Retiring During a Recession: Opportunities for a Secure Retirement

According to a study, "What Employers Say About the Future of Employer-Sponsored Health Insurance," published in 2022 by the Employee Benefit Research Institute (EBRI), working part-time in retirement has yielded improved financial outcomes during past recessions. Individuals pursuing freelance opportunities or working part-time were better equipped to withstand economic downturns, with more significant retirement savings. This underscores the potential benefits of considering such options during retirement, particularly during economic uncertainty like a recession, to enhance financial security in one's golden years.

Planning for retirement is crucial to ensure financial well-being during this significant milestone in life. However, retiring during a recession presents both unique challenges and opportunities. In this article, we will explore the definition and impact of past recessions, highlighting seven reasons why retiring during a recession can be advantageous, and seven reasons why waiting for the economy to recover before retiring may be prudent.

Since World War II, twelve bear markets, often associated with recessions, have occurred. On average, these bear markets persisted for over fourteen months and took twenty-four months to recover (source: AssetMark) fully. Recessions can vary in duration and intensity but typically involve a decline in economic activity, an increase in unemployment, and a decrease in consumer spending.

Retiring during a recession can offer the following advantages:

1. Investment Opportunities: Stock prices tend to be lower during a recession, presenting potential investment opportunities. Taking advantage of these opportunities by investing in stocks during a recession could yield significant gains once the economy rebounds, especially if you have cash reserves or are willing to take on some risk (source: Dollar-Cost-Averaging by Swell Investing).

2. Part-Time Employment and Freelancing: During a recession, retirement can provide more options for part-time employment or income-generating hobbies. Supplementing retirement income through these avenues can reduce the need to rely heavily on savings.

3. Extended Recovery Time: If you have additional income sources, such as a part-time job or cash reserves, your retirement portfolio has more time to recover from market losses. This can ensure your investments are more substantial when you withdraw from them.

4. Tax Advantages: Realizing capital losses during a recession can lead to tax advantages and carryover deductions for subsequent years. This can help offset future gains, thus reducing your tax liability.

5. Reduced Living Costs: During a recession, prices for goods and services often decline, resulting in lower living expenses. This can help stretch your retirement savings, enabling you to maintain your desired standard of living for a more extended period.

6. Delayed Social Security Benefits: By supplementing retirement income with part-time work or freelance opportunities, you may be able to delay the start of your Social Security benefits. This can result in larger monthly payments in the future, as benefits generally increase with age (up to age 70).

7. Family Involvement: Involving your family in retirement planning discussions fosters trust and ensures everyone shares the same financial objectives and strategies. This can contribute to a more prosperous and fulfilling retirement for all parties involved.

However, there are also arguments against retiring during a recession:

1. Market Volatility: Poor market performance during a recession can negatively impact the value of your retirement resources. If you retire during this period, you may not have sufficient funds to sustain your lifestyle throughout retirement.

2. Depletion of Savings: Withdrawing from retirement savings during a recession can further deplete your balance, reducing the funds available for recovery when investments bounce back. This increases the risk of running out of money during retirement.

3. Financial Uncertainty: Retiring during a recession can be distressing due to financial uncertainties and future worries. This can hurt your mental and emotional well-being during a time when you should be enjoying your retirement.

4. Job Availability: If you are forced to retire early due to job loss or company downsizing, finding a new position during a recession can be challenging. This may result in a prolonged period of unemployment, placing additional strain on your retirement savings.

5. Reduced Social Security Benefits: Your Social Security benefits may be reduced if you retire before reaching your full retirement age during a recession.

Retiring during a recession can be likened to sailing through stormy seas in a sailboat. With the right skills and strategies, you can still navigate your retirement ship toward your desired destination, even when faced with intimidating waves. Just as skilled sailor harnesses the wind and waves to reach their goal, retirees can leverage investment opportunities, part-time work options, and tax benefits to stay on course during a recession. By planning diligently, making wise decisions, and seeking expert guidance, you can weather the storm and set sail for a secure retirement horizon. Adjusting the sails, making informed choices, and embracing financial resilience will ensure a prosperous retirement journey.

To gain personalized insights and guidance tailored to your unique retirement goals and circumstances, we invite you to book a free consultation call with our experienced advisors. Let us help you navigate the uncertainties of retiring during a recession and chart a course toward a secure and fulfilling retirement.

Any opinions are those of The Lynch Retirement Investment Group, LLC, and not necessarily those of Raymond James or Raymond James Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Investing involves risk, and you may incur a profit or a loss regardless of the strategy selected. No investment strategy can guarantee your objectives will be met. Past performance is no guarantee of future results.

Source: https://www.commonwealthfund.org/publications/issue-briefs/2023/jan/what-employers-say-future-employer-health-insurance 

Lynch Retirement Investment Group 2016, 2017, 2018, and 2019

John M. Lynch, CIMA®, CPWA®

John M. Lynch, CIMA®, CPWA® Managing Director – LRIG, Financial Advisor – RJFS

Andrew Fentress, CFP® Financial Advisor

Adam Tobin, CFP®, CRPC Customer Relationship Manager

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