Recession and Retirement

No doubt there’s been a lot of talks recently about a recession[i]. Given the uptick in chatter, we thought it would be a good time to share a game plan for recession-proofing assets based on age.

Some of this information may not feel applicable to you, but it may strike a chord with someone you know. Feel free to share this with others in your network who may benefit. In addition, we know recession talk can be unsettling, so please reach out if you have questions or would like to discuss specifics related to your family, your needs, and your future.

Recession-Proofing Your Retirement Savings Based on Age

In your 20s and 30s

Good news! Time is on your side. And the advice if you’re in your 20s and 30s largely stays the same, recession or no recession: 

• Build an emergency fund of three to six months of living expenses.
• Strengthen your resume by broadening your skillset and marketability.
• Stay the course of investing in stocks since you have the benefit of time.

Also, be sure to live within your means and pay off high-interest debt as soon as possible — and be determined not to take on more debt when the latest and greatest fads, phones, and gadgets cross your path. This way of saving may help prepare you for a future family or move that requires more of your money than what you normally spend now.

In your 40s and 50s

You should be entering your prime earning years around now. That said, it’s time to play defense. First up? Comprehensive insurance coverage. Revisit your coverage to ensure you are adequately protected. Gaps in coverage could be devastating for your financial future and personal well-being but this is something we are well-versed in so please reach out if you want to discuss insurance options.

Also, remember that at 50, you can make additional contributions to your retirement accounts. With the anticipated catch-up contribution limit[ii] increasing from $6,500 to $7,500 in 2023, you can contribute up to $30,000 to a 401(k) plan or workplace retirement plan. You can also put away up to $7,500 in an IRA ($6,500 plus an extra $1,000 catch-up contribution).

In your 60s and beyond

The time has come to try on your retirement game plan and adjust as needed. If the numbers work when markets are down, the upside is that you should be in great shape when they improve. If the numbers aren’t adding up, you may consider picking up a part-time job[iii], maybe in an industry or field you’ve always dreamed of giving a try. While you may have been ready to give up the workweek grind, you may miss being part of a team or the structure in your weekly routine that also had a paycheck attached. If so, now is the time to pursue that interest sitting on the shelf just waiting to be dusted off.

We often recommend clients at this stage of life continue to invest conservatively by increasing bonds and cash for security. It’s also good to diversify your accounts. Ideally, you’ll have a mix of tax-deferred, tax-free (traditional and Roth IRAs and 401(k) plans or workplace accounts), and taxable accounts. This is something we work with clients on consistently.

Lastly, consider delaying Social Security benefits[iv]. Every year you wait, you’ll receive an 8% raise in benefits plus the annual cost-of-living adjustment[v]. This bump comes in handy should the recession stick around for longer than anticipated.

Additionally, do keep in mind that if you made less money early in your career and are making good money now, you can increase your eventual Social Security allotment by continuing to work for a few more years after you reach 35 years of employment. As a reminder, your Social Security allotment is based[vi] on the 35 years in which you earned the most (adjusted for inflation). So, after 35 years of work, each year you continue to work at a high salary nullifies a year spent at a lower salary.

We hope this information proves helpful. Know that no matter what the future holds, Emerald is here to help every step of the way.

[i] Ventresca, R. (2022, October 6). Fortune.com. 7 of the world’s top economic minds think a global recession is coming. Some say it’s already here. [Online] Available at: 7 top economic minds think a global recession is coming soon | Fortune

[ii] Kissell, C. (2022, August 12). Moneytalksnews.com. Record Rise in 401(k) Contribution Limits May be on the Way. [Online] Available at: Record Rise in 401(k) Contribution Limits May Be on the Way (moneytalksnews.com)

[iii] Valdes, A. (2022, May 9). Moneytalksnews.com. 20 Great Part-Time Jobs for Retirees. [Online] Available at: 20 Great Part-Time Jobs for Retirees (moneytalksnews.com)

[iv] Wohlner, R. (2021, October 26). Investopedia.com. Tips on Delaying Social Security Benefits. [Online] Available at: Tips on Delaying Social Security Benefits (investopedia.com)

[v] Jennewine, T. (2022, October 7). Fool.com. 2023 Will Bring a Monster Social Security COLA. Here’s How Much Your Benefits Check Could Rise. [Online] Available at: 2023 Will Bring a Monster Social Security COLA. Here’s How Much Your Benefits Check Could Rise. | The Motley Fool

[vi] SSA.gov. Your Retirement Benefit: How It’s Figured. [Online] Available at: Your Retirement Benefit: How It’s figured (ssa.gov)