The 2008 Global Financial Crisis pushed the United States into a recession, which caused unease for many baby boomers who were five to 10 years away from retirement at the time. Soon-to-be retirees had to make financial adjustments to secure the fixed income on which they would shortly depend.
Now, a similar situation looms: as the global economy grapples with the financial implications of a worldwide pandemic, another wave of soon-to-be retirees face the same worries about safeguarding their finances. Still, it’s not all doom and gloom for those on the cusp of retirement in the middle of current economic tumult. Despite the economic uncertainty, those who are not far from retirement can learn lessons from a decade ago to help safeguard investments and reduce risk exposure in a recession.
Trusting Experienced Experts
If you are approaching retirement during a volatile economic period, you're not the first—plenty of people have retired despite challenging economic situations. For example, a percentage of Americans delayed their retirement after the Great Recession, which shows there are modern examples for how to react and subsequently plan.
Luckily, history is our greatest reacher: Recessions and market uncertainty of the past can have important lessons for how we approach retirement in the current economic environment. Although you may be nervous, this means that financial professionals are prepared—the crisis a decade ago is fresh in the minds of financial advisors, so there is protocol for how to handle this.
You don’t have to go it alone, either. Financial professionals have a keen awareness of prior performance and market trends, which make it easier for their clients to make sense of how the market moves. Doing your own research is always a good idea, but getting external advice from a financial advisor can validate your own findings and bolster your confidence.
Planning Your Future During a Recession
It's difficult to think that planning for your retirement is possible when there's economic volatility. However, a robust retirement plan should include several investing strategies designed to be independent of the market fluctuation, and help make sure you have the assets you need to retire without fear.
The Implications of the Ideal Portfolio
Ideally, your portfolio has a balance of holdings that will protect you from market volatility. As you’ve approached retirement, ideally, you’ve pulled back the components of your portfolio with more market exposure and shifted toward lower-risk investment vehicles.
One of the fears in retiring during a recession is that you’ll see your retirement savings plummet significantly. But, if you’re currently on the cusp of retirement, you should have already experienced the benefits of the bull run and drawbacks of any bear period in earlier years instead of right now.
Although it’s true that you may have less money in retirement than you were hoping for, you are hopefully still safeguarded based on a robust, strategic investing approach for retirement. Your financial planner will know your exact situation and can explain its implications to you.
The Implications of the Unbalanced Portfolio
If your portfolio is not optimized for retirement, it may be more exposed to the ebbs and flows of the market. This is particularly true of portfolios that haven’t transitioned into more stable financial holdings, such as a fixed income-heavy investing strategy. Direct stock ownership can lead to gains earlier in one’s retirement plan, but can also lead to significant losses if these positions are held too close to retirement age.
Your ability to course correct is largely dependent on how many years out from retirement you are. If you have 10 or more years before you intend to retire, you’re in a more advantageous position to change your holdings. If you’re closer to retirement, your options may be more limited.
Reacting to the Markets
Your decision to retirement shouldn't be based solely on headlines, news alerts, and the number at which the Dow closes. If you've never watched the stock ticker before, now is not the right time to do it—if anything, it may create anxiety that doesn't have an implication on your portfolio after all, especially if you are well balanced.
Think of it this way: You've played the long game to get to where you are, so it's impractical and illogical to abandon that strategy, even the midst of a recession. That said, if you are looking for avenues to make changes or to react to the markets, you'll want to open up conversations with financial experts or advisors—don't be impulsive
Should You Delay Retirement?
Decisions to delay retirement in a recession should not be made unilaterally, nor should they be driven by financial professionals who don’t have a sense of your individual asset allocations. After all, you are the only person in your exact situation, which means a personalized approach is essential to making the right decisions and being sure you’re set up correctly for the years ahead.
You should make your call based on your holdings—what you do will be different than your colleague or neighbor. Many others may have allocations that are different than what you have within your own portfolio, and their retirement accounts and other sources of income are likely to look different, too. Especially in these unprecedented times, it’s more important than ever that the advice you receive is tailored to your holdings—the question you’re asking isn’t as easy as a unilateral yes or no.
Another factor to examine is what your ideal retirement scenario looks like. What is the quality of life you’re hoping to have? What are you hoping to achieve and pursue? You’ll need to evaluate whether or not you have the assets right now to sustain that lifestyle. Know what the vision for your future is—and how much money it will require—and square that against what is possible, including the tradeoffs you're willing to make.
Importantly, the decision on whether to retire during a recession will take more than one meeting with your financial professional and your family. Don’t rush to come to a conclusion—patience, and allowing yourself to look at the evolving global financial situation, can pay off.
Planning to retire in a recession or during economic instability is not only unnerving but also difficult. The most important thing you can do to secure your future is to make sure you are not making impulsive moves, and instead operating with a partner who will provide expert guidance. Find an advisor to help you make the best decisions for your future.