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Recession Proofing Your Retirement Savings

History and modern economic theory have shown that there has been a natural ebb and flow to the economy. However, the Great Recession of 2007-2009, 9/11/2001, and the COVID-19 pandemic of 2020 have also shown that sometimes we cannot predict when the economy will take a direct or indirect hit. It can be mind-boggling that one minute your retirement savings are performing well and seem to be safe and sound. Then a single event starts a chain reaction that now has your dreams of an affordable retirement beginning to fade and putting you on edge.
The good news is that most recessions last about 18 months. However, the trick is to protect as much of your savings and investments during that time. Here are five strategies that can help you recession-proof your nest egg to protect what you have worked so hard to save in the most trying economic times.

1. Build an Emergency Fund
A sudden illness, loss of employment, or catastrophe could make it difficult to pay your basic living expenses. Whether you are approaching retirement age, currently retired, or beginning to save for your golden years, everyone should focus on building an emergency fund. At a minimum, this fund should be enough to pay at least three to six months’ worth of your fixed expenses. This can help prevent you from taking money out of your retirement plan. After building your emergency fund, your focus should turn to paying down any high interest-rate debt as much as possible. Once interest rates begin to rise, so will payments for credit cards with variable rates.

2. Do Not Rush to Sell-Off
Watching the stock market drop by 7 percent or more in volume for several days in a row is enough to cause you to panic and sell your investments. Sometimes the ups and downs of the market can have you second-guessing your long-term goals for savings. Depending on how far away your retirement is, it is probably safer keeping your money invested and allowing your portfolio time to recover.

3. Adjusting Your Portfolio’s Allocations to Lessen Risk
If you are nearing retirement age, your portfolio may not have the time to make up for the losses when stocks dip. Financial experts recommend that as you get closer to retirement, you should be lessening your risk. For example, your portfolio should not be invested 100 percent in equities if you are 10 years out because that puts you at extreme risk of losing your savings in a very short time in a downturn.

4. Be Prepared and Be Flexible
Many things can happen during and after a recession. Jobs are lost, with some business and industries never fully recovering or being completely wiped out. This means you need to have some flexibility and alternative plans in place to free up cash flow. You may need to downsize, consider retiring earlier than planned, or changing what your plans are going to be. You may need to consider working part-time or living in an area where the cost of living is less.

5. Hiring a Financial Advisor
During uncertain economic times, having a financial advisor can be one of the most effective ways to protect your retirement nest egg. An advisor can help you strategize and optimize your portfolio to weather tough economic times instead of guessing when the next recession will hit.

Contact the experts at BD Financial Concepts for a free consultation to learn how you can get your retirement savings back under control.