For weeks now, financial experts have been sounding warnings about an incoming recession. Now to be clear, this doesn't mean doomsday is upon us, or that the economy is about to tank overnight. But there is reason to believe we may have to endure a period of less ideal economic conditions at some point in the not-so-distant future.
Right now, inflation is soaring. To combat that, the Federal Reserve is implementing a series of interest rate hikes that's apt to make it increasingly more expensive for consumers to borrow. Once that happens, spending is likely to decline. And when spending declines, so does revenue for businesses, which can set the stage for layoffs.
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Now if you're nearing retirement and are planning to leave the workforce soon, you may not have to worry about losing a job you're planning to leave anyway. But you should also know that during a recession, stock values could plunge. And if you're planning to cash out investments to cover your living costs, a downturn could prove problematic.
The good news, though, is that there are steps you can take to gear up for a recession while moving forward with your retirement plans. Here are a few to consider sooner rather than later.
1. Shore up your emergency fund
Do you have enough cash to cover one to two years of living costs in a savings account, or in your retirement plan? If not, now's the time to start hoarding more of it. That way, if economic conditions sour and the value of your portfolio declines, you'll have cash at the ready to pay your bills.
2. Check up on your asset allocation
Are you invested as aggressively now as you were during your 30s and 40s? If so, you may want to rethink that strategy.
Once you enter retirement, you'll generally want to move over to safer investments, like bonds, and limit the extent to which you're loaded up on stocks. That especially holds true if you think a recession is coming. This doesn't mean you have to run out and dump your stocks. But it's not a bad idea to shift some assets over to bonds if stocks currently comprise the bulk of your portfolio.
3. Sell your home now if you're looking to downsize
Home prices are up right now on a national level. But during a recession, buyer demand could wane, and once that happens, property values could start to decline.
If you're planning to downsize your home as you kick off retirement, you may want to get moving on a sale. Find a real estate agent who can market your home strategically and snag you the highest price you can get. If you end up spending much less on your next home, you can take your cash proceeds from the sale of your home and treat that money as part or all of your emergency fund.
Stay calm and plan accordingly
We don't know when exactly a recession will strike and how bad the damage will be if a downturn does transpire. Remember, some recessions are fairly short-lived, so there's no need to panic about a years-long period of economic decline.
At the same time, though, it's good to prepare for the possibility of a recession, especially if retirement is on the horizon. And if you take these steps now, you'll be more likely to land in a position where you can still retire comfortably, even if economic conditions sour.
