How to retire during a recession

Look at your savings and think about work options before moving into retirement.

  • By Rachel Hartman,
  • U.S. News & World Report
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If you are planning to retire during a financial downturn, it can be worrisome to give up your job. This is especially true for those with portfolios that have dropped in value. You may be facing retirement with fewer funds available and uncertainty ahead.

Still, if you’re ready to stop working or need to reduce your activity due to a health condition, retirement may be the best route forward. Looking at your finances and setting up a plan could help you get through a bear market and create a sustainable lifestyle. You might even find ways to increase your income by making a few adjustments.

To retire during a recession, it can be helpful to:

  • Look at financial projections.
  • Evaluate your portfolio.
  • Consider your work options.
  • Understand health expenses.
  • Review your Social Security benefits.
  • Lower living expenses.
  • Talk to others.

Use the following guidelines to prepare for a resilient retirement.

Look at financial projections

You can use technology to keep track of your available financial resources and make a retirement budget. “There is software available that can tell you how much your assets need to average to provide you your desired income, and they factor in things like inflation, Social Security and sequence of returns,” says Ron Tallou, founder and owner of Tallou Financial Services in Troy, Michigan. “If it is in your best interest to work an extra year or two and wait for the economy to get better, you’ll want to know that important information.” Some of these retirement planning tools are free and can help you consider different scenarios.

Evaluate your portfolio

If you’ve been saving for retirement for several decades and have various investments and accounts, look at how your funds are allocated. “Most retirees are no longer in the wealth accumulation phase of their life and have moved into the distribution and wealth preservation phase, and their portfolio needs to reflect that by minimizing risk,” Tallou says. You can talk to a financial advisor about ways to get through the coming years and what to expect from your investments going forward.

Consider your work options

For individuals who are healthy enough to continue working, staying employed for another year or two may be an option. “Every year you work can help you build up more retirement savings and potentially increase your eventual Social Security benefits,” says Cathy Schaeffer, a financial planner and vice president for Baker Boyer in southeast Washington. “Older employees have the extra advantage to make catch-up contributions to their 401(k) or IRA after age 50.” In 2022, you can put in an additional $6,500 in a 401(k) after meeting the $20,500 limit if you are at least 50 years old. For an IRA, you can put in up to $7,000 if you are age 50 or older.

Understand health expenses

If you’re age 65 or older, you are eligible for Medicare coverage. However, there will still be health-related costs during retirement. “Medical costs are a significant expense for many, and they always go up in retirement,” says Scott Guerin, an adjunct instructor in psychology at Kean University in Union, New Jersey. You’ll want to think through how much you will spend on health care before signing up for Medicare or a private health plan if you are not yet age 65. “There are many options and factors to consider in choosing which path is the best for you, both in the type of coverage and expected costs,” Guerin says.

Review your Social Security benefits

If you have worked and paid taxes into the Social Security program, you will be eligible for retirement benefits. You can get a personalized estimate your retirement benefits by creating a my Social Security account. If you are at least age 62, you can begin collecting Social Security benefits, though they will be reduced if you are not yet full retirement age, which is usually age 66 or 67. If you wait until you are past your full retirement age, your Social Security monthly benefits will increase each year up to age 70.

While you may want to start receiving Social Security checks as soon as possible, keep in mind that if you take a part-time job your Social Security benefit could be impacted. If you are not yet full retirement age, your benefit will be temporarily reduced if you earn more than a certain threshold. When you reach your full retirement age, you can earn income and it won’t impact your benefit.

Lower living expenses

If you are close to paying off your mortgage, you might make a goal of eliminating housing debt before you retire. You could also test out your retirement budget to experience a new lifestyle and monitor your costs. “Some people consider preparing to move to a lower cost-of-living area in retirement, fine-tuning travel goals or taking on new hobbies,” Schaeffer says. Aim to shave expenses as you plan, and you might be able to downsize your budget while living comfortably.

Talk to others

You might have friends and co-workers who are retiring around the same time as you who can offer insight regarding their plans. You could initiate plans to live near your children or grandchildren. If peers are retired, you can connect with them to stay active and engaged. “Have a social plan in place to connect with people to share, laugh and learn,” Guerin says.

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