Five Tips to Help Protect Your Retirement Savings in an Economic Downturn

You Have More Power Than You Realize to Keep Your Finances on Track

The COVID-19 pandemic and ensuing economic turmoil have caused many people to reexamine their finances. Even if you have taken control of your financial future by being diligent about saving for retirement, it’s normal to feel out of control when facing an uncertain economy and the prospect of a recession that may last for some time.

So, how can you shield your retirement portfolio in troubling times? Luckily, you have more power than you realize when it comes to recession-proofing your nest egg. These five tips will help you stay on track even in an economic downturn.

Tip #1: Bulk Up Your Savings

The typical rule of thumb is to maintain an emergency fund with three to six months of living expenses, but an economic downturn could last longer than that. Aim to up your cash reserves to one year’s worth of expenses and utilize a high-yield savings account to maximize your efforts. Doing so can give you greater peace of mind when unpredictable financial events happen.

Tip #2: Delay Claiming Social Security Benefits

If you’re not yet claiming Social Security benefits, stay the course. Social Security is guaranteed income for life, regardless of the health of the economy and regardless of how long you live. So, it’s smart to maximize this income stream in case your personal savings don’t go as far as you had hoped in an uncertain economy. The best way to do this is to delay claiming your benefits until age 70. Here’s why:

Although you can begin claiming Social Security benefits at age 62, waiting for longer means greater monthly payouts. For example, let’s say you retire at age 62 and begin collecting Social Security at a benefit of $1,050 per month. If you wait until age 67, you’ll receive a 30 percent greater benefit, at $1,500 per month. If you have the patience to wait until age 70, you’ll receive your full benefit amount, plus an additional 24 percent – $1,860 in this example. If you’re concerned about the health of your retirement investments, the decision to delay claiming Social Security can make a meaningful difference.

Tip #3: Utilize Guaranteed Income Sources

If you want your retirement savings to be recession-proof, take advantage of guaranteed income sources that won’t be impacted by a volatile market. Having a cash reserve means you can ride out a recession while having a sense of security from an income stream you can continue to rely on.

Common examples of these types of guaranteed income streams include annuities and pensions, but permanent life insurance is also an option. It has a cash value that grows over time, making it a great way to fund a cash reserve that you can rely on in a down market. Having cash on hand protects you from having to sell at a loss in an economic downturn.

Tip #4: Never Underestimate Diversification

Although there is an inherent risk in the market, it’s still important to manage that risk. Proper diversification allows you to lower your overall risk and keep your portfolio healthy regardless of the economic climate. Essentially, this means building checks and balances into your portfolio. Choose a mix of stocks, bonds and cash as a first step, then think about having a mix of different sectors and asset classes in your portfolio, too.

Tip #5: Find a Trusted Financial Advisor

It’s always useful to work with an expert, but having a financial advisor on your team during uncertain economic times is your best bet for protecting your retirement savings. If you’ve been going it alone thus far, consider that finding a trusted advisor means further preparing to protect your nest egg in the best and worst of times. The best financial advisors take the time to learn and understand your goals, which allows them to guide you and present options that best serve your individual needs. Together, you can assemble a strong financial plan that will allow you to weather any storm.

If you’re ready to learn more about recession-proofing your retirement savings with the help of a financial advisor, let’s start a conversation today. As recent times have shown, we never quite know what the future holds. Preparing a solid financial plan is the best way to protect your hard-earned savings and safeguard the comfortable retirement lifestyle you deserve.

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