Let’s examine whether your retirement plan is ready for a potential downturn and explore ways to strengthen your financial future in uncertain times. 

1. How a recession affects retirees 

When a recession hits, retirees face unique financial risks, including: 

• Stock market volatility — A market downturn can shrink your retirement account balances. If you’re withdrawing funds during a decline, you risk running out of money sooner than planned. 
• Rising costs — Inflation may still remain high in certain areas, making everyday expenses — like groceries, health care and housing — more expensive. 
• Lower fixed-income returns — Recessions often lead to lower interest rates, impacting savings accounts, CDs and certain annuities. 

Understanding these risks is the first step toward protecting yourself. The next step is making sure your financial strategy is strong enough to withstand economic storms. 

2. Is your asset allocation recession-proof? 

Your asset allocation — the mix of stocks, bonds and other investments — should reflect both your risk tolerance and your time horizon. However, a recession often exposes weaknesses in an unbalanced portfolio. 

Check for overexposure to stocks

While stocks provide long-term growth, a market downturn can significantly impact your portfolio, especially if you’re withdrawing money for living expenses. If your portfolio is too stock-heavy, consider shifting a portion into safer assets like: 

• Fixed index annuities, or FIAs — These offer a combination of growth potential and downside protection. They’re not directly tied to stock market swings, making them a good buffer during recessions. 
• Cash reserves — Keeping 12-24 months’ worth of living expenses in a high-yield savings account can prevent you from selling investments at a loss. 
• Short-term bonds or CDs — While long-term bonds are vulnerable to interest rate changes, short-term bonds and CDs provide more stability in a volatile market. 

A balanced approach can help you ride out a recession without panicking. 

3. Avoiding the sequence of returns risk 

One of the biggest threats retirees face during a recession is the sequence of returns risk. This occurs when you withdraw money from your portfolio during a market downturn, locking in losses and reducing the amount left to recover when the market rebounds.

How to manage it: 

• Tap into cash reserves first — If possible, avoid selling investments during a downturn. Use savings or other nonmarket-dependent income sources. 
• Consider a fixed income strategy — FIAs and other guaranteed income products can provide stable cash flow without the risk of withdrawing from a falling portfolio.
• Delay large purchases — If the economy is uncertain, hold off on big discretionary expenses to preserve capital. 

4. Should you delay Social Security? 

Social Security provides a steady income source, which can be even more valuable during a recession. If you haven’t claimed benefits yet, you might want to consider delaying. 

Why? Each year you delay Social Security (up to age 70), your benefit increases by about 8% annually. This can provide a larger safety net if markets are volatile and you need a guaranteed income source.

However, if you need cash flow now, claiming sooner may still be the right choice. The key is to weigh your financial needs against the long-term benefits of waiting.

5. Reevaluate your withdrawal strategy 

A recession is a good time to reassess how much you’re withdrawing from retirement accounts. The traditional 4% rule (withdrawing 4% of your portfolio annually) may not be ideal in a down market. Instead, consider:

• Reducing withdrawals temporarily — Lowering your withdrawal rate in tough years allows your investments more time to recover. 
• Adopting a dynamic withdrawal strategy — Adjusting withdrawals based on market performance can prevent you from selling assets at a loss. 
• Using Roth conversions — Converting a portion of your traditional IRA to a Roth IRA during a downturn can lower future tax burdens while taking advantage of market lows. 

Flexibility is key when navigating a recession. 

6. Stay vigilant against inflation 

While recessions can slow economic activity, inflation doesn’t always disappear. Rising health care costs, property taxes and everyday expenses can still eat into your retirement budget. 

How to stay ahead of inflation: 

• Invest in inflation-protected assets — Treasury inflation-protected securities, or TIPS, and certain annuities adjust with inflation. 
• Increase income sources — Part-time work, rental income or dividend stocks can provide additional cash flow. 
• Plan for health care costs — Medicare premiums and out-of-pocket expenses tend to rise over time. Factor this into your long-term budget. 

7. Keep debt under control 

Carrying debt into retirement becomes even riskier in a recession. Higher interest rates on loans and credit cards can eat into your budget quickly. 

What to do now:

• Pay down high-interest debt (like credit cards) as soon as possible.
• Avoid taking on new debt unless absolutely necessary.
• Consider downsizing or refinancing if you have a large mortgage.

The less debt you have, the more financial flexibility you’ll maintain if a recession hits. 

A personal perspective on recession-ready retirement

Over the years, I’ve worked with retirees who have navigated multiple recessions, and one thing is clear: Those who prepared in advance fared far better than those who reacted in panic. 

One couple I advised in 2008 had a well-balanced portfolio, an emergency cash fund and a mix of guaranteed income sources. They were able to ride out the financial crisis without changing their lifestyle. Meanwhile, another client who was too stock-heavy had to withdraw funds at market lows, delaying their retirement by several years. 

The lesson? Planning ahead makes all the difference.

Final thoughts: Steps to take now

1. Review your portfolio and reduce exposure to volatile investments if needed.
2. Build a cash reserve to cover 12-24 months of expenses. 
3. Reassess withdrawal rates and consider delaying Social Security if possible.
4. Prepare for inflation by investing in assets that maintain purchasing power.
5. Eliminate high-interest debt to protect your retirement budget. 

A recession doesn’t have to derail your retirement plans. By taking proactive steps today, you can ensure financial stability no matter what the economy brings. 

Your future self will thank you for the smart choices you make now. 

Lyle Boss, The REAL BOSS Financial, endorsed by Glenn Beck as the premier retirement advisor for Utah and the Mountain West states. Boss Financial, 955 Chambers St., Suite 250, Ogden, UT 84403. Telephone: 801-475-9400.