Early Retirement Blog

In a recession – don’t delay your retirement.

Home values, and stock market values have dramatically declined, and many Americans are choosing to delay their retirements. Wrong strategy.  Americans should be accelerating their retirements.

Delaying retirement may leave a person in worse financial condition than if they retire now. Remaining at work and contributing to retirement savings, if stock market and housing values decline further, may not make much of a difference in the end.

If a person has a net worth of $800,000, and it declines by 20%, they will have lost $160,000.  They will need to save $2,000 a month towards retirement, and work an additional 6 years to make up for the loss.

If you are planning to retire within the next 5 years, you should accelerate your retirement plan, and place your finances into a retirement position.  Doing so, could help you avoid losses, and enable you to retire on schedule.  Here are some steps you should consider taking to protect your recession in a retirement.

Sell the House
Stop 401k and IRA Contributions
Re-Allocate Assets
Retirement Budget

Sell the House

If the plan was to sell the house upon retirement, and use the proceeds to help finance retirement, why wait for it’s value to decline even further? Even if you continue to work, you can still sell the house, and rent an apartment. Renting an apartment may be less costly, than mortgage payments, and prevents the down-side risk of home value loss.

Also, by renting an apartment closer to work, you can also reduce your commute costs, and apply the increased savings into retirement savings.

Stop 401k and IRA Contributions

If you are planning to retire before the age that you are eligible to receive tax deferred retirement income from a 401k, IRA, etc., or you are concerned that you may be laid off before reaching your retirement date, you should consider stopping any further contributions to your 401k’s and IRA’s.

Instead, investing the same amount into a money market account, may be the more prudent strategy. If a recession caused layoff occurs, it will be very costly in taxes and penalties, when accessing money in IRA’s and 401k’s.

Re-Allocate Assets

Do not wait until retirement to re-allocate your assets. Re-allocate your assets, into a retirement asset  allocation model, before you retire. A retirement allocation, with assets more heavily weighted in cash and bonds, will weather a recession better.

Retirement Budget

Get to work on your retirement budget. Start calculating your expenses in retirement. A retirement budget is an essential part of a retirement plan. Our early retirement software includes budgeting tools to help you manage and maintain a safe and secure early retirement.

Don’t delay your retirement because of a recession. You should be thinking instead, of how you can accelerate your retirement, and avoid the impact of a recession.

Update:

On April fools day, April 1, 2008, the Wall Street Journal ran a front page article titled “Americans Delay Retirement as Housing, Stocks Swoon”, you can read the full article here. The article recounts the sad tales of several boomers, who bitterly feel that, they have to delay their retirements. They don’t, and neither should you, accelerate your retirements.

Update2:

On May 12, 2008, AARP reports that 27% of American workers aged 45 and over, are pushing back their retirements. CNN has a story and video you can see here.

Visit our early retirement website, learn how to retire early, and try our free retirement calculators.  Also, if your employer is offering a voluntary early retirement incentive package, try our voluntary early retirement calculator to find out if you can retire today.

Also Read:
How to Retire With Less Than $1 Million
How to Retire on Social Security