How to retire during a recession – should you delay?

This article will speak about how to retire during a recession. For any questions, or if you are looking to invest, you can contact me using  this form, or by using the WhatsApp function below.


Most people might be in a constant dilemma about whether or not to retire during a Recession, if willing to retire, what would be a perfect way to do so… Therefore, in today’s article, we will discuss the details regarding this matter.

Recession – Recession is a term related to economics that cites the general decline in economic activity in a particular region. Recessions usually last for a few months rather than just a short period of time.

Most countries are known to have economic growth over the long-term in most countries. 

These major long-term economic growth situations oversee a declining performance or slowdowns, which is a short-term fluctuation and can last from 6 months to a few years before coming back to their general long-term growth state.

Generally, Recession is tracked by businesses, investors and government officials with the help of economic indicators that speculate or confirm the beginning of a Recession, but the official declaration of a Recession is made by the National Bureau of Economic Research (NBER) in the USA.

There are many types of theories that explain why and how a Recession might occur. The Recession can be observed particularly and easily in industrial production, employment, real income and wholesale-retail trade.

The definition of a Recession works as a negative economic growth of two quarters in a country’s gross domestic product (GDP), however, the National Bureau of Economic Research (NBER) need not consider this analysis to call a Recession. 

NBER instead uses a more persistent analysis of monthly data in order to make a decision. Henceforth, as most people assume, quarterly declines in the GDP does not always mean a Recession.

NBER officially announced the end of the economic expansion of America in February 2020 due to the Coronavirus pandemic situation. This Recession did not only take place in America but almost all the countries of the world.

Economists in the United States suggest that there have been 33 Recessions so far in the USA from 1854. Considering only the time period from 1980, there have been 4 major periods of negative economic growth, which would definitely be considered as Recessions.

Some of the notable examples of Recessions are ‘The Global Recession in the early 2008 financial crisis’ and the ‘Great Depression of the 1930s’.

A Depression is nothing but the Recession that lasts deep and longer than usual (for many years probably). There are exact ways of determining a depression, but if the GDP has a decline of 10% and the unemployment rate in a country reaches more than 25%, then, it can be called Depression.

Causes of Recessions – Various economic theories have been suggested as an attempt of explaining the reason for an economy to fall off the course of its long-term growth and gradually move into a state of a temporary Recession.

These theories have been based on the economic factors, financial factors, or psychological factors while having some more theories that fill in the information gaps between these bridges.

Some expert economists tend to believe that the real variations and structural shifts that occur in industries help the most in explaining when and how a Recession will happen. 

In order to state an example for this, a sudden increase in the oil prices because of the geopolitical crisis might become a reason for the increase of costs in many other industries, or the introduction of new technology might result in making all the industries obsessive.

In any of the cases mentioned above, a widespread Recession can occur.

For an example of the present situation, the current spread of the COVID-19 epidemic and the lockdown scenario in the economy in 2020 are also examples of the type of economic shock that results in a Recession.

It might also be considered as a case where the other types of underlying economic trends are picking up the pace and are leading to a Recession, where this economic shock is just playing the part as a trigger that tips the downturn.

There are also some suggestions which state that Recessions occur on the basis of financial factors. These theories generally discuss the reasons to be either the overexpansion of credit preceding the Recession, or contraction of money before the beginning of recessions or sometimes both.

The Great Recession – The Great Recession is the Recession that took place between the year 2007 and the year 2009 due to the bursting of the US housing bubble along with the global financial crisis.

The Great Recession is said to be the most effective as well as severe Recession in the United States after the Great Depression that took place in 1930. 

Concerning the Great Recession, an unparalleled fiscal monetary and regulatory policy was put forward by the federal authorities, which has been credited by some people to be responsible for the effective recovery.

According to a report made by the Financial Crisis Inquiry Commission made in the year 2011, the Great Recession could have been avoidable. The commission consisted of 6 democrats and 4 republicans, who made a thesis that has several key factors that have led to the downturn.

The major thing they have stated is that the government was inefficient to regulate the financial industry. This failure to regulate was also due to the ineffectiveness of the feds to stop the toxic mortgage lending.

After that, the next factor is related to financial firms. Most of the financial firms have been taking a lot of risk at that time. The shadow banking system, which consisted of the investment firms grew to be a rival to the depository banking system, even though it was having the same regulation or supervision.

