The looming prospect of a recession has led to mounting fears among the estimated 8.9 million people planning to retire in 2023. With fewer jobs available and the potential for continued economic troubles, these individuals may see their retirement savings and plans affected, leading to uncertainty and concern regarding their ability to reach their financial goals amidst the recession fears.
With fewer jobs available, those already retired may see their incomes decrease, while those yet to retire are likely to face steeper financial hurdles in reaching their retirement goals. Those planning to retire in 2023 need to know about how to protect their nest eggs and prepare for a post-pandemic economy.
How Real Is The Potential For Recession in 2023?
It’s not easy to predict a recession with a high level of certainty. Economic conditions can change quickly and even the experts get it wrong. However, a number of indicators suggest trouble is on the horizon and that’s bad news for those who have planned to retire in 2023.
It is likely that the US will experience a recession in 2023 due to a number of economic factors. For one thing, we’re seeing a deeply inverted yield curve which is a clear signal that investors are expecting a recession. In 2022 the US housing market began losing strength, and the stock and bond markets have been bitten hard as a result of inflation and slowing economic growth.
The Bloomberg monthly survey of economists also gives a median estimate of 0.3% for US gross domestic product in 2023, with a projected 0.7% in the second quarter. This is down from the Federal Reserve’s projection of 0.5% growth for the year. Furthermore, the economists polled by Bloomberg give a 70% chance of a meaningful downturn in the American economy in the next 12 months. This is well above the Fed’s own forecast of a soft landing, with traders in the futures market expecting the Fed to start cutting rates by the end of 2023.
Finally, the personal consumption expenditure price index, the Fed’s preferred measure of inflation, is expected to decline to 2.8% by the fourth quarter of 2023. This, along with the current unemployment rate of 3.7%, suggests that the US could enter a recession in the coming year. All of these economic indicators point towards a US recession in 2023, making it increasingly likely that the country will experience a downturn.
How Would Recession Affect 2023 Retirees?
A recession in 2023 could have a significant impact on retirement plans. When the economy slows and unemployment rises, it can be difficult to reach financial goals. As businesses close, wages may be reduced and retirement savings could be affected. This means that retirees may need to make adjustments to their long-term plans.
One of the most important steps to take is to diversify your portfolio and make sure you have different types of investments. This will help protect your assets if one sector of the market goes down. Additionally, you should focus on budgeting and building an emergency fund, as well as paying off high-interest debt.
Strategies for Reducing Risk and Preparing for Retirement
It is important for 2023 retirees to remain vigilant and ensure their retirement savings are diversified, so that if one investment loses value, others may remain unaffected. However, a global recession could lead to a wide range of investments declining in value, making it difficult to secure any sufficient return on investments.
When it comes to investing, you may want to consider putting money into bonds and cash equivalents, as these will not lose value if the stock market crashes. You may also want to consider a fixed or fixed index annuity, as they offer protection from market volatility while still providing the opportunity to earn interest.
Here are 3 quick tips for reducing risk as you prepare for retirement in 2023
1. Diversify your investments: Don’t put all your eggs in one basket. Investing in a variety of asset classes, such as stocks, bonds, commodities, and real estate, can help reduce risk.
2. Invest for the long-term: Investing for the long-term is one of the best ways to reduce risk. While short-term investments may offer a quick return, they also come with more risk.
3. Stay informed: Keep up to date on the latest news, trends, and events that may affect the markets. Doing so can help you make better investment decisions and reduce your risk.
A Little Encouragement to Temper Your Fears
Past recessions have ended quickly despite the severity of the declines when the recession began. In the 1973-75 recession, stock markets fell 43% from the start of the recession to the bottom, and unemployment reached 10%. Nevertheless, the recession ended after 16 months. Similarly, the 2008 Great Recession saw an economic contraction worse than The Great Depression and stocks dropping 8%, however, it only lasted 8 months.
The performance of the stock market during past recessions is also encouraging. History has shown that stocks have always recovered to pre-recession levels and higher following a downturn. In the 1980 recession, stocks bottomed twice during the recession and rose 16% before hitting a new low. After the recession ended, stocks continued to rise, resulting in a 535% increase over the next decade. Similarly, the S&P 500 lost nearly half its value in the 2008 recession, but it recovered within two years.
These examples from the past demonstrate that although recessions are a difficult time for the economy, they don’t last forever and stock markets can recover quickly.
Conclusion: Planning for Retirement During Economic Turbulence
Taking all these factors into consideration, 2023 retirees should take the necessary steps before retirement to prepare for a potential recession. This includes reducing any debts, creating more reliable sources of income and exploring alternative investments. By taking proactive measures now, 2023 retirees can ensure their retirement savings remain intact during the upcoming recession. And through it all, remember that the economy is cyclical and if history can be trusted, the pain you may be experiencing now is temporary and the future still looks bright.