Actionable Ways to Protect Yourself and Retirement from a Recession

With slowing global growth, trade wars, and inverted yield curves, it seems everywhere you look someone is talking about a recession. Will we have one? When? Will it be mild or severe?

The only question anyone can accurately answer is the first one. Yes, we will have a recession. Recessions are part of normal economic cycles. When? No one knows for sure. Mild or severe? Again, and unfortunately, no one knows for sure.

But most financial professionals want to sound like they know. They study data and post charts and graphs to illustrate their view on why there will or won’t be a recession and how severe it will or won’t be. What does that data do for the average retiree? Not much.

So here’s what you can do, and what you can control.

Have an Emergency Fund

If you have plenty of cash lying around in a high-interest, Federal Deposit Insurance Corporation (FDIC)-insured account, not only will your money retain its full value in times of market turmoil, it will also be extremely liquid, giving you easy access to funds if you lose your job or are forced to take a pay cut.

The target amount for an emergency fund varies by each household. A good general rule of thumb is three to six months of your expenses, and an even better goal is one year’s worth.

Have Additional Income

This is one of my favorite actionable items. Even if you have a great full-time job, it’s not a bad idea to have a source of extra income on the side, whether it’s some consulting work or selling collectibles on eBay. With job security so nonexistent these days, more jobs mean more job security. If you lose one, at least you still have the other one. You may not be making as much money as you were before, but every little bit helps.

Invest for the Long-Term

So what if a drop in the market brings your investments down 15%? If you don’t sell, you won’t lose anything. The market is cyclical, and in the long run, you’ll have plenty of opportunities to sell high. In fact, if you buy when the market’s down, you might thank yourself later.

That being said, as you near retirement age, you should make sure you have enough money in liquid, low-risk investments to retire on time and give the stock portion of your portfolio time to recover. Remember, you don’t need all of your retirement money at 65—just a portion of it. The market might be tanking when you’re 65, but it might be headed to Pamplona by the time you’re 70.