As the flood tide of the pandemic has generally receded, America is still attempting to understand just how much the economic shoreline has been changed. After the charging bull market that marked the initial rebound, Americans are growing worried about the word “recession”. Are we in one? What will happen with inflation?

One particularly important question is on the minds of those nearing retirement: will this affect my ability to retire?

There is no way to tell the future in terms of markets, but there are principles that can possibly assist you in maintaining your course even during market downturns or uncertainty.

 

Defined: What Is a Recession?

You may have heard recent debates about how a recession is defined. Political discussions aside, economists have commonly defined a recession as two consecutive quarters of weak or negative growth in Gross Domestic Product (75% of the value of goods and services produces in the US).

There are other additional definitions you may hear that don’t adhere to the two consecutive quarters of negative growth, but the overall patterns follow similar market movements.

Regardless of the technical definitions of a recession, the main question we are focused on today is simpler: “The stalled economy has me nervous. Can I still retire?”

 

Can I Still Retire During a Recession?

This is a common question for pre-retirees during recessions. For some, you were already planning to retire in the current window. For others, recessions are often paired with job cuts and layoffs – you may be faced with the question of finding new work or opting to retire.

The good news is that a recession does not rule out retirement, even if it introduces new variables. The way to find the specific answer to this question is to speak with a personal financial advisor who is familiar with your situation. If you do not currently have one or are looking for a new advisor, WealthPlan Group can introduce you to an advisor who can help you answer this question.

 

How Recessions Can Affect Your Retirement

Among the many impacts of a recession, there are a few that most impact those looking to retire. Some of them are logistical and financial. Others take into account the kind of life you picture and cast a vision that is truly fulfilling.

Among the concerns are factors like:

1. Higher cost of living courtesy of inflation
2. Watching your investment portfolio decline with the markets
3. Possibly higher interest rates affecting decisions like moving

These are all real concerns that should inform your decision regarding when you retire. Before you “turn off the hose” (your income) that’s filling your retirement bucket, here are a few questions that are helpful to answer.

 

1. Don’t Skip Emergency Funds

Emergency funds are critical when it comes to the decision to retire. That is a bucket that is much harder to fill for many once they retire, so it is helpful to check that box first before handing in your notice.

While it is helpful to build up your emergency funds gradually, there may be ways to prioritize funding your emergency funds faster. As for how much you should have, talk to your personal financial advisor for your answer.

 

2. An Accurate Budget is Key

One of the most important factors of your retirement decision, recession or not, is having an accurate budget. Avoiding surprises here is one of the best ways to avoid unnecessary stress in retirement. If the cost of living has gone up, it may be time to revisit what your budgets have become. From there you can assess what changes you need to make.

Here is a sample method to create a useful retirement budget:

1. Start with your recurring expenses such as rent or mortgage, utilities, debt, and other subscriptions that are fixed and easily predictable.
2. The next section should reflect your needs that vary in cost, such as food, gas, and other household needs.
3. Now, before you go to discretionary lifestyle costs, address your safety nets. How are your emergency funds doing? Do any margin-providing buckets need to be refilled?
4. Then, you can budget out your other lifestyle purchases.

 

3. Create “Plan B and C”

While strong fundamentals can help keep you on course through economic instability, it always worthwhile to consider personal changes that would affect your plan for retirement.

Some of these changes could be in personal events like layoffs or illness that sidelines you from your job. What are your options if you need to retire before you planned?

Other questions might include portfolio performance. How much does your budget need to change to help you ride out recessions and realize the benefits on the other side?

Talk with your financial advisor so you can understand your contingency plans.

 

4. Discuss Your Financial Plan With Your Family

It carries immense value to discuss your retirement plan with your family or other close relationships that may be impacted by your financial plan. We highly recommend creating a clear, accessible overview of your financial plan and assets that can be shared. Here are a few examples of what this looks like.

 

Make Sure Both Spouses Know the Plan

Debilitating illness or death are not topics we like to visit frequently when talking about our golden years. Still, it’s much harder to experience them without the support of a clear plan for your finances. Make sure both spouses understand the plan for income in retirement and what assets make up your net worth. We recommend making a written overview with your financial advisor that can be referenced if needed.

 

Communicate Plans With Children Involved in Decisions

Many retirees have legal responsibilities that may be assigned to their kids, such as power of attorney or medical directives. If that’s you, you may want to consider sharing an overview of your financial plan with them so they are better informed, should they need to make decisions on your behalf.

 

Retiring On Your Terms, Even in a Recession

While a recession can impact how you approach your retirement decision, we advocate that many of the same principles that generally prepare you for retirement help protect you if you retire during a recession.

If you don’t currently have a clear plan for retirement in place, we invite you to talk with a financial advisor. The sooner you begin preparing for your transition to retirement, the more time you have to create a position of financial strength to help you retire on your own terms, even if it’s during a recession.