When the shadow banking system took a fall, the outcome has affected the flow of credit to the consumers as well as businesses. Other factors included excessive borrowing by corporations and consumers and the lack of understanding in the lawmakers to understand the failing financial system.

Is it safe to retire during a Recession?

The world is currently dealing with the Coronavirus pandemic situation and nobody knows about when the things would get back to as they were used to be. Especially in the case of people nearing retirement, this confusion is rather devastating.

United States is reported to have entered a state of Recession (according to NBER) and it cannot be predicted by any of the experts that how long it may last. 

The stock market has taken a considerable fall earlier in this year, but however, happened to have an outstanding rebound. However, the current state of the stock market is not stable, moreover, it can be stated as volatile.

This volatility in the stock market can put the retirement of the individuals in a risky situation. This is said to be risky because if any other downturn occurs, the retirement savings of the individuals could be affected.

Retiring during a recession period could be considered to be risky, however, it can be considered as a smart move in the case of some people. Given below are the details, whether or not to determine, if retiring during a recession is good for an individual.

  • The delicate relationship between the economy and the stock market:

First of all, people should consider that there is a difference between a recession and a stock market downturn. In many cases, both of these happen together, whereas in some cases, these two might get to work independently of each other.

To suggest an example for this statement, the day when NBER has announced the recession, the S&P 500 has recovered from the losses and became positive for the year.

Therefore, being headed into retirement, individuals should be ready to face whatever the consequences may be. Another stock market downturn can be anticipated if the cases of COVID-19 begin to increase causing businesses to close once again.

  • What is the effect of the market downturn on the investments:

The effect on the investments can be estimated on the basis of the portfolio allocation of an individual. If the asset allocation is primarily focused on the stocks, then the downturn can have a huge negative effect on the individual’s investments.

Whereas, people who have the majority of their portfolio invested in conservative investments such as bonds, the impact won’t as high as discussed earlier. 

This is why people should be adjusting their portfolio by constantly rebalancing their assets before getting closer to retirement age. Earlier this year, it has been made clear that stock market crashes can happen very fast.

In March, S&P 500 took a fall of around 30% in just a period of 22 days, which is considered a record for the fastest drop in stock market history. If another crash is yet to occur, it is wise to make more conservative investments in order to secure the savings.

Investments in stocks or bonds depend primarily on two factors, namely ‘Age of the Investor’ and ‘Risk Tolerance’, which are correlated. The closer a person is to his retirement age, the impact on the person will be high when taking a risk.

Therefore, people of such age (nearing retirement) should primarily concentrate on a more conservative form of investment. 

People who still have some more years left for retiring are capable of withstanding another stock market downturn. These types of people can choose to continue making aggressive investments.

People who opt for aggressive investing might feel it to be a bit harder in the short-term, but when the stock market begins to recover, the investments will bounce and offer higher profits than that of conservative savings.

So, choosing the mode of investment depends highly on how much time you have to allow your investments to grow back.

  • What is best? Retiring Now or waiting for some more time:

Even while the economy is strong, it is actually hard to determine the right time to retire. Therefore, choosing whether or not to retire during a recession make it even more challenging.

In cases of most people, the best time to retire is when they actually feel prepared for it.

 If an individual has healthy retirement funds along with having an efficient portfolio with assets allocated in a proper way with respect to their age and risk tolerance, they can be considered as ready for retiring.

Even if they have to experience a stock market downturn, the impact won’t be able to affect them because the investments drop for a short period and they already have enough amount of savings. At such point, if they invest more conservatively, they can be able to sustain and pull it off unaffected.

If the individual is not having strong retirement funds, they should think about working for a few more years. If a person does not have sufficient funds in savings and at that time if the country experiences a stock market crash, it can become tough for the person to meet with his/her retirement goals.

Therefore, by continuing to work for a few more years and increasing the savings until the economy becomes stable without having a probability of a stock market downturn may help in enjoying the retirement better.

The stock market has always been volatile and unpredictable to some extent, adding to which, the last few months have been even more devastating. By taking the precautions mentioned above, a person might be able to get prepared to be ready for the future, regardless of the wild possibilities.

  • Some other things that require attention:

Individuals should make sure that they have earned at least 10 times their annual salary for a better retirement. This has been considered to be a very smart option by most financial experts. 

