Retirement · January 14, 2021

Protect Your Retirement Savings From a Recession

Watching the stock market yo-yo can leave you worried about your investments and wondering how to protect your retirement savings from a recession. After any economic crisis, but especially since the COVID-19 crisis and its economic fallout, it's natural to have an emotional reaction as you work through how these events will impact your future and your retirement plans.

As in most areas of life, slowing down and evaluating your options with a cool head will help you find the right path forward. Focus on some smart strategies to protect your retirement savings during periods of economic uncertainty and stock market volatility.

How economic setbacks affect retirement accounts

There are several ways that large-scale economic situations affect retirement accounts. At a minimum, you'll likely see account balance fluctuations. When there's a large amount of uncertainty in an industry or the economy, the stock market can become volatile. Accounts like 401(k)s, which are partly invested in the stock market, typically see short-term losses.

Other ways an economic downturn can impact a retirement account are more subtle. For example, when a company is trying to stay afloat despite economic instability, they may protect themselves by cutting dividend payments to investors or discontinuing their 401(k) matching program for employees. Any projections for how much money you'll have in retirement typically takes into account these consistent dividend payments and matching contributions that compound over decades. So these types of decisions today will have some impact on your overall balance when you retire.

Economic downturns can also affect the rules of how you can use your retirement account. For example, in response to the COVID-19 pandemic, the government passed new rules relaxing requirements on hardship distributions, as well as required minimum distributions.

Strategizing to protect your savings

No matter when you plan to retire, there are ways to protect your retirement savings in a recession. First and foremost, do your best to avoid panic withdrawals from the stock market. Experienced investors will tell you that taking money out of the stock market at its low point dampens any recovery you would've experienced if you'd kept your stocks invested.

Another smart strategy is to only use your retirement account balances for loans or hardship distributions as a last resort. Make use of savings and other avenues of financial help, such as government programs and calling your service providers for short-term relief, before considering taking out a loan against your future.

Other actions to take when looking at how to protect retirement savings from recession depends on how long you have until you want to retire.

Actions to take depending on your retirement date

Do you have decades until you retire? Then you'll have some time to catch up lost retirement savings once things stabilize.

Once your personal situation bounces back, consider stashing away extra retirement savings into an employer 401(k) or opening an individual retirement account to contribute to on top of an employer's plan.

In the meantime, ask your financial advisor if it's wise to rebalance your retirement investment portfolio. With sharp declines in the market, your target allocation—the percentage of bonds to stocks that you own—may have tipped more to one side than makes sense for you. This can have a big impact on your investments during the economic recovery phase.

On the other hand, if you're nearing retirement, consider whether to extend your career so you can make up for lost retirement savings. You may also try to negotiate additional 401(k) match contributions into a severance package in the event of a layoff.

To give your retirement investments the most time possible to recover, look into any other financial resources available to you in the meantime. This could mean finding a new income source, using other savings and keeping an eye on new legislation that can help your financial situation.

Worldwide, nationwide and local economic downturns are mostly out of your control. What you do control is how you react to these events. Avoid rash, emotional decisions and instead use these strategies to protect your retirement savings from a recession so you can move forward in the best way possible.


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This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.