While recessions are difficult for everyone, they are especially hard on retirees. Those living on fixed incomes find it harder to cope with volatility in the stock market or rising prices. Here are some of the best ways retirees can recession-proof their retirement plans to avoid problems when economic downturns occur.
Don’t Panic When the Market Drops
Keeping a portion of retirement savings in the stock market is critical for retirees, as the growth the market produces allows them to draw off income each year. However, there will be market drops and periods in which returns are muted. During these times, retirees and those approaching retirement should avoid the urge to panic and withdraw their funds. Staying in the market is the best way to ride out crashes. Selling when the market is down will lock in losses and create larger financial problems later on.
Buy Good Dividend Stocks
One of the best ways to recession-proof a portfolio is to invest in high-quality dividend stocks. Companies that have raised their dividends over long periods of time in a variety of market conditions are great for generating income in retirement, even when the market is down. Such stocks can usually even hold their own in bear markets, reducing the overall risk of loss. Investors can also take advantage of dividend-focused ETFs to diversify their dividend stock holdings.
Keep Expenses Low
Another good way to recession proof retirement savings is to cut fixed expenses. Retirees who own their homes, for example, will be able to live on less and stretch their money further during market corrections. The ability to live on less in retirement is also positive during good times, since it allows retirees to support themselves with smaller amounts of retirement savings.
Consider a Part-time Job
Another good way for retirees to guarantee their income in retirement is to work part-time. Wage income creates a stable and steady cash flow that isn’t dependent on the stock market. While a job can be lost due to an economic downturn, having one is always a good way to supplement retirement income.