“Recessions are not an ideal time for exposing your wealth to risk or taking on more debt.”

By Andrew Winnett

According to a definition from the National Bureau of Economic Research, or NBER, a recession is a significant decline in economic activity that impacts broad sectors of the economy and lasts longer than a few months. These downward trends in the business cycle are often characterized by increasing unemployment, a decline in production, personal and business bankruptcies, and other symptoms of severe economic distress. Since 1854, the United States has experienced 35 recessions.

Historically, the average duration of a recession is about 17 months.

Many pre-retirees and retirees have lived long enough to have experienced the unpleasantness of several recessions. For these older Americans, one of the most significant challenges is preparing for the nearly-inevitable investment volatility accompanying a recession.

So, what are some of the most effective ways pre-retirees and retirees can prepare for a recession and protect their hard-earned savings?

Save for a rainy day and keep saving even when the rain finally arrives. If you are within a few years of retirement age, your most considerable risk is experiencing a job loss or reduced hours. That’s why it’s wise to have anywhere from six to eighteen months of cash saved to help you get through short-term cash shortfalls. And, just because you’re retired doesn’t mean you shouldn’t continue saving as much as possible.

It will help if you rid yourself of as much debt as possible.

Picking up a budgetary slack using credit cards is almost always a bad idea, yet many unprepared seniors find themselves doing that during a recession. Seniors who find themselves experiencing a cash crunch each month must take action now if they want to avoid adding more debt.  Rather than wait for a full-blown financial crisis, now is a perfect opportunity to evaluate your bills and decide if adjustments to your lifestyle are in order. If your cash flow issues are severe, you might consider renting a room out, selling your RV or boat, or getting rid of a vacation property.  Even if you aren’t currently hurting for cash, getting rid of debt is still a smart move that can help you avoid running out of money when you retire.

Pay your bills on time and keep your credit score high.

You may not believe that a good credit score matters when you retire.

However, as many retirees find out, having stellar credit can help you navigate times when your best-laid plans go awry. Getting behind in mortgage, credit card, or other debt payments can be costly in terms of late fees and damage to your credit score.  Weak credit can mean you can’t get a loan you need or find a new home or apartment.  Strive to keep your credit as pristine as possible, or you might find it much more challenging to enter retirement debt-free.

Be liquid- but don’t keep all your cash in the bank.

An emergency fund is essential to your peace of mind, both now and when you no longer work. Traditionally, financial advisors have suggested that clients keep at least six months of cash to pay for unanticipated medical bills and other surprise expenses. That’s a bare minimum, though.  You should strive for a year to two years of emergency savings. Be sure to keep a small amount of your cash safely hidden in your home, where you can access it quickly and easily if there is a crisis.

Review your portfolio regularly to ensure you have enough “safe” money.

When the pundits call a recession, you may find yourself in the thick of it. Pivot ahead of the pack and have your financial advisor locate weaknesses in your portfolio and suggest products to offset those weaknesses. For instance, depending on where you are in your economic life, you may discover you need to add more safe instruments, such as annuities and life insurance.

Stay on the sidelines, at least for a little while.

When you start seeing what appear to be cheap stocks everywhere,  you’ll be tempted to rush into the stock market. However, you should probably take a deep breath and meet with your retirement income specialist before getting into the fray.  After all, when you are close to retirement, the last thing you want to do is make mistakes with your money from which you won’t have adequate time to recover. Sitting on the sidelines for a while will give you a chance to do a more thorough appraisal of your current situation, evaluate your willingness to take on risk, and research which stocks are genuine bargains.

Recessions happen in every economy. While no one can accurately predict either the severity or duration of an economic downturn, there are some actions you can take to guard against these adverse events. Becoming more involved and active in your financial planning, protecting against risk, and partnering with a trustworthy financial advisor will go a long way toward helping you protect your wealth, even during.  If you’d like a confidential review of your current plan, reach out to me :

Andrew Winnett

278 Franklin Rd., Suite 260
Brentwood, TN 37027

(615) 649-8222