At this point, the U.S. economy seems to be in a pretty stable place. Unemployment is historically low, and the number of new jobs added in December blew past economists' expectations.
Still, as of late last year, financial experts were continuing to caution that the economy could backslide in 2024. The reality is that sometimes, economic conditions can deteriorate without warning, so it's always good to be prepared for a recession, just in case.
If you're planning to retire in 2024, you may be worried that a near-term economic downturn will ruin your plans. But you're not necessarily doomed to have to keep working, even if a recession does strike this year.
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Why a recession could be problematic for new retirees
When we think about recessions, the big fear that tends to come to mind is losing a job. If you're planning to retire in 2024, that may not be a point of concern since, conceivably, you're no longer aiming to work -- or at least not on a full-time basis.
However, your fear might stem from the possibility that a major stock market downturn may come in conjunction with a recession. That's understandable.
To be clear, recessions and stock market declines don't always go hand in hand. But if the economy is generally unstable, it could trickle down to the stock market. And you may be worried about closing out your career at a time when your portfolio might take a large hit.
Let's say you're planning to start tapping your 401(k) or IRA as soon as you retire. If the value of your assets shrinks just at that time, you're looking at locking in losses. That could lead to an income shortfall later in life. And it's certainly not an optimal way to start retirement.
You may be OK to move forward if your assets are allocated appropriately
If you're on the cusp of retirement and have 99% of your assets in stocks, then a recession and subsequent stock market downturn could wreak havoc on your plans. But ideally, you won't have the overwhelming majority of your portfolio in stocks this close to retirement because it's not a good idea to be concentrated in one area. And if you have a decent percentage of your portfolio in more stable assets, like bonds, then a recession may not get in the way of your plans.
Similarly, it's generally a good idea to keep some money in cash leading up to retirement -- ideally, enough to cover one to two years of living costs in full. If you have enough money in cash to pay your expenses for 12 months or longer, then you may not need to postpone retirement just because a recession hits. In that scenario, you may perfectly equipped to leave the stock portion of your portfolio untouched until the economy and market settle down.
Also, you may have enough outside income sources that you don't have to touch your nest egg or savings at all. For example, you may have the option to claim Social Security as soon as you retire. You can sign up for benefits beginning at age 62, though you'll need to wait longer to be able to collect the full monthly benefit you're entitled to, based on your personal wage history.
If you were a moderate or higher earner, though, you may be in line for a decent monthly Social Security check. That, combined with a bit of part-time work, could enable you to retire without needing to withdraw from your 401(k), IRA, or bank account during your first year or so of retirement. As a result, a recession would be less likely to impact your workforce exit.
All told, a recession has the potential to mess with your retirement plans. But it definitely doesn't have to.
If you're worried about a 2024 recession because you're hoping to end your career this year, see how much cash you have on hand and consider shifting some assets around to give yourself that 12- to 24-month safety net. Also check on your investments to make sure you're not overly loaded up on stocks. That's a dangerous thing for a near-retiree, whether a recession is imminent or not.
