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.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
Looking for expert tips to grow and preserve your wealth? Sign up for Building Wealth, our free, twice-weekly newsletter.
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.
Related Content
- Retired and Worried About a Recession? Six Ways to Prepare
- You're Close to Retirement and Cashed Out: How Do You Get Back In?
- Four Times DIY Investors Should Talk to a Financial Adviser
- Within Five Years of Retirement? Five Things to Do Now
- How Much Money Is Enough to Be Happy? Can You Have Too Much?
-
How to Break Free From the 'One More Year' Trap and Actually RetireDespite having more than enough money to retire, some people simply cannot leave their jobs.
-
Stocks Swing Lower as Eli Lilly, Fortinet Spiral: Stock Market TodayThe main indexes finished well off their session highs after a disappointing batch of corporate earnings reports.
-
How to Break Free From the 'One More Year' Trap and Actually Retire
Despite having more than enough money to retire, some people simply cannot leave their jobs.
-
Stocks Swing Lower as Eli Lilly, Fortinet Spiral: Stock Market Today
The main indexes finished well off their session highs after a disappointing batch of corporate earnings reports.
-
Are You Leaving Money on the Table? Four Strategies to Free Up Stuck InvestmentsFrom forgotten 401(k)s to outdated asset allocations, here’s how stuck money can hurt your retirement.
-
COVID Aged Your Brain Faster, Even if You Didn't Get SickWhether you contracted COVID or not, your brain took a hit. Here's what that means for your health and what you can do about it.
-
A Taxable Brokerage Account May Be What Your Retirement Is MissingYou can supplement your retirement nest egg or save for other goals with a taxable brokerage account.
-
What Tariffs Mean for Your Sector ExposureNew, higher and changing tariffs will ripple through the economy and into share prices for many quarters to come.
-
Five Things to Do if You're Forced Into Early Retirement (and How to Reset and Recover)Developing a solid retirement plan — before a layoff — can help you to adapt to unexpected changes in your timeline. Once the initial panic eases, you can confidently reimagine what's next.
-
Five Ways to Adapt Your Charitable Giving Strategy in a Changing World: An Expert GuideEconomic uncertainty, global events and increasing wealth are shaping the charitable landscape this year. Here are the philanthropic trends and some tips that could help affluent donors optimize their impact.
