Seniors: How will a recession affect your retirement?


For months now, many experts have been warning that a recession will hit in 2023. While it’s impossible to know for sure when or if a recession will happen, it’s a tough time for retired seniors.

The market downturn of the past year can already hurt your savings, and even with Social Security’s large cost-of-living adjustment for 2023, inflation is making it harder for seniors to make ends meet.

If we face a recession later this year, how will that affect your retirement? And if you haven’t retired yet, is it really the right time to do so? Here’s what you need to know.

Person with a serious expression is looking out of a window.

Image source: Getty Images.

Is your retirement secure right now?

Market downturns and recessions are never easy to stomach, but they can be especially difficult for retirees. When you’re relying on your savings to pay the bills and those savings suddenly take a hit, it can be nerve-wracking. If a recession is on the horizon, the stock market may fall further.

One of the most important things to know about a recession or market downturn is that when stock prices fall, it’s wise to avoid withdrawing as much money as possible.

When prices fall, your investment loses value. While this is normal, it means that if you withdraw your money during a downturn, you may be selling your investments for less than you paid for them — and locking in a loss.

If you are already retired, you have no choice but to withdraw at least some money to cover your expenses. But if you’re thinking of making a big purchase, it might be smart to hold off until the market starts to recover.

If possible, it may also be a good idea to rely more heavily on other sources of income (such as Social Security) to keep most of your savings untouched. By leaving your money in the market until the stock price bounces, you can avoid those losses.

Should you postpone retirement?

For those who have not yet retired (or are considering returning to work), your strategy may be slightly different.

Whether now is the right time to retire will depend on your financial situation. If you have a strong retirement fund, you don’t have to worry too much about recessions damaging your investments. Similarly, if you receive other sources of income, such as Social Security or a pension, it may be easier to reduce your retirement fund withdrawals.

On the other hand, if your savings are low, a recession could make it harder for your money to survive in retirement. In this case, it may be worth considering delaying retirement by a year or two until the market picks up again.

A simple step to help protect your money

Whether you’re already retired or planning to retire soon, one way to make sure your savings are as protected as possible is to double-check your asset allocation — which is basically how your investments are divided among your portfolio.

When you’re young and have decades to prepare for retirement, your portfolio will typically have a high percentage of stocks. If your investments suffer in the short term, you have plenty of time to recover them before you need that money.

As you get older, your portfolio should gradually become more conservative, weighting more toward bonds and less toward stocks. While you’ll typically see smaller returns with a conservative portfolio, bonds are also less affected by market volatility — which can better protect your savings during market downturns or downturns.

Since stock prices have already fallen significantly, now may not be the best time to swap your stocks for bonds if you find that your asset allocation is too risky for your age. But once the market recovers, it may be wise to look at adjusting your portfolio to prepare for the next inevitable downturn.

No one knows for sure if a recession will happen in 2023, but it doesn’t hurt to start preparing now. By understanding how a recession could potentially affect your retirement, it will be easier to protect your savings.


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