Is Your State Prepared for a Recession?

The Kiplinger Letter's managing editor Jim Patterson joins our hosts Ryan Ermey and Sandy Block to break down the ramifications for states that aren't equipped to handle the upcoming recession. The pair also discusses bear market investing strategies.

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Ryan Ermey: When recession strikes, where you live could have a big effect on your financial life. The Kiplinger Letter's managing editor Jim Patterson joins the show to break down which states are at least prepared for an economic downturn and what you can do about the repercussions in our main segment.

Ryan Ermey: On today's show, Sandy and I break down investing strategies for coping with a bear market and unearth deals and discounts you can score from the comfort of your home. That's all ahead on this episode of Your Money's Worth. Stick around.

Ryan Ermey: Welcome to Your Money's Worth. I'm Kiplinger's associate editor Ryan Ermey joined from afar by senior editor Sandy Block. Sandy, you hanging there?

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Sandy Block: Yeah. My hair is getting really long.

Ryan Ermey: Oh, mine is too.

Sandy Block: I think by the time this is over, the only people that will look good are hairstylists and the members of their family. The rest of us are going to look like Muppets. So, you know.

Ryan Ermey: At least those guys who have like had a buzz cut since they were in the second grade, you know . . . it's like that's no big deal, but I have like a whole quaff situation going on. So that's going to be no good.

Ryan Ermey: So to open it up here, you and I were just talking off air that the upcoming issue of Kiplinger's has an awful lot of bear market-related content. I just so happened to have written a lot of that investing content, which will still be good by the time that it goes online and then by the time it hits your mailbox, but I want it to go over a couple of what I'm calling the dos and don'ts of this kind of market. Especially since we've been on our way back up, right, from the bottom and it could be -- it's certainly possible that we've already seen the bottom of this market. Or, we could be in for another sharp draw down. Either way, we're probably in for a good amount of volatility here for probably a prolonged period of time.

Ryan Ermey: The market has been down as much as 34%. It's bounced about 24% off the low as we record on a Wednesday, the 15th here, but we're still down 18% from the high. So what should we be doing in times of this kind of market turmoil?

Ryan Ermey: One thing that everyone should be doing -- and I feel like every third show I'm talking about this particular topic -- but this is a good time to assess your risk tolerance. And the reason being, if we've had these kind of big sharp draw downs in your portfolio and the potential for more of them, it could be that you're up checking your portfolio page every night. You're looking at it, the scary red numbers are coming up on it.

Ryan Ermey: So you know, there's two sides to risk tolerance, as we've talked about. One is your risk capacity. That is your ability financially to handle a portfolio loss without it jeopardizing your future. So if you're a long way from retirement, that's probably not such a big deal. You can stay invested in stocks and you have plenty of time to recover. But if you're nearing retirement, you should have a larger portion of your assets in lower risk investments such as bonds.

Ryan Ermey: The general rule of thumb is, you know, Sandy . . . that the percentage of your portfolio allocated to stocks should be roughly a 100 to 120 minus your age in percent.

Sandy Block: Right.

Ryan Ermey: And I like that 120, because I like to stay a little bit more aggressive.

Sandy Block: Well, but you know, in working on a story for the upcoming issue about how retirees can survive the bear market. This is one of our many bear market stories. And in talking to financial planners, they said because the bull market lasted so long, they've heard from retirees or near retirees who were almost a 100% in equities. That's because they were in stocks just because it kept going up and up and up.

Ryan Ermey: It just got comfortable, right?

Sandy Block: Right. And they got comfortable and the unemployment was at a record low. But this is a really good example of how you can have these black swan events and why as you approach retirement, you do need to have a few years of living expenses in a very safe place. That way you can use that money to pay the bills until the market recovers.

Sandy Block: Some people -- and this happened during the great recession -- will end up having to sell stocks or funds at a steep loss, locking in those losses forever, just because they need the money.

Ryan Ermey: Right.

