“A global recession is all but guaranteed. Now is the perfect opportunity to take steps to blunt the impact.” – Jerry Yu
Bubbles are bursting everywhere, from real estate to crypto to technology. Many economic analysts say a severe economic downturn, possibly on the order of the Great Depression, is all but inevitable in 2022-23.
The approaching economic storm leaves many retirees and pre-retires fearful and anxious, especially those who realize they haven’t saved enough to retire comfortably. While stress during challenging economic times is expected, you must remain flexible and focused on your long-term objectives.
While you have time and resources available, it’s wise to plan how you will offset any economic downturn’s adverse effects on your wealth.
There are some actions that may help protect your retirement portfolio during a recession, including:
Accurately calculating your essential monthly expenses. Because so many of us operate on a transactional basis (think debit cards and ATMs), we often don’t know where all our money goes. As a recession looms, you’ll want to change that and become more aware of where you spend every penny. Create a list or spreadsheet with your recurring expenses, such as mortgage payments, insurance, food, water, utilities, and other costs. While you’re making this list is an excellent time to add your account numbers, usernames and passwords, and additional vital information. Creating this list may also give your ideas about where you can save money. This document will help you if you need a family member’s assistance with bill paying.
Rethink the “4%” spending rule. Many retirees build plans based on William Bengen’s famous “4% Rule” theory. This well-known rule of thumb posits that a typical retiree can safely withdraw up to 4% of their portfolio without worrying about running out of money. Lately, though, Bengen’s theory has undergone a great deal of scrutiny. Many economists and retirement planners say that retirees will probably need to withdraw far less than 4% in recessionary times, perhaps as little as 3%. Otherwise, they may deplete their retirement savings too quickly. If your retirement blueprint centers on the 4% rule, you may need to revise your plan.
Rebalance your portfolio. Asset diversification is always a significant component of a high-performing, successful personal finance plan. However, as you enter retirement, your approach to diversification may change from when you were growing your savings. If you haven’t rebalanced your portfolio in a long time (or ever), you want to get with your advisor and do so.
You will want a matrix with growth-oriented assets and safe money products for greater predictability and stability throughout your lifetime. Portfolio rebalancing is best when done regularly, targeting the risk level right for you at different times in your financial life.
Adding safe money products if you don’t have already them
As you approach retirement age, you and your retirement income specialist may use more guaranteed income products that aren’t impacted by the market’s volatility. These products, including specially-designed permanent life insurance and annuities, create more income streams. You’ll have less stress knowing you have predictable income coming in every month that doesn’t correlate to the stock market.
Bottom line: Retirees face numerous challenges and threats to their wealth in the next decade. Partnering with a financial advisor who understands the dynamics of the spend-down phase will assist you in having a more prosperous, less stressful post-work life.