Retirement Planning For A Recession

A Note From Patricia:

Hello and welcome to Forbes Advisor’s Weekly Brief, where each week we dive into the realities of consumer finance and empower you with knowledge to help make your financial journey easier.

In last week’s newsletter, we discussed how slowed consumer spending may precede an economic downturn. 

Some folks may buckle down on contributing to their emergency fund or paying down high-interest debt. But there’s one high-stakes part of your finances that’s often shaken during an economic downturn: investing for retirement. 

In this week’s brief, we discuss the importance of staying the course with your retirement savings during a recession and how you can still make the most of your golden years despite an economic slowdown. 

From our partner: Gold is known as a stable safe haven during economic downturns—its price increased by more than 100% between 2008 and 2012, the height of the Great Recession. If you’re interested in diversifying and protecting your portfolio from an economic downturn with an alternative investment option, learn more about Priority Gold’s gold IRA option here.

Sincerely, 

Patricia Louis

Editor, Forbes Advisor

Retirement Planning For A Recession

Can a recession completely ruin your financial plan for retirement? While recessions make people nervous, they’re an inevitable part of your financial journey. Most people of retirement age now have endured six recessions throughout their professional careers. 

But despite the volatility a recession brings, it’s possible to stay the course with your long-term retirement plans—or adjust your current plan, if you’re nearing retirement—to mitigate as much risk as possible in your portfolio.

To buff up your savings before a recession comes, you might be considering decreasing your retirement contributions or cashing some out to conserve cash. But stalling that momentum may be a costly mistake.

According to investment firm Morgan Stanley, an investor who stuck with their investments throughout the recessions from 1980 to the end of March 2024 would still have come out with a 12% annual return. Meanwhile, someone who began investing at the same time period and sold after every downturn, reentering the market after the next two years of positive returns, would have averaged a 10% annual return. 

Additionally, cutting off your deposits into your retirement accounts could force you to miss out on your employer’s contribution match, which can impact your growth rate and target retirement date.

Here’s how to handle your retirement savings during a downturn: 

• Stay the course with investments. During a recession, the worst thing you can do is pull your money out of the market rather than wait for the upswing—you’ll lock in your losses. It’s often better to wait for the market to rebound rather than take your money out during the downturn. If you can, keep investing to profit from the market's bounceback. 
• Take advantage of today’s high savings rates. If you have money sitting in your bank account without earning interest, it may be time to move it elsewhere, such as a high-yield savings account, CD or bonds. If you opt for a CD, be sure to review its time horizon and take note of any penalties you may incur if you cash it out early.
• Review the allocation of your portfolio. As you age, you should rebalance your portfolio into more conservative assets to increase the longevity of your nest egg and mitigate risk. You also want to make sure you’re not withdrawing too much too soon. Experts recommend that you speak with a fiduciary financial advisor to review the allocation of your portfolio. 

For more information on how to prepare and what to do during a recession when it comes to retirement, read more here. 

Related Stories: 

• Top 10 Retirement Tips For 2024
• How To Invest For Retirement
• What Is A Recession?  

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