Sandy Block: And so risk tolerance runs both ways. You don't want to be so scared as a young person that you're too conservative and can't keep up with inflation. But as you get older, you do have to realize that these things do happen and sometimes they happen at the worst time for you.

Ryan Ermey: And you know, that goes right beautifully into my next point, which is don't go totally to cash if you're someone who's close to retirement. A lot of people tend to think of their portfolio as like one thing. And when they see this kind of market volatility, they go, 'Oh my God, got to take everything out.'

Ryan Ermey: And as you say, Sandy, you need to have some portion of your portfolio, if you're in or near retirement, in cash. You should hold enough cash or cash equivalents to cover two years, we would say, of retirement expenses. Then you should have another cache of, C-A-C-H-E, cache.

Sandy Block: Cache.

Ryan Ermey: Yes, as the French would say, of high quality income investments. We're talking highly rated bonds, things that are a little bit more likely to lose a little bit of principle than cash but there's still going to give you some income, some upside.

Ryan Ermey: You should have those to cover those kind of short to intermediate term obligations and then the rest, you can keep invested in stocks to the extent that you're comfortable because even if you're right at the beginning of retirement, you could very well be saving for another 30 years so you don't want to lose out on a potential rebound here as we come out of this bear market and deprive yourself of that kind of potential income however many years down the line.

Sandy Block: Right, right, because you're going to need that because you're not, you know, interest rates are rock bottom so you're not going to make any money off of savings accounts and even income from dividends and things like that and bonds is very low. So you do need these capital gains, again, to stay ahead of inflation and get growth in your portfolio. You can run as much of a risk about living your savings, being too conservative as you can be too aggressive.

Ryan Ermey: So another piece of advice I have here . . . do not try to time the market. And this is one that people are probably quite tempted about right now because if you're like us, you just got paid here on the 15th. People are expecting their stimulus checks. So they're thinking, well, this bounced, however high it bounced off the bottom -- about 24%. Well, maybe I shouldn't invest now? Maybe I should wait for it to go back down? You know, try to get the best price on everything.

Ryan Ermey: The problem is that you're not going to know when the best time to get in the market is. And though the more you stay out, the more you're likely to miss a really good day in the stock market. That's a really big deal, because if you miss only, and look, people have, I've talked to people who've told me that this is kind of a mutual fund company propaganda to try to get you to . . . this is like one of Jim Stacks (opens in new tab)'s things, who's from Invest Tech Management. Go check out his website, because he's helped me with a lot of stories.

Ryan Ermey: But you know, it's his contention that the mutual fund companies are trying to get you to stay invested. So, you know, with a grain of salt, I have a stat in my upcoming story. So had you invested from New Year's Eve 2004 through 2009, if you invested $10,000 in the S&P 500 you would have gained 9% annually. So you'd end up with about $36,000.

Ryan Ermey: So this is a long period of time -- 15 years. If you had missed the 10 best days over those 15 years, your total instead of $36,000 would be $18,000 and you would have earned just a 4.1% annualized return. What's more, many of the market's best days, which we saw during this draw down come within a week of the worst days. So you never know when exactly you should be getting in and you need to be in there for those best days, which means that you should stay in even close to the worst days or when things get dicey.

Ryan Ermey: And one way to take the emotion out of that is to dollar cost average, which we've talked about on the show before. You take a set amount of money and put it toward a set group of investments at regular intervals, which means that you're going to be buying more shares when stocks are cheap, fewer shares when they're more expensive. So you're essentially guaranteeing that you're doing the proverbial buying low and selling high.

Ryan Ermey: And one adjustment that might be worth making is to do . . . I've heard it called bear market dollar cost averaging, so rather than investing at fixed intervals based on time, do it based on declines in the stock market. So just take the emotion out of it. Say every time the market falls by 5% you're going to put another couple hundred bucks in, if you have it to spare. And that way, you'll be virtually guaranteeing that you're timing things at a discount to when you are going to do it.

