While the economy was booming just a few short months ago, the U.S. has now entered a recession. And there's ample reason to fear the economy will get worse before it gets better, as coronavirus cases spike nationwide, threats of other contagious diseases loom, and some states abandon reopening plans or even reclose some businesses that had just started operating.
With the country facing financial difficulties and arguably in full-blown economic crisis mode, it's important to consider the effect this could have on your financial situation. In particular, data from the last economic meltdown shows that your retirement could be affected.
How does economic trouble affect retirement plans?
Although the 2008 Great Recession had very different causes than the 2020 coronavirus-driven economic downturn, any slowdown in the economy can have a profound effect on those close to retirement or who are already retired.
In fact, research from the Society of Actuaries revealed that around a third of current retirees indicate the 2008 crisis affected when they were able to retire, what they could spend in retirement, or both. In fact:
- 22% said they felt less financially secure about retiring
- 11% said they had to spend less in their later years
- 4% said they had to postpone their retirement date
Of those who cut back on spending, a majority did so by making three primary life changes: They traveled less often; they didn't eat out as often; and they made fewer purchases. A full 79% of retirees who took action to decrease their spending simply reduced their purchases, while 66% reduced travel expenses and 61% cut down on dining out. And 16% of retirees made an even more drastic choice in response to spending cuts necessitated by the crisis, opting to move to less expensive housing.
While these types of life changes are ones you can make if you have to, it's not ideal to be forced by a financial crisis into a situation where you can't fully enjoy your retirement years after you've worked hard all your life.
You can take steps to make sure you still have a secure retirement
While a financial crisis can derail your retirement, it doesn't have to have that effect. The key is to anticipate that economic downturns will happen during your working life and to be prepared for them.
That means taking steps such as investing more during the good times in case you have to pause or slow retirement account contributions during periods of unemployment. It also means building a diverse portfolio of investments you'll be content to hold for the long term, and making sure you have an emergency fund so you don't need to raid your investment accounts when things get tough.
While taking these steps may be challenging, downturns are inevitable, so it's worth doing to ensure they don't derail your plans for your later years. You'll be glad you made the effort when you're able to retire on your own schedule and aren't forced to give up your dreams because of bad economic news.