You’re sitting in your office hurrying to get that last project accomplished before time runs out. It’s not just the usual deadline. It’s your deadline. It’s your retirement. You really want to finish this career capstone, but that’s not all that’s on your mind. You can’t help but sense the joy you’ll soon have when you pocket that gold watch. In a little more than a year, life will be nothing but golf courses and grandkids. And maybe an occasional grand tour of that place you always wanted to visit. The last thing you want to hear is that there’s a recession coming.
But what if the downturn hits just as your career clock rings that final click? If you’re like many, it’s not unlikely you’ll start wondering if the economy just dashed all your dreams. You’re probably worrying that your best laid plans were not the best or not laid correctly. Maybe you’re even considering whether you should work a few more years.
Should near-retirees worry about an impending recession?
So you’re about to cross the finish line into retirement and the economy tanks. Don’t worry. It’s not the setback you think. It’s really a set-up for success. It may not seem that way with the market and interest rates falling. This chaos only emboldens your anxiety.
Rest assured, there’s more than a silver lining in that gray cloud. In fact, many experts agree you can retire in a recession. And people are eager to do so. Just look at the number of search results on this topic. Nearly everywhere you turn, one publication or another features a checklist for you to follow. (However, don’t be tricked into believing any of these are “fool-proof.”)
The easiest strategy to calm your nerves is to maintain enough reserves to accommodate two years of retirement expenses. That’s more than it takes for the typical bear market to recover all its losses. The last thing you want to do in retirement is sell portions of your nest egg when stocks are down. Having a tidy sum of emergency savings can stave off the bear until it’s safe to sell again.
But there’s more you can do. Economic challenges often reveal opportunities.
What should near-retirees really worry about?
That’s not to say there aren’t any hazards for those about to retire.
“For near-retirees, the greatest risk is the possibility of job loss or reduced income, which can delay their retirement plans and affect their ability to save adequately for retirement,” says Jake Falcon, founder and CEO at Falcon Wealth Advisors in Kansas City, Missouri. “If an individual is expecting to retire in three years and they unexpectedly lose their job, it can be difficult to bridge the gap.”
There’s no question an expected job loss throws a monkey wrench into your retirement planning. It helps if you’ve got severance or at least an advanced warning. But those fewer years to save just might push you to make smarter moves now. These smarter moves can make your retirement more comfortable.
Many older workers and even retirees start side-hustles to help soften the blow of economic volatility. These micro-businesses are nimbler, making them less susceptible to the outrageous fortunes of recessions.
Getting a pink slip isn’t the end of the world. It may be the springboard to a whole new world of an active and engaging retirement. Remember that golf course you dreamed of in retirement? Believe it or not, one retiree actually bought a golf course in retirement. Retirement isn’t all about idly sipping lemonade. In your early retirement years, you’ll want to keep a certain level of activity. What that activity is depends on you. A side-hustle could help give you a strategic advantage heading into retirement.
Of course, that’s not the only thing you can do.
How to prepare to retire in a recession
If you’re a year or two away from retirement and you have your two-year cash cushion in safe tidings, a timely recession may be precisely what the doctor ordered. Since you’re still in the saving mode, lower stock prices can reward you with a decided boost in the early years of your retirement.
“Near retirees may have an opportunity to put fresh earnings into the portfolio and take advantage of lower markets,” says Bobby Mascia, CEO and founder of Green Ridge Wealth Planning in Montville, New Jersey. “Tactfully positioning themselves, and looking at their entire plan, is crucial in these near-retirement years as investors gear up to stop working.”
The bounce back from a market correction (defined as a 10% drop) or a bear market (a fall of more than 20%) can give you a leg up as you head into retirement. Here’s a word of warning, though: Don’t try to time the bottom of the market. Even those who invested at the highs of the last two recessions have since earned over 10% annually.
Just get those retirement plan contributions invested. If you have a catch-up provision, use that to the fullest. You’re not starting over, you’re stacking the deck in your favor. Taking this approach can enhance your retirement readiness.
But wait! There’s more!
What can near-retirees benefit from when there’s a recession?
An across-the-board sale on stocks isn’t the only thing a recession offers you. There’s another bonus gift that can come from a recession.
“It can also make downsizing more affordable if the Fed cuts rates and, therefore, mortgage rates go down,” says Bobbi Rebell, personal finance expert at BadCredit.org in Boca Raton, Florida. “Many near-retirees may have mortgages right now that are much lower than they can get if they move, so they are hesitant to take on a higher rate loan. If the central bank eases rates because of a recession, and mortgage rates fall, it makes moving a more realistic option and will allow them to shed the more expensive homes they have had while raising a family.”
Your first thought as a near-retiree may be that a sudden recession will rob you of your retirement. If you play your cards right, however, the truth might be quite the opposite. You’re not a victim. Whether it’s stocks or smaller homes, you’re a savvy shopper in a buyer’s market. That makes it the perfect time to leapfrog into the next stage of your life.
What advantages do recessions offer near-retirees?
You control your destiny. It’s your retirement under your rules. Job risks, if you even have any, are manageable. Lower prices are your ally. A recession won’t steal your retirement before you clock out of your career. It hands you a discount on the way there.
Trusted sources remind us near-retirees who plan carefully can turn recession worries into winning prospects. They can ensure you that your retirement remains on track regardless of economic fluctuations.
Your retirement dream is still attainable. The finish line is still yours.
Cross it with a satisfied and confident grin.
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