Sandy Block: That sounds good. And just to reiterate what we said before, if you have a 401(k), you're already doing that. I mean, we got paid today, so we are investing today because we got paid. Some of our money goes into our 401(k) and it's invested, I assume, and I haven't even looked to see what the market is doing. But as you said, if it's up, we didn't buy as much and if it's down we bought more. So that really takes the emotion out of it, because you're not even pulling the trigger, it's just happening for you.

Ryan Ermey: So as we've said throughout this entire process, if you have an investing plan, absolutely stick to it. Stay the course and we'll come out of this on the other side better, smarter, and hopefully richer.

Sandy Block: And thinner.

Ryan Ermey: That, too, and hairier.

Ryan Ermey: If your state is all prepared for a recession, your financial life could be affected. Jim Patterson breaks everything down next.

Ryan Ermey: We are back and we are here with Jim Patterson. He is the managing editor of The Kiplinger Letter. Jim, thank you so much for coming on.

Jim Patterson: Thank you for having me. My pleasure.

Ryan Ermey: So there was a piece that is running now on, and that which we'll put in the show notes, that is about the states that are least prepared for the upcoming recession and it's something that I think piqued both mine and Sandy's interest so we wanted to dive a little bit deeper on that. So I guess a good place to start, Jim, is to remind listeners how we define a recession and why this might be, as some people are describing it, a particularly deep recession.

Jim Patterson: Sure. The traditional definition of a recession is two consecutive quarters of negative GDP growth, meaning that the economy shrinks for two consecutive quarters. That's not the official definition that the U.S. uses, but that's a pretty good shorthand proxy. And unfortunately, we're looking at a very deep procession now. A lot of the economy is just shut down in the name of protecting public health. Obviously, a lot of people are not going to work. A lot of people are losing their jobs right now. We've never really done this experiment before with the economy, but clearly it's taking on a lot of damage and unfortunately this is going to be a pretty rough recession.

Sandy Block: So Jim, in your list of states that are least prepared for this, what factors did you look at in determining which states are sort of in the worst financial shape going forward?

Jim Patterson: It's a combination of how much money states have in reserve. You often hear about state rainy day funds and there's a couple of different types of accounts that states use for this purpose, but the basic idea is most states sock away some money during good times to give them a cushion when bad economic times roll around. So we looked at how states stood with how much money they had on hand, whether they had enough socked away in those rainy day funds to be able to cover their shortfalls whenever a recession hit, because when a recession comes, states generally lose tax revenue and their expenses also go up so it's a double whammy. So you want some money in the bank to be able to cover that gap.

Jim Patterson: We looked at which states were in the worst shape in terms of their other rainy day funds and we also looked at which states were most exposed to a loss of revenue when a recession hit because they depend especially heavily on certain of economic activity that might be, for instance, in energy states they might depend heavily on taxes or royalties from oil and gas and in recessions the prices of oil and gas go down so those states might suffer extra heavily.

Jim Patterson: So it was those two basic factors of how much money do they have on hand and who stands to see the biggest blow when a recession does hit.

Ryan Ermey: And this can seem like some kind of a faraway or abstract thing for some people, thinking about which state governments rainy day funds might not cover this or what have you, but what are some of the consequences for folks who live in some of these states that we think are unequipped to handle the recession?

Jim Patterson: Unfortunately, some of the most immediate effects you're going to see, you're probably going to be state employees losing their jobs, whether to lay offs or furloughs. We're already seeing some early instances of that. And that might mean that certain state services, they won't go away, but it might be tougher for the states to deliver those services.

Jim Patterson: In the longer run, states are going to struggle to fund certain operations or certain longterm investments the way they normally would. That might mean less money for infrastructure spending down the road. It might mean less money for supporting state universities. We saw that in the last recession. Recessions blow a big hole in state budgets and pretty much all states are required to, for the most part, run balanced budgets so they've got to make their revenues match their expenditures. And generally, that means cutting a lot of expenditures. And then in the longer run, it might also mean raising taxes.

