Updated: Mar 14, 2024

How Retirees Should Handle Retirement Funds During a Recession

Find out how retirees should manage their retirement funds during recession so that their investment portfolios still provide cash with some growth potential.
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Recessions can be extremely scary for the average person’s finances. They can be even scarier for retirees.

Retirees don’t have to worry about losing their job in a recession since they’re retired. However, they do have to worry about their retirement funds.

Typically, the stock market declines during a recession.


It'll probably cause havoc to a retiree’s portfolio.

If you rely on your portfolio to provide additional income, this can cause major problems.

Here are some things retirees should consider regarding how to handle their funds during a recession.

Financial Advisors Can Be Handy

Keep in mind, the below is not professional advice for your specific situation.

You should consult a fiduciary financial advisor to get specific advice.

The advice given to someone that needs an income of $1,000 per month off of a $1,000,000 portfolio would be very different from someone looking draw an income of $4,000 per month off of a portfolio of $250,000.

Fiduciary financial advisors can help you figure out what you need to do about your particular situation.

Common Concerns for Retirees During Recessions

Recessions are a fact of life for our economy.

That doesn’t make them any easier to stomach when you see your portfolio balance declining.

Cash flow

The largest concerns for retirees usually surround having enough money to survive a recession.

Social Security may provide a portion of a retiree’s income.

Thankfully, retirees don’t have to worry about Social Security benefits decreasing during a recession.

But, retirees may not get an annual cost of living increase. This can cause some worry to those heavily dependent on Social Security.

While cost of living increases don’t usually result in a big change in income, every dollar helps.

Portfolio changes

Alternatively, other retirees may worry about a recession’s impact on their portfolio balance.

Recessions usually result in big drops in investments’ values.

Even though Social Security provides some income, many retirees rely on investment portfolios to supplement that income.

The truth is:

If you do rely on your portfolio to supplement your Social Security income, you have even more cause for concern as a retiree.

Selling securities to pay the bills can have a disastrous effect when the security prices are lower during a recession.

Every share you sell at a lower price is one less share that can increase in value when the recession ends.

To make things even worse, you’ll have to sell more shares to get the same income. This compounded problem can result in bigger long-term financial issues.

These are all real concerns.

That said, these concerns can typically be addressed. Doing so can help you successfully manage a recession’s impact on your finances.

What Should Retirees Focus on During Recessions

Technically, you should focus on the same things during a recession as you would during any other phase of the economic cycle.

Ideally, you already have a financial plan.

Your plan says how you’ll manage your portfolio. It should detail how you want to manage your money regardless of where the economy is in an economic cycle.

You should focus on continuing to execute your investment plan, even during recessions.

A proper plan works both during expansions and recessions. It has safeguards in place to protect your ability to live on your portfolio even during down times.

If you have a plan, you should stick with that plan.

Your emotions may encourage you to change things up. Don’t listen to your emotions. Typically, emotional decisions are rarely smart decisions.

Following your plan takes emotion out of the equation. It allows you to make rational decisions rather than rash decisions.

Stay diversified

Generally, most financial plans should keep your investments diversified.

Doing so prevents you from losing everything from one bad decision.

If you only invest in one company and that company goes bankrupt during a recession, you’ll lose everything.

If you diversify your investment over 10s or 100s of companies, a couple companies may go bankrupt.

Others will survive. A few may even thrive during a recession.

Those that thrive may help offset other major losses.

Protect cash flow

Successful investment plans should have a plan to withstand recessions.

Part of the plan should continue to provide the necessary cash flow to live your life.

One way many plans do this is placing your investments in a series of buckets.

1. Immediate cash availability

The first bucket will hold a handful of years worth of living expenses. This bucket will consist of extremely low-risk investments, such as certificates of deposit.

During a recession, you can access these funds with little or no penalties. This bucket helps avoid withdrawing from assets that may have decreased in value.

2. Mid-term needs

The second bucket is a slightly riskier bucket.

It provides a little more upside. It shouldn’t decrease drastically in value during a recession. This bucket may hold another handful of years worth of expenses.

This bucket a midway point between your short-term needs and long-term desire to continue to grow your portfolio.

In an awful recession or a depression, you may need to access this bucket after your first bucket runs out. You won’t be withdrawing from the assets that likely decreased the most, though.

3. Growth-oriented

Finally, you’ll have a third bucket of the riskiest assets you own. These assets will help your nest egg continue to grow.

It is reserved for the money you won’t need in the immediate future. During a recession, this bucket may greatly decrease in value. However, you shouldn’t have to withdraw from it.

Once the recovery starts, this bucket should recover. It should begin earning even more over the long run.

Unfortunately, if you’ve had to withdraw from this bucket, it will reduce its power to grow in the future due to owning fewer shares.

How to Handle Retirement Funds During Recessions

During a recession, you should make sure you’re executing all part of your financial plan.

Usually, this includes rebalancing your portfolio.

You normally rebalance a portfolio when your asset class percentages get out of your plan’s comfort zone.

Rebalancing may seem like a bad idea when stocks are going doing. Even though it seems wrong, it’s usually the right move.

In reality, rebalancing allows you to do two things.

  1. You sell the overweight parts of your portfolio when their prices are high.
  2. You also buy the underweight parts of your portfolio when their prices are lower. This is exactly what you should hope to do as a successful investor.

Instead, those without a plan usually do the opposite.

When the market goes down, they panic and sell low.

Then, they feel better once the market recovers and buy high. This can devastate your returns and should be avoided at all costs.

Finally, even though recessions are scary, you should stay the course.

Breaking from your plan may put you at a higher risk of running out of money in the future.

Tips for Financially Surviving a Recession as a Retiree

The biggest tip to financially survive a recession is having a plan and sticking to it.

But what if you don’t have a financial plan?

In that case, you should seek out a fiduciary financial advisor.

It’s extremely important you seek out a fiduciary advisor and not just any financial advisor.

Fiduciaries have to keep your best financial interest in mind when making your plan. This is different from traditional financial advisors that just have to offer suitable advice.

Sadly, suitable advice may work. It may not be optimal for you, though. In addition, suitable advice may also result in huge commission checks for your financial advisor. This also results in lower returns for you.

Fiduciary financial advisors can look at all of the unique aspects that impact your finances. Then, they can help you create a plan that addresses your particular situation and concerns. This plan should help you outlast recessions if you stick to it.

During a recession, you can also make a couple of changes to your lifestyle. These simple changes can increase your odds of successfully executing your plan.

Temporarily reduce your expenses

This way, you won’t have to withdraw as much from your investment portfolio. The decreases don’t have to be permanent. Even so, every dollar saved can help the rest of your money grow when the recession is over.

Consider putting off a vacation for a year or keeping your car a couple years longer than you had planned. Putting off these major expenses can be a huge help.

If things get really bad, consider cutting your expenses further. You can also find ways to earn extra income to offset your expenses.

There’s nothing wrong with working a temporary part-time job. Other options include turning a hobby into a small business to help pay the bills.

Turn off the financial media news

TV stations and investment websites will be full of fear-inducing headlines. These headlines are used to gain viewers and grow website traffic.

While scary headlines help the media companies thrive, they may convince you to make bad decisions about your finances.

Instead, focus on investment fundamentals to avoid making bad investment decisions during a recession.

Recessions Can Be Scary

Recessions can be scary.

Don’t let the financial media scare you into making bad financial decisions.

Turn off the news, stick to your financial plan and make smart, research-based decisions to keep your finances in good shape through the next recession.