Skip to headerSkip to main contentSkip to footer
Get our Free E-newslettersGet our Free E-newsletters
Kiplinger logoLink to homepage
Get our Free E-newslettersGet our Free E-newsletters
Subscribe to Kiplinger
Subscribe to Kiplinger
Save up to 76%
Subscribe
Subscribe to Kiplinger
  • Store
  • Home
  • Investing
  • Retirement
  • Taxes
  • Personal Finance
  • Your Business
  • Wealth Creation
  • More
    • Podcasts
    • Economic Outlooks
    • Tools
  • My Kiplinger
    • Kiplinger's Personal Finance Magazine
    • The Kiplinger Letter
    • The Kiplinger Tax Letter
    • Kiplinger's Investing for Income
    • Kiplinger's Retirement Report
    • Store
    • Manage My E-Newsletters
    • My Subscriptions
  • Home
  • investing
  • economy
  • recession
recession

5 Retirement Lessons Learned From the Great Recession

The Great Recession of 2007-09 turned retirement dreams into nightmares.

by: Eleanor Laise
April 17, 2020

Getty Images

The Great Recession of 2007-09 turned retirement dreams into nightmares. Stocks plunged as the government took over Fannie Mae and Freddie Mac, Lehman Brothers went bankrupt, and the Reserve Primary Fund suffered losses, shattering investor confidence in safe-haven money-market funds. For many, it was the most hair-raising moment in a crisis that ultimately wiped out $3.4 trillion in retirement savings.

The pain didn’t stop with the market slide. The financial crisis also meant plummeting home values, stagnating wages, a loss of job security and the start of a long era of rock-bottom interest rates that proved devastating for savers.

Many retirees and near-retirees felt the effects of the financial crisis for many years to come. Fifty percent of working-age households were at risk of being unable to maintain their standard of living in retirement in 2016, up from 44% in 2007, according to the Center for Retirement Research at Boston College.

For the older workers and retirees who survived it, the crash is much more than a historical event. It’s a reminder of all their retirement-planning strengths and weaknesses. We talked to preretirees and retirees in 2018 about the lessons they learned from the Great Recession. Today, we're sharing them again to help you navigate current and future market turmoil.

  • 16 Retirement Mistakes You Will Regret Forever

1 of 5

Lesson 1: Don't Time the Market

Standard & Poor's 500-stock index plunged 37% in 2008, but investors who hung on for the long haul enjoyed nearly a decade of solid gains. Source: Yahoo Finance

The long-term impact on retirement portfolios depended in part on investors’ reactions to the crash. In 2018, when he talked with Kiplinger's Retirement Report, Jeffrey Smith was still living with the consequences of his portfolio moves a decade earlier. During the financial crisis, Smith’s IRA dropped 75%, as individual stock holdings, such as the troubled insurer American International Group, got crushed.

Even more devastating, Smith missed the market rebound that began in March 2009. He tried various trading strategies to recover his losses, but nothing worked. Then in 2012, he shifted into cash—where he stayed until 2017. “I lost confidence in my broker and lost confidence in myself,” Smith recalled to us. “So there was no recovery.”

That moved the goalposts for his retirement. “After the crash, it was apparent to me I could not retire at 60, which had been my goal,” said Smith, who also conceded he and his wife “are not going to be able to live in a big house and travel the world.”

 

  • 10 Facts You Must Know About Recessions

2 of 5

Lesson 2: Turn Chaos Into Opportunity

Getty Images

Paul Franceus saw the financial crisis as the best thing that ever happened to him financially. But it didn’t start out well at all. In October 2007, he invested the $150,000 proceeds from the sale of his Baltimore home—right at the stock market’s peak. That money “went through the whole bloodbath,” Franceus told us. But he kept his cool. “I figured it would come back at some point,” he said. “I ignored the news and ignored the 60 Minutes stories of people crying about losing their retirement and kept putting money into my investments the whole time.”

  • The steady-eddie approach allowed Franceus to pick up stocks at bargain prices near the market’s lows, putting the software engineer from San Francisco on track to retire early, and squelching his fear of market crashes. “I feel like I have enough now that I can afford the volatility,” he said.

