Don’t hit the panic button; I’m not predicting a recession this month/summer/year/decade. I don’t know when the next recession will be any more than the talking heads on TV (trust me, they don’t know either). But, as the scouts say, it’s always good to be prepared.
Prepared for a recession means different things at different stages of life. This week, three tips for those of you who are retired. Next week, we focus on the still-working-and-saving-for-retirement folks.
- Have 2 years of investment withdrawals in safe accounts.
- First, calculate your monthly spending and subtract your guaranteed monthly income sources (pension, Social Security, lifetime fixed annuities).
- Note, your Required Minimum Distributions from IRA accounts do NOT count as guaranteed income because this amount will go up and down based on your investment account balance.
- Next multiply the difference by 12.That number is how much you will take out of investments in the next year. This money should be in a savings account or money market. Something very liquid that doesn’t change in value and doesn’t charge a penalty for taking money out early.
- For Year Two of income, you can take the same number as above (maybe add 3% for inflation) and potentially buy a 1-year CD.That will lock in a higher interest rate than a savings account for money you know you won’t use in the next 12 months.
- First, calculate your monthly spending and subtract your guaranteed monthly income sources (pension, Social Security, lifetime fixed annuities).
- Pre-book and pay for vacations or hobbies. You don’t want the volatility of the stock market to dictate the joy of retirement. By taking time up front to research good deals (don’t forget to wave your AARP card at those hotels) and making down payments for things in advance, you will feel more in control of the spending on fun stuff and continue to do it, even if the markets are down.
- Check your investments. This doesn’t mean change your investments, but if it’s been a while since you rebalanced to your target asset allocation, now would be a good time. If you don’t have a target asset allocation (or know what one is), now would be a good time to get that in place – either with your existing financial advisor or a new one.
Last, it doesn’t do any good to obsessively watch financial TV. Those channels are built to make money by selling advertising dollars. If it bleeds, it leads. I’ve rarely seen an interview that made me think, “Wow, that person really helped me make a good decision on my finances.”