Sandy Block: So Jim, can you name a few states that are in the most trouble and tell us why they're looking at a pretty serious financial problem going forward?

Jim Patterson: Sure. And actually, we just got some new data just recently, so we updated our list. I don't want to call out anyone here, but the latest data we have indicate that of all the states, Louisiana is in the worst shape, and that's a combination of their not having a large reserve fund prior to this crisis hitting and that of course they've got a lot of COVID-19 cases. Louisiana is also an oil and gas state and if you follow the oil market, you know that the price of oil is way down right now. Louisiana's going to lose out on a lot of oil-related revenue because of that.

Jim Patterson: New York and New Jersey are both in pretty dire straits here. They're ground zero in the U.S. for the epidemic. They also have pretty small rainy day funds going into this. They have very high expenses related to things like employee pensions, but it's really, it runs across the geographic gamut.

Jim Patterson: Other states on our list include Kentucky, Missouri, Rhode Island and Florida. Florida is a good example of a state that relies heavily on tourism and of course travel is really way down. People aren't going to the beach right now. So it's a diverse list of states and they have unique reasons for why they're especially affected here.

Ryan Ermey: So I guess the million dollar question is if beyond picking up and moving, what are options for people who live in these states and may be experiencing some of these consequences coming down the line?

Jim Patterson: Well, there's not a whole lot you can do as a resident, as you say, unless you're willing to move and it's not like any part of the country is immune to the recession that is taking hold here now. I mean, this might be a matter of planning ahead and anticipating some of these negative consequences that might come as a result of living in a hard hit state. It might mean thinking about possibly facing higher taxes down the road, for instance. And of course there are things tax payers can do to shield some of their income from taxes, so that might be something to plan ahead for. If you're thinking about sending a kid to college in state, a number of years in the future, you might want to start rethinking how much it's going to cost to do that. Your tuition costs might be higher than you're expecting because the state might not be there with the same sort of funding that you were expecting it would have.

Jim Patterson: So I would say it's not really that you can do a whole lot right now, but I think there's a lot of things you can plan in the longer term for.

Ryan Ermey: Might it be fair, Jim, to say that it would behoove someone in this scenario to stay a step ahead?

Jim Patterson: We always urge our readers to stay at least a step ahead. Absolutely right.

Ryan Ermey: Well, what am I teeing you up for Jim? How can people find all the things that you are working on?

Jim Patterson: Well, I appreciate that intro, because we have a new e-newsletter called A Step Ahead and this was started specifically to help readers with practical information in light of the economic situation we're facing and also what's been going on with the stock market. It's a free daily e-newsletter that you can sign up for. It comes to your inbox once a day. It's really short, really concise, contains a lot of practical information, news you can use that might affect your finances, affect how you decide to invest right now. I edit it every day and if I do say so myself, it can be pretty handy.

Ryan Ermey: It's extremely handy. I'm sure I speak for Sandy. Both of us have been reading it intently, straight to our inboxes, absolutely wonderful stuff. Go to to sign up for that and to look at all of the wonderful content that Jim and his team at the Kiplinger Letter are putting out. Jim, thank you so much.

Jim Patterson: My pleasure. Thanks for having me guys.

Ryan Ermey: Coming up, it's deal or no deal, with everything from car insurance to streaming operas. Spoiler, they're all deals. We'll be right back.

Ryan Ermey: We are back. And before we go, we're back to our famed deal or no deal segment. But who's in the mood for a no deal right now? Sandy, we have all deals.

Sandy Block: Yes, these are, and that's good because people don't have a lot of money right now, right? So we are all looking for deals and in fact, in an upcoming issue, I think we're doing a whole cover story on deals. So watch out for that.

Sandy Block: But in the interim, there's a very interesting deal out there right now that you probably don't even have to do anything about, but just watch for it. And that is your car insurance. Now, Ryan, I don't think you have a car.

