If you are retired and worried about a recession, join the crowd. For current retirees or those planning retirement soon, just the whiff of a possible recession is alarming. The American economy has been remarkably strong, but confidence in the economy is plunging in the face of multiple economic and political challenges.
Economists have been flirting with the idea of a recession ever since the Federal Reserve began raising interest rates in early 2022 in response to soaring inflation. Despite 11 interest rate hikes between March 2022 and July 2023, consumer spending held steady. It wasn't until January of 2025 that spending fell by 0.2%, marking the first monthly decline since March 2023.
But while consumers may have been equipped to withstand a years-long period of elevated inflation and interest rates, the question is whether recently enacted tariff policies will push them over the edge. If tariffs drive prices up even more, it could lead to a broad consumer pullback and more inflationary pressure. Plus, tariffs could burden U.S. companies to the point where they have to make payroll cuts. That could lead to an uptick in unemployment and fuel a broad economic downturn.
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Retired and worried about a recession
An early April Ipsos poll found that 61% of Americans think the economy is headed for a recession within the next year. And JPMorgan recently upgraded the likelihood of a global recession to 60% by year-end, up from 40%.
If you’re retired, recent economic news and events may have you understandably worried. Although you may not have to concern yourself with job loss the way working Americans do, you may be fearful that a prolonged economic slump will wreak havoc on your portfolio and upend your finances. But if you prepare accordingly, you can set yourself up to get through a recession relatively unharmed.
Here are some steps every retiree can take to prepare for a recession.
1. Boost your cash reserves before a recession
Portfolio values can decline dramatically during a recession. That’s problematic when you’re at a stage of life when you’re tapping your portfolio regularly for income.
To avoid locking in portfolio losses during a recession, boost your cash reserves so you can leave your non-cash assets alone to ride out the storm. Generally, it’s wise to have enough cash to cover a year or two of bills. You may want to veer toward the higher end of that range in case your portfolio plunges and it takes months for its value to come back up.
2. Assess your portfolio
Risk assessment is an integral part of managing a retirement portfolio, so it’s something you should be doing regularly. But it’s particularly important to check up on your asset allocation now, when recession fears loom. It's also wise to be deliberate and stay calm. Try to take emotion and worry out of your decision-making.
If you’re uncomfortable with the share of your portfolio in equities, consider shifting some of those assets into bonds. Given recent market events, now may not be the best time to sell stocks. But the S&P 500 enjoyed gangbuster returns in 2024. If you cashed in some gains earlier on in the year, losses you take now as part of a rebalance could help offset an associated tax bill.
If you are just about to retire or at the start of retirement, tread cautiously. The sequence of returns risk could put a serious dent in your retirement nest egg if you decide to sell too many equities.
3. Revisit your spending and withdrawal rate
When you’ve worked hard your entire life, you deserve to enjoy retirement – not penny-pinch your way through it. But if you’re worried about a recession and its impact on your retirement income, now’s the time to review your spending, see if there’s room to cut back and commit to a budget.
And if you’re not keen on reducing your spending, one thing you can do is pledge not to take on any new expenses until things settle down. For example, If you were considering upgrading a car, you may want to hold off on that as long as your current vehicle is drivable.
Finally, if you are following the 4% rule rate of retirement withdrawal, you may want to pare back to a lower withdrawal rate. Before you act, talk to your financial adviser.
4. Consider part-time work
Retirees often struggle to make peace with the idea of living off of savings. If you’re particularly worried about doing so given the potential for a recession, and you’re capable of working in some capacity, then there’s no reason not to do it. There's even a term for this trend: "unretiring."
Today’s gig economy offers ample opportunity to earn money without having to resort to a traditional desk or retail job. And if you’re worried about the impact of a job on your Social Security benefit, rest assured that you’re allowed to work while receiving benefits.
If you’ve reached full retirement age, you can earn any amount of money from a job without negatively impacting your monthly benefits. If you filed early, you must be mindful of Social Security’s earning test limits.
5. Explore options for tapping home equity
In 2022, median home equity among homeowners ages 65 and over was $250,000, according to Harvard University's Joint Center for Housing Studies. If recession fears are worrying you, see how much equity you have in your home and shop around for borrowing options in case you wind up needing to tap it.
Granted, any home equity loan or HELOC you sign today is likely to come with an interest rate that’s higher than what you want to pay. But it could make sense to have that option in your back pocket in case you need to exercise it.
6. Find the silver lining in recession
It may be hard to believe that a recession can bring opportunity to retirees, but for those who are well-positioned, a recession can bolster financial security. For example, there are multiple ways your estate can benefit when markets are down. You could plan a Roth conversion from a traditional 401(k) or IRA. By doing so, you could convert your investments with a lower tax cost that would benefit from tax-free growth when the market recovers.
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