How to Retire During a Recession

How to Retire During a Recession

You’re so close you can taste it. Your first post-retirement vacation is planned. You’ve prepared for years for this next glorious chapter – and then – a financial downturn. Now what?

First, remain calm. You’ve established long-term goals and plans for retirement, so stay focused and have confidence that your hard work will carry you through. Most retirees have weathered enough recessions now to know how to handle them. It remains to be seen when the next recession will occur – economists disagree if that’s now or in the near future – but it’s crucial to know how to navigate retiring into a downturn successfully.

Next, consider your options. Your comfort in your financial plan will ultimately determine whether you delay retirement or stick with your goals, so let’s consider both options.

Should I wait, or should I retire now?

Timing is everything. You’ll want to consider your age, health, and long-term financial goals before making that decision.

Do you have the time to spare? If you planned diligently, you might have been ready to retire a few years early anyway. If you have some time to spare, it might make sense to shelve your retirement plans for a year or two and stay in the workforce. In fact, if you’re over 50, use this time to take advantage of catch-up contributions made to your retirement funds (for a 401(k), you can now add an additional $6,500/year or up to $7,000/year for an IRA) all while reducing your tax bill (as long as those contributions are pre-tax). Delaying retirement may potentially increase your Social Security benefits, too.

How is your health, physically and emotionally? The pandemic has taken a toll on all of us; can you handle working for a few more years? And even if you’re physically healthy, do you have the mental and emotional capacity to delay retirement? Don’t forget to consider the cost of healthcare, especially if you won’t meet the Medicare eligibility requirements. Health insurance and medical expenses can become costly in retirement and should always be part of your financial planning process. Make sure you can bridge the gap between retirement and Medicare if necessary.

Revisit your plans. Do you have enough to retire right now? Once you’ve reached retirement age, it’s common to think that you’ve moved from the “wealth accumulation” phase to the “wealth preservation and distribution” phase. This isn’t entirely true. Even when you are retired, accumulation and growth should still be part of the plan. Evaluate your portfolio. The more optimized your portfolio, the better it will withstand volatility and provide for your income needs. Your financial advisor will be able to review your plans and determine if you have diversified enough to weather a recession or if you need to hang in there a bit to accomplish your long-term goals.

Recession or not, here I come. 

If you’re still in a position to do so and ready to retire despite the current economic season, be prepared to reevaluate your priorities and your plans. Read on for some things to keep in mind as you leave the workforce.

Maintain an emergency fund. In an emergency, a backup source of cash can be used to minimize accruing debt or selling off assets to cover it. If your portfolio is currently suffering a loss, withdraw from your emergency fund and give your investment accounts time to recover. You should have at least 3-6 months’ worth of living expenses saved if your investments are primarily cash or guaranteed investments and more than 12 months’ worth if your investments are riskier.

Rethink your home and consider a move. Selling your home and downsizing now means more cash in hand and a smaller down payment. Not to mention, a smaller property converts to less spent annually on maintenance, taxes, and insurance. It would be prudent also to weigh the benefits – such as paying less interest – of a 15-year vs. a 30-year mortgage. You might even consider a move to an area with a lower cost of living, further reducing your expenses. With interest rates rising, put down as much as possible without cutting into your retirement accounts.

Reduce your expenses. No matter how well you have planned, there are always ways to lessen your monthly burdens.

  • Sell a vehicle (no more monthly loan or insurance payments). Most households have more than one vehicle and it may be possible to get by with less.
  • Go green. Reduce monthly costs and help the environment by replacing outdated appliances with energy-efficient options. You may benefit from tax savings on these, too.
  • Get new service providers. Start with monthly utilities like trash collection and internet before you shop around for better rates on auto insurance, medical coverage, and banking rates.
  • Never underestimate the power of a discount! Whether booking a trip or heading to the grocery store, senior discounts are offered everywhere these days.
  • Lower your taxes. Work with your financial and tax advisors to reduce your tax bill – the savings are out there – you simply have to look for them.

Reconsider part-time retirement. Do you need or want to retire completely? Take advantage of the current labor shortage and consider additional income options like contract work, adjunct teaching, or consulting. These could generate income while giving you much more control over your stress and schedule.

What’s next?

Ultimately, that will come down to how well you’ve prepared, how comfortable you are taking risks, and what your retirement income needs are. Managing your money in today’s world is not easy. There’s a lot of complexity in navigating rising interest rates, inflation threats, taxes, and volatile markets. Finding the best course of action for the current environment can be challenging while keeping an eye on the future.

Remain calm and stay your course. Recessions are generally short-lived, with the most recent US recession lasting only two months. That said, it’s never a bad idea to be prepared. Take the proper steps now to enhance protection in your golden years.

At Uncommon Cents Investing, we’re here to help you find the answers to your questions.

Our advisors help you understand your portfolio and provide comprehensive advice so that all aspects of your financial life work together through the good and challenging times. Reach out if you have any questions or to schedule your introductory call.


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More About the Author: Sheena Hanson

Sheena is a highly regarded financial professional known for her clear explanations and practical advice on complex financial matters. She earned her CERTIFIED FINANCIAL PLANNER™️ designation in 2010 and holds a Bachelor of Science degree in Finance from the University of Wisconsin LaCrosse.