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7 Tips to Survive a Recession in Retirement

Updated: Jul 13, 2023



With another rate hike under our belt and several more on the way, the likelihood of a recession in 2023 is at an all-time high.


If you're worried about how a recession might impact your retirement, I'm going to reveal 7 simple tips that will help set you up for success. Let's get into it.


Welcome back to another video from One-Up Financial. I am your host Eric Presogna, CPA and CFP here to help you increase your income, reduce your taxes and invest smarter in retirement.


To give you an idea of what the current economic landscape looks like at the moment: the 30-year mortgage recently hit 7%, the Fed is raising rates at the fastest pace in history and inflation is at the highest level it's been in 40 years.


So you shouldn't be surprised when billionaire investors like Stanley Druckenmiller and Jeffrey Gundlach are saying there's a 70% chance of a recession next year.


Fortunately for them, a steep economic downturn isn't likely to have a drastic impact on their financial health.


Most investors, on the other hand will likely feel the pain should a recession hit.


In fact, a sharp and protracted drop in the stock market can be a devastating blow to recent retirees given the length of time it takes to recoup those losses.


Remember, if you lose 50% of your money, you'll need to earn 100% just to get back to even. That could be a long time to have to wait, especially if you're drawing money from your investments.


If retirement plans are in your near future, or if you've recently retired and are concerned about how a recession may impact your financial future, here are 7 tips to help you better manage your finances should things turn from bad to worse in the economy:


1. Build a Plan You Will Follow


You don't need a 50-page document filled with confusing charts and graphs you'll likely look at once with your advisor and quickly toss in the trash.


Having a plan simply means being proactive.


Should an economic catastrophe be right around the corner, you want to know in advance how to react before sh*t hits the fan.


At the very least, check to make sure your investment strategy is aligned with your time horizon and level of risk.


If savings and investments are funding your lifestyle, it's not a bad idea to have some exposure to cash, cash alternatives and fixed income, especially given where rates are at the moment. This will allow you to pull money from a relatively safe asset class as opposed to being forced to sell stocks during a bear market. It might also dampen losses in your portfolio and help keep your emotions at bay.


In addition to reviewing your investments, you may also consider outlining a social security strategy as part of your plan.


Those fortunate enough to delay filing for social security early in their retirement will receive larger monthly payments in the future. Some people, however may benefit more from filing sooner, collecting much-needed cash flow today and attaining some semblance of financial peace of mind. Know your numbers and what filing strategy is optimal for you.


Lastly, put all of this in writing!


If you don't have a financial planner or investment advisor, I'd recommend writing your investment and social security strategy down on a piece of paper.

It's been proven that the simple act of writing down your goals can increase your chances of achieving them by 20-40%. That's a better return than Warren Buffet has earned annually over his lifetime.


2. Consider Part-Time Work


I hate the word retirement!


It brings to mind pictures of people laying on beaches, playing golf and sailing across the Pacific.


As fun as these activities are, the euphoria eventually fades and reality sets in. You start to ask yourself, "Ok, so now what do I do with my time?"


If you replace the word "retirement" with the phrase, "making work optional," it reframes the perception of what work can be while offering up another arrow in your quiver to fight a recession.


If your career was spent doing work you didn't enjoy, what "work" do you enjoy?

There are ample opportunities now to make money with part-time gigs, side-hustles, whatever you want to call them.


I took an Uber a few months back and learned the driver had amassed around $2 million in the bank. When asked why he's still working, his response was, "I like driving and talking with new people."


Maybe you don't like driving or talking with people. You may have developed or acquired a unique skill that people or businesses need and will pay for. You might love animals and decide to become a dog walker.


Point is that opportunities exist for you to earn money in retirement without having to do "work" you don't enjoy.


And supplemental income can allow you to delay filing for social security and most certainly come in handy during a recession.


3. Remain Calm


Easier said than done, I know.


We've all heard the famous Warren Buffet quote: "be fearful when others are greedy, and greedy when others are fearful."


This makes sense on paper, but in reality is far more difficult to follow.


The reason is twofold: First, there are few topics in life that tug more on your emotional strings than money. And when fear becomes a reality, like looking at your investment statement and seeing losses equal to 4 years' worth of salary, it's hard to be greedy and put more money into the stock market.

Second, most retirees are in what I call the "distribution phase" of their lives, meaning they're taking money out of savings as opposed to putting money in.

Those still working and contributing to an IRA or 401(k) need not worry as much about a recession given they won't need to touch their savings until retirement. Further, they'll actually benefit from a bear market as their payroll deductions are buying stocks at lower prices each week.


On the other hand, those in retirement are relying on their nest egg to live and when that egg starts to crack, sound decision-making is replaced with a reckless panic towards safety.