 

  • 5 Ways Retirees Can Play Defense With Retirement Portfolios

3 of 5

Lesson 3: Build a Strong Defense

Getty Images

Bill Ahlstrom, who retired from his accounting career in 2015, favored defensive, dividend-paying stocks such as food and pharmaceutical companies. Those types of holdings served him well during the financial crisis, when his portfolio lost only about 25%, while Standard & Poor’s 500-stock index dropped 57% from its 2007 peak to its 2009 low.

“You can’t wait until you retire to get defensive” with your investments, Ahlstrom told us. “You have to do it in advance.”

Ahlstrom has remained “a little nervous” about market crashes, but told us his investment income is sufficient to cover his living expenses. “As long as I can live off the dividends,” he said, “market fluctuations don’t affect me.”

 

  • 10 Moves to Make Sure You Have Enough Money in Retirement

4 of 5

Lesson 4: In a Crisis, Cash Is King

Getty Images

G.W. Potter retired in 1995, with a strategy of keeping 18 to 24 months’ worth of spending money in the bank. That became a portfolio-saver during the market downturn, because he didn’t need to sell any of his beaten-down investments to cover his living expenses. Instead, he pulled money from his cash hoard to pay the bills.

“My mantra is simple,” Potter, a former chemistry teacher in Georgia, told us. “Avoid at all costs selling low.”

 

  • 10 Ways the SECURE Act Will Impact Your Retirement Savings

5 of 5

Lesson 5: Create Checks and Balances

Getty Images

When Smith, the telecom worker who lost most of his IRA in the crash, finally reinvested -- in “very aggressive stocks,” he said -- he asked his wife to help keep watch over the portfolio. He gave her full access to the IRA account, he told us, with instructions to “sell it instantly” if she saw a stock she didn't like.

 

  • Taxes in Retirement: How All 50 States Tax Retirees
  • retirement planning
  • recession
  • IRAs
  • retirement
  • wealth management
Share via EmailShare on FacebookShare on TwitterShare on LinkedIn

Recommended

Claim These "Above-the-Line" Deductions on Your Tax Return (Even If You Don't Itemize)
Tax Breaks

Claim These "Above-the-Line" Deductions on Your Tax Return (Even If You Don't Itemize)

If, like most people, you claim the standard deduction instead of itemized deductions on your return, there are still many other tax deductions availa…
March 5, 2021
The Cost of Retirement Has Tripled! But a New Way of Planning Can Help
retirement planning

The Cost of Retirement Has Tripled! But a New Way of Planning Can Help

With today’s low interest rates and paltry dividends, the old way of saving for your retirement and living off your dividends and income to preserve y…
March 5, 2021
The Basics of Required Minimum Distributions: 12 Things You Must Know About RMDs
Financial Planning

The Basics of Required Minimum Distributions: 12 Things You Must Know About RMDs

Retirement savers who are 72 must start withdrawing funds from tax-advantaged retirement accounts. Here’s what you need to know about required minimum…
March 4, 2021
A COVID Storm Hits Senior Living
Coronavirus and Your Money

A COVID Storm Hits Senior Living

The pandemic has created significant challenges for all types of senior living communities. Because of that, it's more important than ever to review a…
March 3, 2021

Most Popular

Senate Passes $3,000 Child Tax Credit for 2021
Coronavirus and Your Money

Senate Passes $3,000 Child Tax Credit for 2021

The provision would temporarily increase the child tax credit to $3,000 or $3,600 per child for most families and have 50% of it paid in advance by th…
March 6, 2021
Senate Passes Bill with More "Targeted" Stimulus Payments
Coronavirus and Your Money

Senate Passes Bill with More "Targeted" Stimulus Payments

The Senate finally passes the $1.9 trillion COVID-relief bill. But fewer people will get a third stimulus check under the Senate version than under th…
March 6, 2021
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
  • Customer Service
  • About Us
  • Advertise With Us (PDF)
  • Privacy Policy
  • Cookie Policy
  • Kiplinger Careers
  • Accessibility
  • Privacy Preferences

Subscribe to Kiplinger's Personal Finance

Be a smarter, better informed investor.
Save up to 76%Subscribe to Kiplinger's Personal Finance
Dennis Publishing Ltd logoLink to Dennis Publishing Ltd website
Do Not Sell My Information

The Kiplinger Washington Editors, Inc., is part of the Dennis Publishing Ltd. Group.
All Contents © 2021, The Kiplinger Washington Editors

Follow us on InstagramFollow us on FacebookFollow us on TwitterConnect on LinkedInConnect on YouTube