How to Prepare for a Recession if you are Retired?
According to Business Insider, some of the top economists in the country are predicting a recession in 2025 if the tariff implementation proceeds as planned. With threats of economic downturns on the rise, you might be wondering how you’ll be able to protect your money in your retirement portfolio when everything hits the fan.
Recession proofing your money for retirement isn’t impossible, but it will take time and a careful strategy on your part. If you are closer to retirement age, you will need to take action to make sure your portfolio isn’t falling apart when you need it most. Some of the strategies to protect your investments and your money include the following:
Diversify Your Assets
There’s an old saying about not keeping all of your eggs in one basket, and this is especially true for your retirement portfolio. While relying on real estate can be an option for economic longevity, it shouldn’t be your only investment. Make sure to spread your portfolio across different asset classes and dip your toes into stocks, bonds, EFTs, and other investments so there isn’t as big of a risk if one goes under during a market downturn.
Don’t Claim Social Security Yet
If you can, try to wait to claim your Social Security benefits until you are at least 70. Waiting to claim your benefits means that you can receive larger monthly payments when it is time for you to retire. The Motley Fool reports that eligible retirees can claim their benefits as early as 62, but because of how the program calculates the payout, many workers are greatly incentivized to wait as long as they can. A worker’s monthly benefit can increase by up to 8% for each year they put off claiming their payout – but only between the ages of 62 and 69.
Get Additional Income and Start Saving
Another way to protect your portfolio is to get a second source of income in order to maximize your savings and investments as much as possible. There should be a greater emphasis on beefing up your savings, especially since many financial experts recommend having at least three to six months’ worth of expenses in your savings account at any given time to protect your finances.
Without a sufficient emergency fund, you’ll need to rely on your credit card or other forms of credit (like title loans) in order to handle an unexpected expense or medical bill. As for your investments, consider setting aside a portion of your second source of income in addition to a percentage of your primary income each month and push the money toward an asset, like stocks or bonds.
What is the $1000 a Month Rule for Retirement?
The $1k per month rule for retirement is a general rule of thumb that acts as a guideline for how your retirement will play out financially. With this rule, for every $1,000 of retirement income per month you want to have, you must have at least $240,000 in savings. This rule is meant to help retirees plan the most financially sound retirement without withdrawing too much or having too little to draw on when they retire.
How do I Protect my 401k During a Recession?
The tips mentioned above are ways to protect your entire investment portfolio for retirement, but what about your 401(k)? Before you make any moves, it is important to consult a financial advisor as soon as possible. Many advisors will be able to help you find a personalized plan, so you are getting the most effective path forward to retirement.
Your 401(k) is not a guaranteed investment, especially if the majority of your money is invested in the stock market. If the market crashes, that can cause your 401(k) to lose value – especially if your primary investments are in stocks.
That being said, in order to protect your 401(k) when the economy is hit hard, you could move a large percentage of your invested money into the money market fund, but keep in mind that you may not receive a high return by doing so. This direction is one of the safest paths during a recession, but make sure to consult a financial advisor before you start to move your money!
How Long will $500,000 Last in Retirement?
$500,000 can last quite a few years in your retirement, but it depends on what your outgoing expenses are, and the current inflation rate. For example, if we assume that:
- Your Expenses Are $3,600 A Month and You Receive $1,200 In SSI Benefits
- Monthly Savings Withdrawal Pre-Tax Is Around $2,333
- The Rate of Return is 5% and the Rate of Inflation is 2%
Based on that example, $500,000 would last around 25 years into retirement! While that is an example of a long and hopefully comfortable retirement period, it is important to think about your outgoing expenses and make sure you have enough saved to keep yourself as financially secure as possible during your later years.
Where is My Money Safest During a Recession?
During a recession, there is no way to completely protect yourself from the impacts of an economic downturn. The cost of living will likely increase due to inflation, but that doesn’t mean you can’t work hard to protect a lifetime of saving your money for retirement.
As mentioned above, the safest way to invest your money during a recession is by allocating your assets into a money market fund, or investing in one or more of the following asset classes:
- U.S. Treasury Bonds
- Corporate Bonds (Must be High Quality)
- Cash or Cash Equivalents
- REITs
If you are approaching retirement age and a recession is around the corner, Yahoo Finance suggests meeting with your financial advisor to discuss personalized options. Since there are so many variables with the economy and your portfolio, having a tailored response during difficult times can be a huge part of the recipe for success.