I can tell a stranger to remain calm amidst market volatility until I'm blue in the face, yet it'll likely have very little impact in the heat of the moment.


If you don't have a financial advisor, find someone trustworthy with knowledge of the financial markets with whom you can talk to during tough times. Sometimes all it takes is a 20-minute phone call with a reliable sounding board to vent your frustrations and clear you mind.


4. You Can't Time the Bottom, So Don't Try

Believe it or not, what's worse than failing to correctly time the market is actually succeeding.


If you accurately predict a market bottom and invest at the perfect time, you're rewarded with monetary profits as well as the false sense that you know what you're doing.


Feeling confident in your ability to see the future, you continue to jump in and out of the market only to find later that, like the other 95% of traders in the world, most fail miserably at trying to time the market.


Sometimes the best lesson is first-hand experience, like when I thought I could trade call options on banks stocks in my 20's and ended up losing nearly 100% of my principal.


Take it from me and the millions of other traders out there you never hear about who've lost money trying to beat the S&P: the odds are not in your favor and the house almost always wins.


5. Preserve Your Cash


The CFP Board recommends at least three to six months' worth of essential living expenses in a savings account.


When the risk of a recession is high and retirement near, I'd consider boosting that emergency reserve to between six and twelve months' of expenses.


Between 1945 and 2020, the average recession lasted on approximately 10 months. Using this figure as a guide can help in determining an appropriate amount of cash to keep on the sidelines.


With interest rates on rise, cash is actually not a horrible investment option.


Most online FDIC-insured banks are paying north of 2% on their money market accounts. Short-term treasury bonds are also an attractive cash alternative with yields in the 4% range as of this writing.


In a recession, however, liquidity is much more important than APY on a savings account. So whatever investment vehicle you use for emergencies, be sure you can access it quickly and easily. Cash, as they say, is king.


6. Take Advantage of Tax Benefits


With a slowing economy and declining stock market, it pays to be a glass-half-full kind of person.


The reason is that investment losses can be used to your advantage.


I've spoken in depth before about tax-loss harvesting and if you aren't familiar with the strategy, it involves selling an investment at a loss and re-investing the proceeds into something "comparable." This allows you the opportunity to deduct the loss on your tax return ($3,000/year maximum), remain invested in the market and avoid the wash-sale rule.


You can also consider converting some or all of your traditional IRA to a Roth, otherwise known as a "Roth-conversion."


If your IRA has declined in value like everything else in 2022 with the exception of your grocery bill, converting it to a Roth will technically save you tax dollars over time.


Let's look at an example: If you contributed $6,000 to a traditional IRA in year 1, you would have received a tax deduction for the full amount (assuming you're within income limits if covered by a company plan). If in year 2 your IRA dropped to $4,000, you could convert it to a Roth and only pay tax on $4,000 when in fact, you received a tax benefit on the full $6,000 when contributed.


Even better, you can combine the two strategies and effectively get paid by the government to make a $3,000 Roth-conversion! If I lost you here, give me a call and I'll explain further.


Don't confuse remaining calm and "staying the course" with being complacent and inactive. Recessions breed losses and losses create opportunities for those investors willing to look.


7. Pick the Low-Hanging Fruits


No one recession is identical to the next.


In the early 2000's, the dot com bubble burst followed closely by the mortgage crisis of 2008/2009 and most recently, the mother of all black swan events - COVID-19.


The one common theme that tends to emerge from these economic crises is unlikely investment opportunities hiding in plain sight.


Did you know you could have purchased a 2-Year treasury bond in January 2001 and received an annual return of 4.76%? Or that in 2008, the plain vanilla bond index yielded north of 3% and returned a total of 5%? How about from November 19' through April 20', Series I bonds were yielding 2.22% despite rates near 0% everywhere else?


Hindsight is 20/20, obviously and I don't mean to cherry pick on the few investment themes that worked during past recessionary periods. Instead, my goal is to make you aware of "easy money" that's sometimes hard to spot in the moment.


As I write this, the 1-Year treasury bond is paying 4.5%, Series I bonds 9.6% and money market savings accounts 2.5%. The first two are government-backed, triple-A rated bonds while the last is insured up to $250,000 per depositor.


Those looking for ideas on where to park cash should start by considering taking advantage of these low hanging fruits.


Closing Remarks


Planning for your retirement in the midst of a looming recession is not for the faint of heart. If you have questions, concerns, or just want to vent for half an hour about your electric bill, give me a call or shoot me an email.


Thanks as always for watching our videos. If you're interested in staying up to date with our market and financial commentary, please subscribe to our blog at oneupfinancial.com/blog or follow us on LinkedIn and Facebook.


Thanks again, and we'll see ya in the next one.






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