How to Protect Your Retirement in a Recession

April 2020 is shaping up to be uncharted waters for the global economy. The impact can be seen almost everywhere you look. Volatility has hit an all-time high in the financial markets with the VIX reaching over 80 for the first time in its history on March 19th. Coupled with the historical volatility has been the quickening pace of the sell-off as investors have been scrambling to find safe heavens during an uncertain time.

How to Protect Your Retirement in a RecessionBut there are signs of impending doom outside of the financial markets as countries, cities, and companies are slowly shutting their doors. The pace appears to be gaining as the impact of COVID-19 was primarily isolated to China in January. As of late-March, nearly every country is reporting at least one active case.

The impact is unprecedented as Singapore Airlines and Emirates have announced that they are planning to suspend operations, and a growing chorus of companies have instituted work from home rules.

Effect of a slowing economy on retirement nest eggs

While many analysts are scrambling to adjust their growth forecasts for 2020, one area which has not got much attention is how the inevitable recession will impact those in retirement. This is an essential question as the virus not only targets older adults, but the impact of a slowing economy could take a significant bite out of their retirement nest eggs.

As such, many Americans are wondering how they can protect their retirement in a recession.  While most financial planners would like to make you think they have the answer, the reality is usually much less absolute.

This is large because financial planners often look to the past for clues. While this approach is not without merit, it underscores the fact that this time, like almost every recession, is different than the time before.

More seniors today than ever before

For example, there are more older Americans today than at any other time in history. This is because almost all Baby Boomers are 60 years old or older, and by 2030, the Census Bureau estimates there will be more than 70 million retirees in the U.S.

While 2030 might seem like a lifetime from now, it is not too far off. Also, this “Silver Tsunami” will remake our society on several levels, one of which may well be the makeup of the social safety net. This is especially true as a massive recession could wipe out the savings of an entire generation just as they are on the cusp of retiring.

If you find yourself in this position, then you must be asking yourself, what can you do? For starters, you can look to the past for pointers, but keep in mind what worked before might not work in the future.

You must have plan

As such, the first thing you want to do is have a plan. Not only should this plan identify how much money you will need to enjoy (or maybe just survive) 20+ years of retirement, how you can control your expenses, and importantly that you have enough money to last.

For most Americans, identifying the source of cash for their retirement largely falls into two categories – Social Security and investments, usually in the form of a 401K fund.  In terms of the latter, these funds are bound to take a beating in the market downturn. As for Social Security, while there is an assumption that the government will make sure these funds are secure, that is something which can no longer be taken for granted.

As such, retirees will need to identify alternative sources of income during retirement. For some, this might include taking on a part-time job or consulting. However, the current health crisis and subsequent economic downturn can complicate matters.

For those with the resources, they could consider investing in revenue generating properties or a business which does not require a full-time commitment. However, this is only an option for those who can afford to put the capital required to start a business or acquire a property at risk.

What about a reverse mortgage?

Another option could be to consider a reverse mortgage. This is a loan for older Americans that allows them to tap into the equity they’ve built up in their home without the need to make monthly loan payments like traditional mortgages.

According to, “this type of loan allows borrowers to access a portion of their equity — tax-free — without having to make monthly mortgage payments. No payment is required until the last surviving homeowner moves, passes away, or sells the home.”

As such, considering a reverse mortgage while property values are at or near all-time highs might be a novel way to protect your retirement in a recession as it essentially gives you full access to the cash value without the need to sell your home or to have to cover monthly mortgage payments.

Still not certain about the right move for you? You might also want to consider moving to a low-cost part of the country or the world. Granted, this might mean that you are moving away from your family but in some cases the lower day-to-day expenses more than offsets the travel costs associated with not living near your family.

The markets are going through an unprecedented period of volatility. If you are retired or are about to retire, then you want to review your financial plan to make sure it is set up to protect you and your money in the long run.


Interesting related article: “What is a pension?