For example, if you are a person earning $90,000 a year, and if you have $900,000 in your 401(k) or IRA or any other retirement savings plan, you are in better shape to consider retirement.

Social Security Benefits, which are calculated on the basis of the person’s earnings during their 35 years as an employee is used to determine whether the impact will be high or low, depending on the age when the retirement benefit will be filed.

People can either file for Social Security beginning at an age of 62 years while opting for a lower benefit, or they can delay it up to 70 years and boost their benefits.

There is no right or wrong time to claim the social security and both filing early and filing after waiting for some time actually make sense. This solely depends on the age of the person and their plan.

  • Important tips on planning retirement during a recession:

There are some important tips for individuals to plan their retirement during a recession perfectly, which are as follows:

  1. ‘Creating the right Investment Strategy’:

As discussed before in this article, creating an efficient investment strategy is the most crucial part of planning retirement. 

Most of the pensions are usually diversified among various financial instruments such as shares, cash, bonds, real estate, etc.

Pensions can also be diversified depending on the type of location that individuals reside in. Based on the location, some asset types of indices might take a fall, whereas, some might see profits.

For example, the UK stock market has been seeing a lot of losses this year so far, however, the American stock market has recovered to a great extent.

In order to ensure that a person can benefit from any type of profit in a diversified portfolio, they should avoid considering having a low-risk investment strategy, when the market performance is low. 

In the long-term, people who save on the basis of diversified pensions always tend to have bigger profits that last longer than usual. 

Therefore, it is wise to consider a short-term investment strategy only when a person wants to retire with all their pension amount immediately before the recovery of the market.

  1. ‘Minimizing withdrawals in the short-term’:

Making withdrawals during normal times can be profitable, whereas, timing the market at a time of recession is a very bad idea. It is a good idea to minimize withdrawals and only take whatever is necessary. 

  1. ‘Make sure the money is accessible when you want it’:

When you want to decide whether or not to withdraw money from your assets or pension, the speed of withdrawal is a major aspect. Accessibility of having the funds in a pension within a time period of a week or ten days is better than having to wait for a month or two. 

  1. ‘Investment for a long-term’:

If you are an investor who is aimed for a long-term investment, don’t let any of these situations make you change your mind. Selling out the investments and cashing them in might actually seem to be a nice idea, but you will be missing out on the opportunities of having profits when the markets rebound.

Therefore, before making any hasty decisions, it is better to consult a financial advisor and get the required advice. People who are not professional investors might not have to worry about the daily movements in the market.

  1. ‘The Investments should be made regularly, if possible’:

This is also advice aimed for the people who opt for a long-term investment. Volatility in the market does not always mean poor investment incomes. Moreover, it can be considered as a gate for new opportunities.

The main objective of investing is to invest on a regular basis, regardless of market performance. Adding to that, people are provided with opportunities to buy more shares when the prices are low.

If possible, people should also try to increase the amount that is generally contributed to their investments.

This type of investing will lead to having more assets, which will be beneficial to the investor when the prices rise again. 

  1. ‘Never make decisions on your own, which may cost you a lot’:

It is better to have a second opinion from an expert rather than just making a bold move. The main rule of long-term investment is that the investor should be able to buy and hold to their investment and ride out through the market volatility.

In order to beat the performance of the market, the investor is required to be 70% correct all the time, which is very difficult for the investors. Therefore, it is better to enjoy the long ride and take advice from professional whenever required.

  1. ‘Diversification of the portfolio is also a major aspect’:

We have already discussed this matter in the article previously. The most important thing is to have a diversified portfolio, where the assets should constantly re-balanced in order to remain profitable. 

The assets in a portfolio should be allocated in such a way that the investment goals of the investor are met. Considering the risk tolerance and age of the investor, it should be weighed whether or not aggressive investing is profitable to the person or else conservative investing.

Finally, people who want to invest in the long run should always try to remain calm and do not panic no matter what the consequences might be. 

Bottom Line:

By following all the above-mentioned points, you might have come to conclusion about whether or not to retire during a recession. Most importantly, this article has stated the points that are important for the people who decide to wait a few more years to retire.

Retirement Planning is a very important process and no decision should be taken lightly. It is better to consult a financial expert like us and plan a retirement strategy or acquire guidance for retirement rather than doing it by yourself.

If you require further information or guidance on retirement planning, please feel free to contact us and avail of the expert financial services offered by us. 

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