Four Things Retirees Should Never Do in a Recession

An older woman looks very stern with a "don't do it" expression.

(Image credit: Getty Images)

Fortunately, in the past couple of months, as President Trump has gone back and forth on tariffs, major banks have brought down their odds of a recession. Though, if we learned anything in 2023, it’s that no one can predict a recession.

So, consider this a list of things retirees shouldn’t do in any recession, not just the one that may or may not be coming this year.

1. Do not keep less cash than usual

Bob and Sue just retired. They started working with us about a year prior to retirement. On the day they retired, they had a year’s worth of expenses in cash, plus 24 months of one-time expenses.

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The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

They have a $20,000 home improvement planned upon Bob’s retirement and a $25,000-per-year travel budget. Their monthly expenses are $10,000.

Their cash target is $165,000. It may seem like a lot, but it allows them to maintain their lifestyle and hopefully wait out a market dip early in retirement.

When the economy experiences a downturn, the Fed often cuts interest rates to spur investment. The downside to this is that the cash-like investments Bob and Sue are using to hold the $165,000 are not paying what they were last month.

That’s OK. If you are in a situation like Bob and Sue, the sleep you’ll lose is likely not worth the money you may or may not make moving the money around.

2. Do not abandon your investment strategy

As Bob and Sue got within a few years of retirement, they changed their investment strategy as part of their long-term financial plan. For retirees, we prefer a dynamic asset allocation that systematically increases or decreases exposure, based on market movements.

So, as markets moved down earlier this year, we slightly reduced our stock exposure.

The worst thing Bob or Sue could do is to override this or any disciplined system that’s in place. Not because they’re wrong. They could perfectly call the top. Unlikely, but possible. To perfectly call the top and the bottom, impossible.

Every retiree has a rate a return that’s necessary to maintain their lifestyle in retirement. Along with that, they have a risk tolerance, which dictates how much downside they’re willing to stomach before they pull the seat-eject.

Your portfolio should reflect these two things and should not swing dramatically based on prognostications about what the market will do this year.

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Financial planning software can also tell you whether you’re still going to be OK, even if the markets are down and you’ve lost a lot of money. If you’re interested you could try a free version of the planning software we use.

3. Do not attempt to buy the dip

We have not had a prolonged recession since 2008. That’s one reason buying the dip has worked so well over the last 15 years.

Fortunately for me, this strategy appeals more to Bob and Sue’s kids than it does to them. It makes my job easier, because Bob and Sue aren’t investing with a short-term, bargain-hunting frame of mind.

The challenge for those looking to buy the dip is determining what constitutes a dip. If you buy when the market drops 10%, you still bought at a relative high if it falls an additional 20%.

Lastly, markets often move six to12 months in advance of the economy. So, by the time you find out you’re in a recession, the dip is probably over.

4. Finally, do not skip the trip

This one may come as a surprise, but I’m not going to call Bob and Sue and tell them to skip their big trip to Italy because the market is down. This is one of the reasons we advise keeping two years of one-time expenses on the sidelines.

One of the benefits of having a retired client base is the wisdom they share with me and other clients. If you speak to those who have lost mobility as they’ve gotten older, their biggest regrets are often what they didn’t do or didn’t see.

Skipping the trip in a bad economy is a badge of honor only if you couldn’t afford it in the first place.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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After graduating from the University of Delaware and Georgetown University, I pursued a career in financial planning. At age 26, I earned my CERTIFIED FINANCIAL PLANNER™ certification. I also hold the IRS Enrolled Agent license, which allows for a unique approach to planning that can be beneficial to retirees and those selling their businesses, who are eager to minimize lifetime taxes and maximize income.