Don't Get Caught Off Guard: 5 Smart Financial Steps for Retirees Amidst Recession Fears

Recessions Can be concerning regardless of timing, but these fears intensify once you retire and rely solely on your savings. With potentially no additional income sources aside from your retirement funds, those resources might diminish precisely when you depend on them the most.

It’s difficult to predict when a recession might strike, even as whispers suggest that one may be approaching. Should this concern you, there are several steps you can take to prepare for the difficulties a downturn might impose. Here are five actions you should consider taking if they aren’t part of your routine yet.

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1. Establish your savings buffer

Your investments might decrease during an economic downturn, which typically isn’t ideal for selling since you’d end up relinquishing a bigger portion of your assets just to obtain the funds required. However, if you urgently require cash, sometimes you won’t have another option.

It's preferable to prevent this situation by making sure you have between 12 to 24 months' worth of living costs set aside. high-yield savings account Alternatively, you can invest in a money market fund. In this manner, you retain some savings that remain insulated from the volatility of the stock market, which you can access whenever necessary.

This provides greater flexibility for potential future withdrawals from your retirement accounts. Having additional funds available might allow you to hold off on withdrawing more money until your investments have recovered.

2. Cut expenses, if feasible

Cutting expenses when an economic downturn hits is yet another approach that might assist in preventing your savings from depleting rapidly. Concentrate on indispensable expenditures such as rent, medical care, food, and transit, and think about cutting back or foregoing non-essential buys should a recession take place.

3. Examine your investment portfolio

Make sure your investment portfolio includes enough diversification to avoid excessive risk. As a general guideline, you might consider allocating 110 minus your age as a percentage into stocks, with the rest going into bonds; however, during an economic downturn, you could opt for holding slightly more in bonds if this provides greater peace of mind. While bonds lack the growth prospects offered by equities, their lower risk profile makes them suitable choices when safeguarding your accumulated wealth becomes paramount.

While you might not want to steer clear of stocks completely, it’s best to allocate part of your savings into at least 25 shares spread across various sectors. Alternatively, consider investing in an index fund. Such funds group together numerous investments as one package, offering some of the most budget-friendly options for investors. With some of the top S&P 500 index funds , you pay approximately $3 each year for every $10,000 you have invested in the fund.

4. Settle high-interest debts first

High-interest debt, such as credit card balances, is burdensome consistently; however, during an economic downturn, it becomes even more of a hindrance when you aim to minimize expenses. If you have additional funds available, focus on eliminating this type of debt at the earliest opportunity.

You might be eligible for this. balance transfer card These offer you a 0% introductory interest rate, allowing your balance to remain stable for the initial several months after acquiring the card. Alternatively, you might consider taking out a personal loan If you desire a consistent monthly payment.

5. Enhance your approach to claiming Social Security benefits if you have not yet enrolled.

The reliable monthly payments from Social Security offer reassurance during an economic downturn, yet they may not suffice for covering every expense. To make the most of these benefits, select the claim age that seems most logical regarding your monetary circumstances and anticipated lifespan.

Each month you postpone receiving benefits will increase the amount of your payments, yet this also implies an additional month where you must manage your expenses independently. However, if you're capable of supporting yourself financially during this interim period and anticipate living well into your 80s or longer, holding off on applying could result in higher overall payouts over time—potentially up till age 70 when you reach your peak benefit level.

Try to remain calm

Economic downturns can be challenging, particularly when your financial assets decline in value. However, this does not imply that you have made errors or that your portfolios won’t bounce back. Downturns are an integral part of the economy’s natural rhythm, and by following the recommendations provided earlier and resisting impulsive actions, you may find these periods more manageable.

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