Ryan Ermey: I don't.

Sandy Block: But we have two, so this is a big deal for us. Nobody, I don't know if you've noticed how clean the air is right now. Have you noticed that? It's just remarkable clean.

Ryan Ermey: Yes.

Sandy Block: The visibility and that's because nobody's driving and when no one is driving, guess what? There aren't as many car crashes. So all of the major car insurers -- and I think there's a little bit of peer pressure involved -- but I shouldn't say all, but the majority of big car insurers are offering people either credits or rebates or some kind of discounts on their car insurance premium because their risk, your mileage has gone down. That means your risk has gone down.

Sandy Block: And this can take place in many forms. And we actually have a piece, a story on our website right now that will provide more details on exactly what some of the big insurance companies are offering. But typically it could be, in our case with the insurance company we have, when we renew our policy, which I think we do every six months, we're going to get a 15% reduction in our premium and that's going to save us about 150 bucks, which is no small thing.

Ryan Ermey: It's nothing to sneeze at.

Sandy Block: Other, no, and other insurance companies are actually giving people credits for premiums already paid. They are giving people monthly breaks on their premiums with the promise that they might reduce them. Again, if mileage stays low and nobody drives.

Sandy Block: So as I said, we've got a story on right now that has some more of the details, but if by some chance your car insurance company is not giving you a break, call them up because as I said, this is, and ask for one, because I think there's a lot of pressure now to do this.

Sandy Block: If they absolutely refuse, you don't want to cancel your policy outright, but you want to find a new one and sign up with them and then cancel your policy. You don't ever want to go without car insurance. That will cost you more.

Sandy Block: But this is something that most people don't have to do anything about except watch out for it, check their emails and their statements and see what's coming and there's a very good chance that you are going to get some reduction in the amount that you pay.

Ryan Ermey: And just to run through a couple of these quickly just because, when I listen to a podcast, I always want to know like, but what about me? What about my company Allstate and Liberty Mutual, granted 15% refunds on premiums for April and May. Geico announced a 15% refund, but only as customers' policies come up for renewal between April 8th and October 7th. State Farm said customers can expect to receive about a 25% credit on premiums paid from March 20th through May 31st. USAA will provide a 20% credit on two months of premiums, while Progressive and Farmers announced a 20% and 25% refund respectively for the month of April.

Ryan Ermey: And big thanks and shout out to our newest staff writer Emma Patch for reporting that information for us.

Ryan Ermey: So, and we wanted to wrap up here, Sandy, with just free stuff that companies are offering during the quarantine to make life a little bit easier, better, richer, what have you. You know, I've noted a couple.

Ryan Ermey: First of all, I mean, my roommates and I bought a new TV like the first weekend of the quarantine and hooked up every streaming option available. We used our passwords, parents, friends, we can watch anything we want, but there are a couple free ones which had been really fantastic. Kanopy (opens in new tab), with a K, is one that you get through your local public library. It has all kinds of amazing movies to stream. A lot of ones that you've never heard of. But the big deal is they have a lot of the Criterion collection, which are a lot of the kind of movies that smart people that know about film like. I shouldn't even say movies. They're films for us.

Sandy Block: Cinema.

Ryan Ermey: So lots of good . . .

Sandy Block: So no "Weekends at Bernie's" in this batch, right?

Ryan Ermey: I mean, there very well could be. But you know, that's not a bad one. You know, the reason I'm laughing so much is because the other one I wanted to recommend is called Pluto TV (opens in new tab) and it's free. And they have, I mean, channels of, I mean, there's all different kinds of stuff streaming, but they have dedicated channels that only run, like there's one that only runs "Cops" all day long. Like you can just watch "Cops." You can just watch "Ru Paul's Drag Race." Like, you know, there's things on there, like you can just watch old school game shows. They have all kinds of kind of obscure or program channels like that, and I discovered this weekend that they have a lot of the old James Bond movies.

