Talks of a recession are never comforting, especially for those on a fixed income or looking to leave the workforce for good in the next few years.
Yet that’s exactly what economists are talking about these days. Inflation is rising, the stock market is volatile, and Americans are wondering how best to brace themselves and their finances. The U.S. chief economist and head of portfolio construction at Vanguard, Roger Aliaga-Diaz, told MarketWatch he expects a recession next year. Other experts, such as Federal Reserve officials, say a recession isn’t happening.
Now is the time to review your investments and retirement plan, and find ways to stay anchored when the storm feels a bit too strong, advisers said.
“It is a difficult time in the market and with a recession most likely on the horizon, it is even more challenging for those close to retirement or just retired,” said Devin Pope, a certified financial planner with Albion Financial Group.
Checking in on asset allocation is always helpful, as it shows how much of your portfolio is invested in risky versus conservative options. A financial planner or a robo adviser might have created an asset allocation based on time horizon, financial goals and expected volatility, so confirm with a qualified professional that the mix of stocks and bonds are still appropriate for your needs.
Also, keep in mind your portfolio may see too many fund tickers in the red, but could still be producing income each year through dividends and interest, Pope said. And your retirement portfolio (including the way it’s allocated) is meant for the long haul.
“Retirement is not the end of their financial life—they still have a few decades to be in the market,” Pope said. “Financial success is about time in the market, not timing the market, and if you have 20 years to live off of your money, it is important to have that attitude.”
As with any market downturn or volatility, advisers say not to respond emotionally by making any drastic changes—right now is simply the time to review.
Still, there may be situations when it is appropriate to make small tweaks to the portfolio. For example, if your risk tolerance has significantly changed. Risk “tolerance” is the amount of risk an investor is comfortable taking, compared with risk “capacity,” which is how much risk an investor must take on to achieve their financial goals.
These two measurements aren’t always aligned, but if a retirement saver or retiree is unnerved by the market and unable to shake the stress of the losses they’re experiencing, they should consult with a financial professional.
Those with a financial adviser managing the portfolio should ask for a checkup, if only for peace of mind, said Ryan Eyerman, a certified financial planner at CKE Financial Services. Advisers can run projections for how long retirement savings, as they currently stand, can last in this economic environment, and check that the plan is still on track.
Confirm that there’s cash reserves enough for at least six months of living expenses, too, Eyerman added. “History has shown us that recessions typically last six months, so at least you will have the peace of mind that if a recession does come to pass, you can ride out the rough patch on your cash while the market returns to a more normal trajectory.”
Other tasks to take seriously: Keeping busy, active and healthy, said Marisa Rothstein, a certified financial planner and lead adviser at Siena Private Wealth.
“There is no reason to waste energy worrying about things you cannot control; namely, the stock market,” she said. “Redeploy the energy you were using to worry about your stock portfolio to focus on what you can control. These are things that will have a potentially greater impact on the quality of your retirement than the day-to-day balance of your portfolio: Keeping healthy, managing your expenses, performing well at work. And, keep saving.”