- During a recession, unemployment numbers can rise.
- While retirees may not have to worry about job loss, they should make sure they're set up to weather a storm.
A recession could hit seniors, too.
For months now, many financial experts have been sounding recession warnings. And recent actions on the part of the Federal Reserve have some experts even more concerned.
In mid-June, the Fed implemented a 0.75% interest rate hike, which is something it hadn't done for 28 years. The purpose of such a drastic rate hike is to bring inflation down. When interest rates go up, borrowing becomes more expensive. And once that happens, consumers tend to spend less.
Once consumer demand declines, the cost of goods should start to come down. And that's apt to serve as a source of relief for those who are struggling at present.
But the fear is that the Fed's actions might drive consumer spending downward to a dangerous degree. And if that happens, and not enough revenue is pumped into the economy, we could end up with a recession on our hands.
Now, a recession can mean different things and have different effects, but often, a period of economic decline will lead to an uptick in unemployment. That's a bad thing for workers, and something they should gear up for.
But what about retirees who don't work? Should a recession concern them at all?
It pays to prepare
If you're someone who's retired and you don't work in any capacity, then job loss clearly isn't something to concern yourself with. But one thing you should absolutely do is make an effort to boost your savings in case a recession hits.
The reason? During a recession, stock values can drop. And if you're reliant on your investment portfolio as a source of income, you may want the option to leave it alone for a period of time to avoid locking in losses by selling stocks when they're down.
Granted, right now, stocks are down already. But we don't know if a recession will make matters worse with regard to the stock market. And so now's a good time to rethink your spending habits and start putting more money into the bank if you can.
You should also check up on your portfolio to make sure your investments are appropriate for your age. If you're too loaded up on stocks, you might have to make serious cutbacks if a recession hits and you can't afford to touch your portfolio at all during that time.
In fact, even if you don't work now, you may want to consider some sort of part-time gig to boost your cash reserves. That will give you more flexibility in case a recession leads to an even more drastic drop in stock values.
Is a recession guaranteed?
Although many financial experts are worried about an impending recession, that's not guaranteed to happen. And also, not all recessions are as prolonged and drastic as others. But it's a good idea to prepare for the worst in this situation. If you're retired, that means checking up on your investments, padding your savings, rethinking your spending, and potentially pushing yourself to work for a period of time.
Alert: highest cash back card we've seen now has 0% intro APR until 2025
If you're using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR for 15 months, an insane cash back rate of up to 5%, and all somehow for no annual fee.
In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.
Our Research Expert
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2023 The Ascent. All rights reserved.