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7 Ways To Recession-proof Your Retirement Savings

If you’re concerned about the financial aspect of retirement, you’re not alone. A March 2023 survey into Americans’ financial concerns by Quinnipiac University found that 68% of people are concerned they don’t have the funds to live comfortably after stopping work. Of all the financial worries in the survey, retirement costs were second only to food prices. 

Recessions and periods of high inflation have a disproportionate impact on retirees. Most retirement accounts are invested in the stock market. Stock and fund prices fall during economic downturns, so the account loses value when you need it the most. 

Luckily, you can take steps to prepare for the worst-case scenarios so that your savings remain intact regardless of the country’s overall economic outlook.

Diversify Your Assets 

Diversification is an essential step for all well-balanced portfolios. It’s especially vital for retirement accounts because of the impact a loss of asset value can have on your quality of life. The Financial Industry Regulatory Authority (FINRA) explains that diversification involves putting your investment capital in uncorrelated assets and different asset classes. 

Uncorrelated assets don’t react to economic events in the same way. Some stocks, exchange-traded or mutual funds, bonds, or commodities may rise in value in an economic downturn or inflation. For example, precious metals and government-backed inflation-protected bonds (IPBs) are considered safe havens during uncertain economic times. Their value often increases or remains stable during market downturns. 

Diversification does take capital away from high-performance assets, but it brings more stability. Because uncorrelated assets increase in value during periods of inflation or bear markets, they cancel out losses from securities negatively impacted by a recession. 

Look For Ways To Reduce Expenses 

You can take steps to ensure your retirement income goes further by reducing unnecessary spending. Unnecessary expenses are costs for products or services you rarely use or that have cheaper alternatives with the same value. 

For example, many people have memberships with streaming websites, magazines, or music apps that they rarely use. If you’re in this category, you can cancel these recurring subscriptions if you don’t use them often or select one at a time to lower your entertainment costs. 

Cellular and internet bills are another target for spending reduction. High-speed internet and mobile data can be expensive. If you don’t use the data or don’t need fast internet speed, you’re overpaying for the service. By tracking mobile data usage on your phone, you can see how much you actually need and adjust your plan accordingly. You could also look at how fast your internet connection should be

Convert to a Roth Account 

A Roth IRA is a retirement account without upfront tax benefits. The money you deposit in a traditional IRA is tax-deductible, but you pay regular income tax on withdrawals when you retire. Roth IRA contributions aren’t tax-deductible, but you don’t pay income tax on the principle or any investment profits in the account upon withdrawal. In other words, investment returns from a Roth account are tax-free.

A Roth IRA won’t offer any added protection against inflation on its own. You’ll need to properly diversify and balance your portfolio just like any other type of retirement account. However, it will potentially give you more income in retirement because the withdrawals are not subject to income tax. 

You can convert a traditional IRA into a Roth. You’ll have to pay taxes on the converted amount, but any additional investment earnings after the conversion will be tax-free. Despite the short-term tax burden, you won’t lose a portion of your withdrawals to income tax in the long run.  

Hold Off on Taking Social Security 

You can receive Social Security when you reach 62 if you or a current or former spouse have paid Social Security tax for at least 10 years. However, you’re not required to take these payments until you reach age 70. One retirement strategy is to rely on your retirement savings upfront and defer Social Security benefits as long as possible. 

According to the Journal of Accountancy, you can increase your Social Security payments by up to 8% for each year you delay. In other words, by waiting a decade to take your payments, you earn 8% on the amount due. 

When planning your Social Security benefits, you should only deal directly with the Social Security Administration. Many scams related to Social Security involve tricking retirees into providing sensitive information that could give criminals access to retirement funds. 

Invest in a Deferred Annuity 

Technically, a deferred annuity is an insurance product. You pay a lump sum or make regular deposits. After at least a year, you receive regularly scheduled payments that include the principle and a modest return. 

An annuity can supplement income from Social Security or retirement accounts. Since you can arrange an annuity to provide predictable payments and specific times, it can also help with financial planning. 

Look For Other Income Streams 

While you may be finished with your primary career, it’s possible to seek other types of income. 

For example, you might consider renting out unused space in your home to a regular tenant or on a vacation rental site like Airbnb. While this option requires managing bookings and providing help to renters when necessary, it also allows you to earn from an asset that you already own without having to take a salaried or hourly wage job. 

You could also consider a part-time position to supplement your income. You could choose a consulting position related to your previous career or something you always wanted to do but were unable to try because of your primary career. 

Part-time jobs provide supplementary income that helps you stretch your retirement account withdrawal further. A post-retirement job can supplement Social Security benefits. You’ll have to pay Social Security taxes on your income, but you’ll still get benefits. However, if you earn more than the minimum amount ($21,240, as of 2023), the SSA will deduct $1 from your benefits for every $3 earned. 

Consider a Reverse Mortgage 

One final option is to consider a reverse mortgage. This type of mortgage allows homeowners to secure a loan using their property as collateral. Unlike a traditional mortgage, the homeowner receives payments rather than paying them. The homeowner retains the deed and lives in the home, and they still pay property taxes and insurance. 

The lender recoups their investment by selling the property after the homeowner stops living there or receiving repayment when the homeowner sells it. 

Reverse mortgages have specific qualifications:

  • This HUD program is limited to homeowners age 62 or older. Your home must be your primary residence and be kept in good repair.
  • The amount of money available to you is based on the value of your home and your age.
  • Although your mortgage and other debts are paid off, you still are required to pay your real estate taxes, homeowner’s insurance, and other conventional payments like utilities for as long as you own your home.
  • You must receive consumer information from a HUD-approved counseling source prior to participating in this loan program.

Like other mortgages, you need to complete specific legal steps. These include an application, approval, appraisal, underwriting, and closing. All reverse mortgages require a counseling session during which a third-party advisor helps you decide if this is the correct option for your retirement plans. 

You should look at the different reverse mortgage options and learn more about the process before applying. 

With careful planning and additional income from a reverse mortgage, part-time job, or investments, you can fully enjoy retirement regardless of the current economic environment. 

If you want to learn more, download this free guide or find a loan officer near you.

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

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