Sandy Block: Oh, oh.

Ryan Ermey: So I caught some "Living Daylights," which I don't think I had seen since I rented it from Blockbuster when I, you know, that's what I used to get when I was home sick as a kid.

Sandy Block: You must not get the Spike channel, because it's on that all the time at our house. I'll tell you what. That and . . .

Ryan Ermey: Well, "Living Daylights" is pretty good. You know, Timothy Dalton is kind of a severe James Bond. I'm kind of into it.

Sandy Block: Well, in addition to, we've got a story in our upcoming issue by our, you know, Emma Patch has been working very hard this month, I must say, because she put this together, too. These are what also is going on right now -- a lot of online promotions. And the caveat here is some of these, you do have to give your credit card so you need to mark your calendar so that you discontinue it after the promotion runs out so you don't get charged.

Sandy Block: But that said, there's a lot of really interesting things and really useful for people who are stuck at home. One of the examples she gives is Yoga With Adriene (opens in new tab), which offers online yoga videos for gentle but invigorating at home practice. Each month has a different theme. That playlist of videos, this is free, really good to get you out from behind your desk. Peloton (opens in new tab), which everyone knows.

Ryan Ermey: Yes, indeed.

Sandy Block: Will give you the workout. They're doing a 90-day free access to its exercise app, which usually cost $13 a month and you don't need a Peloton bike to use it. You can use it on your regular old stationary bike or the one that you rigged up in the basement. And you can also use it with treadmill workouts and other equipment. And this is available for download on the usual places.

Sandy Block: And the last one I want to mention because I know, Ryan, that you are an opera lover and this one really cool.

Ryan Ermey: I sure am.

Sandy Block: Every evening you can get a different encore presentation from the Met live in HD series for streaming. It includes complete performances from the past 14 years starring the greatest performers at the Met. Each is available at 6:30 p.m. every day. I think Eastern time for 23 hours, and you can just watch the whole thing, play it in the background, have your own like little just you know, opera in your house.

Sandy Block: So these are just some examples of things but there's just a lot of opportunities now to sort of expand your mind when you can't leave the house.

Ryan Ermey: Yeah, I mean, we took a look at that the first week it was out and they were doing like the ring cycle or whatever they had.

Sandy Block: You're up all night.

Ryan Ermey: There was like "Siegfried" and I was like I can't do this. This is too much. So I'll have to check back in to see something that's a little bit easier.

Ryan Ermey:The other one that we've done a couple of times here is the Berliner Philharmonic is also streaming for free. And like you said with the opera, it's a nice thing just to have on, you know, have some Mahler on for a couple hours or get some culture for goodness sake.

Sandy Block: While you're eating or whatever. Yeah. Sure.

Ryan Ermey: So keep an eye out. We'll put Emma's story up in the show notes that we didn't even, I mean, there's so much stuff out there, so keep an eye out and let us know. By the way, write us at (opens in new tab). We've told you already that we're happy to answer any financial questions that you have, but also happy to take recommendations. If you guys have discovered some amazing free stuff that you think other listeners should know about, write into us. We'd love to hear about it and we'll share it with everyone on the show.

Ryan Ermey: That'll wrap it up for this episode of Your Money's Worth. For show notes and more great Kiplinger content on the topics we discussed on today's show, visit You can stay connected with us on Twitter (opens in new tab), Facebook (opens in new tab) or by emailing us at (opens in new tab). And if you liked the show, please remember to rate, review and subscribe to Your Money's Worth wherever you get your podcasts. Thanks for listening.

Ryan Ermey
Associate Editor, Kiplinger's Personal Finance
Ryan joined Kiplinger in the fall of 2013. He writes and fact-checks stories that appear in Kiplinger's Personal Finance magazine and on He previously interned for the CBS Evening News investigative team and worked as a copy editor and features columnist at the GW Hatchet. He holds a BA in English and creative writing from George Washington University.