How to save your retirement portfolio from a recession

  • The recent market slump may deter people from retiring in the next few years.
  • But one financial planner says the market isn’t the only factor in deciding whether or not to retire.
  • Consider doing a Roth conversion, delaying Social Security, and starting to live on a budget.

Over the past six months, the S&P 500 has fallen 11.27% and the Dow Jones 6.15% at the time of this writing. While some experts say the market will eventually come back, it can still be nerve-wracking to watch your hard-earned 401(k) dollars disappear seemingly minute by minute.

Insider spoke with financial planner Jay Zigmont, founder of Live Learning Plan and financial planner to hundreds of people in the Financial Independence/Retire Early (FIRE) movement about whether or not it’s a good idea to retire for a



Zigmont says, “The market is only part of the decision to retire. Retirement is about both a new stage in life and the guarantee of having the necessary funds to pay for this new stage. With the recent market downturn, it’s time to reevaluate to see if your plan is working.”

It’s “quite possible you can’t afford to retire right now,” he says, but there are ways to use a recession to adjust your plan appropriately and come up with a new strategy with your financial planner or advisor.

Here are three steps you can take to proactively protect your retirement funds from a recession.

1. Consider converting your traditional 401(k) or IRA to a Roth account

“Maybe it’s a good time to do Roth conversions,” Zigmont says.

A 401(k) is an employer-sponsored retirement plan where employees can contribute pre-tax income and let it grow. A IRAwhich stands for Individual Retirement Arrangement, is similar to a 401(k) but available to anyone making money, no matter who you work for.

401(k)s and traditional IRAs are funded with pre-tax dollars, which means you’ll have to pay taxes when you finally use the funds in retirement. On the other hand, Roth accounts are funded with after-tax dollars, which means you won’t have to pay taxes when you withdraw the funds in retirement.

Zigmont says, “When you convert, you pay taxes now, but amounts converted to a Roth IRA grow tax-free and they come out tax-free.”

He adds, “Keep in mind that a 401(k) has required minimum distributions” – or RMDs for short, withdrawals you must make each year from your retirement accounts, starting at age 72 – “so if you have a Roth 401(k), be sure to apply it to a Roth IRA after you stop working, as a Roth IRA does not have an RMD.”

2. Reevaluate your social security plan

Zigmont recommends going to to download your latest Social Security benefit statement. “Your Social Security statement will tell you how much you will get if you start applying for Social Security now and each year in the future. Each year you delay getting Social Security, the amount you receive each month (at life) will increase.”

He says Social Security benefits have a built-in cost-of-living adjustment, which is 5.9% in 2022.

Some people might choose to start taking their Social Security benefits now, Zigmont says, but he adds this warning: “If you feel you need to take your Social Security payment now to make up for the market downturn, remember, you’re making a choice that impacts the rest of your life.”

3. Start living on a fixed income now to prepare for retirement

Ultimately, the best way to protect your retirement plan against the recession is to start adjusting to a lower fixed income as soon as possible. Zigmont says: “If you feel like things are going to be ‘tight’ then you may need to change your retirement date. Start living on a budget now as if you were on a fixed income and see if you are OK. with that.”

If you’re really anxious, he also suggests using financial software that can run Monte Carlo simulations, which show how your retirement plan will work based on the economic situation when you retire. “These simulations will give you a number that reflects the odds that you’re running out of money,” he says.


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