Is a recession in the cards for 2023? Last year, many economic experts were convinced that conditions would deteriorate at some point this year. But as of now, consumer spending seems to be holding up and unemployment remains low. Throw in the Federal Reserve's recent rate hike pause, and it's questionable as to whether a recession will actually hit before 2023 comes to a close.
That said, it's a good idea to gear up for a near-term recession, just in case. And recent data from Nationwide reveals that pre-retirees are making one important move to do just that.
Image source: Getty Images.
Boost your savings so you can leave your portfolio alone
Economic recessions and stock market downturns don't always go hand in hand -- but they can. And so it's important to recognize that a recession could drive the value of your portfolio downward.
That's only a problem, though, if you actually need to liquidate assets at a loss to address a need for money. If you have other funds you can tap in a pinch, you'll have the option to leave your investments alone and ride things out in a recession, thereby avoiding permanent losses.
Nationwide reports that a good 42% of pre-retirees have taken steps to ensure that they have enough liquidity to cover at least two years of living expenses in the event of a recession. And you may want to do the same in case our next downturn ends up dragging on.
The good news is that high-yield savings accounts are paying pretty decently these days. So while you might lose out on some growth by keeping two years' worth of living costs in cash, you'll at least earn something -- and at risk-free return at that. Plus, you'll buy yourself the option to leave your portfolio alone in the event of a downturn, and that alone is huge.
Protect yourself accordingly
A recession may not happen in 2023. But at some point, an economic slowdown is bound to occur. You don't necessarily need to sock away two years' worth of living expenses in savings if you're decades away from retirement. If you're in your 30s or 40s, for example, you can generally get away with keeping enough cash in savings to cover six to 12 months of essential bills.
But if retirement is nearing, it's a smart bet to set aside enough cash to buy yourself a couple of years of leaving your portfolio untouched. You wouldn't want to have to lock in, say, a $10,000 loss two months ahead of retirement because you had no choice but to liquidate a stock position at a bad time.
In fact, not only should you have about two years' worth of cash in the bank to be recession-ready as a near-retiree, but you should also plan to keep that much cash in savings once your retirement actually begins. That gives you more flexibility with your portfolio once you're at the stage of tapping your 401(k) or IRA regularly. And that's something you definitely want.
