Financial experts have been warning of an impending recession for weeks. Now to be clear, this doesn’t mean the end of the world is imminent, or that the economy will be in trouble overnight.but there Yes There is reason to believe that we may have to endure a period of less than ideal economic conditions in the not too distant future.
Currently, inflation is soaring. To address this, the Fed is implementing a series of rate hikes that could make borrowing more and more expensive for consumers. Once that happens, spending may drop. When spending falls, so does business revenue, which can set the stage for layoffs.
Now, if you’re about to retire and plan to leave the workforce soon, you probably don’t have to worry about losing a job you plan to leave. But you should also know that during a recession, stock values can plummet. And if you’re planning to cash out your investments to cover your living expenses, a recession can be problematic.
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The good news, though, is that there are a few things you can do to prepare for a recession while advancing your retirement plans. Here are some to consider early on.
1. Prop up your emergency fund
Do you have enough cash to cover living expenses for one to two years in a savings account or retirement plan? If not, now is the time to start hoarding more. That way, if economic conditions worsen and the value of your portfolio declines, you’ll have cash ready to pay your bills.
2. Check your asset allocation
Are you investing as aggressively now as you were in your 30s and 40s? If so, you may need to reconsider the strategy.
In retirement, you’ll often want to turn to safer investments, such as bonds, and limit how much you can buy stocks. This especially applies if you think a recession is imminent. That doesn’t mean you have to run out and sell your stock. But if stocks currently make up the bulk of your portfolio, it’s not a bad idea to move some assets into bonds.
3. If you want to downsize, sell your house now
Home prices are now rising nationwide. But during a recession, buyer demand may weaken, and once that happens, property values may start to decline.
If you plan to downsize your home as you begin retirement, you may need to make a sale. Find a real estate agent who can market your home strategically and get you the highest price you can get. If you end up spending less on your next home, you can earn cash proceeds from the sale of your home and use the money as part or all of your emergency fund.
keep calm and plan accordingly
We don’t know when the recession will happen, and if it does happen, how bad the damage will be. Remember that some recessions are fairly short-lived, so there’s no need to panic about a years-long recession.
At the same time, though, it’s good to be prepared for the possibility of a recession, especially if you’re approaching retirement. If you take these steps now, you’ll be more likely to move into a position where you can still retire comfortably, even if economic conditions deteriorate.
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