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Ways To Protect Your Retirement Savings During A Recession

It can be incredibly nerve-wracking to watch the economic markets rise and fall, especially when you are close to or already retired. It’s a real possibility that your investment money could be significantly reduced or lost during a recession. And recessions are inevitable.

Our market has always been cyclical. It’s important to take precautions to protect your investments against eventual downturns so you can rest easy knowing your nest egg and retirement are safe. Let’s look at some ways to do just that.

Retirement Savings

Work A Bit Longer

A guaranteed way to keep yourself from losing money is to keep making it. This could be staying at your full-time job a little longer, or even just taking on a side hustle for extra cash–watching your grandkids, monetizing a hobby, or working a part-time job. If you are taking in cash, you can leave money in your investments longer to weather any storms.

work a bit longer times

Wait To Take Social Security

If you are able, it may be of benefit to you to push back when you take your Social Security benefits. Most people can begin taking benefits at age 67, and you must take them at age 70. For every month past your 67th birthday that you delay your benefits, you will get a certain percentage increase on your monthly check. Over the course of your life, your full Social Security payout will remain the same, but if you start a bit later, you will get a larger check each month.

Social Security benefits

Diversify, Diversify, Diversify

Just like a real estate agent is always going on about “Location, location, location,” an investment broker will tell you to diversify your investments. If you have all of your money in one type of stock and that stock goes bust, so does all that money you have worked so hard for. Make sure that you are investing in many types of stocks. And think about the types of stocks you are investing in, especially if we are entering a downturn. For example, there are stocks, often called defensive stocks, that can be a safer bet during a recession. These types of stocks are things that will still be needed no matter the economic climate–utilities, health care, and consumer staples.

Stocks are always a bit of a bet, though. They are always vulnerable to market changes. It’s always a good idea to invest outside of stocks as well. You can also have money in bonds, securities, and EFTs too.

Diversify investment

Don’t Sleep On Annuities

Annuities are often looked down upon, but they can be a great way to “recession-proof” your retirement if used correctly. An annuity is a contract with an insurance company to pay you a fixed amount every month for a set period of time. It also often includes a life insurance payout or death benefit in the event you pass away before the end of the contract. They can have variable or fixed rate returns. The rates of return are often low and the fees are often high because of the death benefit portion of the contract. That is why they can be unpopular.

In the face of a recession though, an annuity can be a really good way to safeguard your money. A fixed rate of return in a downturn is a nice security when interest rates and stocks are moving all over the place. There are a couple of types of annuities. A single-premium fixed annuity is when you start with a large lump sum, often it’s a rollover from a 401(k) or IRA account. Then you have a fixed interest rate and fixed payouts every month for the term of the contract.

The other type is a deferred fixed annuity. This one is for when you may not have one large lump sum to begin the annuity. You pay into it over time, the accumulation period, still have a fixed rate of return, and take your payments a bit later. Either of these types of annuities can help keep your money safe when the market is in a downturn.


Prevention Is The Best Medicine

Downturns are inevitable in our economic system. We go through these cycles pretty regularly. Whether you are already retired, retiring soon, or starting to play for retirement someday, it is always a great idea to recession-proof your retirement savings.