Retirement Planning For A Recession
A Note From Patricia:
Hello and welcome to Forbes Advisor’s Weekly Brief, where each week we dive into the realities of consumer finance and empower you with knowledge to help make your financial journey easier.
In last week’s newsletter, we discussed how slowed consumer spending may precede an economic downturn.
Some folks may buckle down on contributing to their emergency fund or paying down high-interest debt. But there’s one high-stakes part of your finances that’s often shaken during an economic downturn: investing for retirement.
In this week’s brief, we discuss the importance of staying the course with your retirement savings during a recession and how you can still make the most of your golden years despite an economic slowdown.
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Sincerely,
Patricia Louis
Editor, Forbes Advisor
Retirement Planning For A Recession
Can a recession completely ruin your financial plan for retirement? While recessions make people nervous, they’re an inevitable part of your financial journey. Most people of retirement age now have endured six recessions throughout their professional careers.
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But despite the volatility a recession brings, it’s possible to stay the course with your long-term retirement plans—or adjust your current plan, if you’re nearing retirement—to mitigate as much risk as possible in your portfolio.
To buff up your savings before a recession comes, you might be considering decreasing your retirement contributions or cashing some out to conserve cash. But stalling that momentum may be a costly mistake.
According to investment firm Morgan Stanley, an investor who stuck with their investments throughout the recessions from 1980 to the end of March 2024 would still have come out with a 12% annual return. Meanwhile, someone who began investing at the same time period and sold after every downturn, reentering the market after the next two years of positive returns, would have averaged a 10% annual return.
Additionally, cutting off your deposits into your retirement accounts could force you to miss out on your employer’s contribution match, which can impact your growth rate and target retirement date.
Here’s how to handle your retirement savings during a downturn:
For more information on how to prepare and what to do during a recession when it comes to retirement, read more here.
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