Green Retirement Blog

If the economy enters into a recession, which most economists now predict will happen, what effect will it have on retirements? For people planning their retirement, those about to retire, or who may already be retired? The answer is the same, for retirements as well as the economy, a period of declining wealth.

What can a person do to minimize the impact of a recession on their retirement? In a word - conserve.

For those planning their retirements, with money invested in the stock and bond market, and watching the yields and returns on both decline. The temptation to achieve higher returns, by moving assets into riskier investments, should be avoided at all costs. Instead, consider increasing contributions into your retirement funds, to keep your plan on track, and to make up the difference. Take advantage of dollar cost averaging and avoid high risk investments. If your company or industry, will suffer badly in a recession, now is a good time to consider switching careers.

For those about to retire, a recession may scare you into delaying your retirement, as you try to minimize the damage to your portfolio. Instead, consider retiring now - recessions can last several years. Continued contributions into retirement funds, in a declining economy, may not make much of a difference. Selling the house, moving assets into secure fixed investments, and retiring now - may make the most sense.

Retirees watching their income drop, from lower bond yields and shrinking dividends, don’t have much of a choice. Conservation, by reducing consumption or spending, is the only practical way to deal with the current situation. In previous recessions, high interest rates provided a cushion, for the already retired. This time around, even with rising prices, the Federal Reserve is aggressively cutting rates to keep the economy going. Providing no relief to retirees. Especially for retirees, the temptation to seek higher returns through high risk investments, should be avoided. A proper retirement plan, takes into account both good and bad economic cycles, and staying within the retirement plan budget is all that is necessary.

Recession can be scary. But it is not a reason to panic. The message is the same for everyone in any stage of retirement. Avoid high risk investments, with promises of big returns, and conserve your existing wealth.

Update: September 19, 2008: This article was written in January 2008, even though the economic situation has dramatically worsened, the advice remains the same.

Visit Green Retirement Planning to learn how you can retire early and with less savings.