the markets go south, you probably need to make adjustments or consider waiting longer to retire,” suggests David Edmisten, certified financial planner and founder of Next Phase Financial Planning LLC in Prescott, Ariz. 

Before retiring, he recommends setting aside a cash reserve to cover 18 to 24 months of spending, a nice buffer without selling assets or receiving income if economic troubles persist. 

“Adding another three to four years of spending in high-quality fixed-income can provide additional income and assets that you can use if the economy is in an extended downturn,” Edmistein adds. The less you plan to spend, the less reliant you will be on the markets to achieve your goals.” 

Potential Advantages of a Downturn 

Retiring during a recession can also carry some advantages, according to Linda Chavez, CEO of Seniors Life Insurance Finder in Los Angeles. 

“Retirees may be able to take advantage of lower living costs due to reduced demand for goods and services,” she said. “Additionally, people who have already retired may be able to benefit from reduced taxation due to lower income levels.” 

In some recessions, interest rates and inflation can be low, which can help preserve the value of your retirement savings. Most recessions are also short-lived and often followed by rebounds in the stock market, so retirees with mutual funds and other equity investments might be well-positioned for the uptick. 

According to the National Bureau of Economic Research data, the average recession from 1945 to 2020 in the post-World War II era lasted ten months. 

“Retirees might find that their investments are better positioned for future growth during a recession as the general market stabilizes and recovers,” Chavez added. 

Conditions can change in an instant, so careful planning is essential to lengthen your retirement savings as much as possible if you plan to retire in a recession. 

“Retiring during a recession can be challenging, but there are steps you can take to help navigate these uncertain times,” McCarty said. 

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