How To Prepare for a Recession

To prepare for a recession, start building an emergency fund that can cover your living expenses for three to six months. In addition, lowering your debt before a recession begins can make it easier to survive financial hardship. Learn more about preparing for a recession, such as specific tips for retirees and which investments to stick with.

  • Written by
    Lindsey Crossmier

    Lindsey Crossmier

    Financial Writer

    Lindsey Crossmier is an accomplished writer with experience working for The Florida Review and Bookstar PR. As a financial writer, she covers Medicare, life insurance and dental insurance topics for RetireGuide. Research-based data drives her work.

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  • Edited By
    Lamia Chowdhury
    Lamia Chowdhury, editor for RetireGuide.com

    Lamia Chowdhury

    Financial Editor

    Lamia Chowdhury is a financial content editor for RetireGuide and has over three years of marketing experience in the finance industry. She has written copy for both digital and print pieces ranging from blogs, radio scripts and search ads to billboards, brochures, mailers and more.

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  • Financially Reviewed By
    Brandon Renfro, Ph.D., CFP®, RICP®, EA
    Brandon Renfro, RetireGuide Reviewer

    Brandon Renfro, Ph.D., CFP®, RICP®, EA

    Retirement and Social Security Expert

    Brandon Renfro is a Retirement and Social Security Expert and financial planner. He focuses on helping clients create a secure financial future in retirement and co-owns Belonging Wealth Management. He is also a former finance professor and writes for several publications.

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  • Published: May 4, 2023
  • Updated: August 12, 2023
  • 6 min read time
  • This page features 5 Cited Research Articles
Fact Checked
Fact Checked

A qualified expert reviewed the content on this page to ensure it is factually accurate, meets current industry standards and helps readers achieve a better understanding of retirement topics.

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How to Cite RetireGuide.com's Article

APA Crossmier, L. (2023, August 12). How To Prepare for a Recession. RetireGuide.com. Retrieved December 8, 2023, from https://www.retireguide.com/retirement-planning/how-to-prepare-for-recession/

MLA Crossmier, Lindsey. "How To Prepare for a Recession." RetireGuide.com, 12 Aug 2023, https://www.retireguide.com/retirement-planning/how-to-prepare-for-recession/.

Chicago Crossmier, Lindsey. "How To Prepare for a Recession." RetireGuide.com. Last modified August 12, 2023. https://www.retireguide.com/retirement-planning/how-to-prepare-for-recession/.

Key Takeaways
  • There are ways to make yourself “recession-proof” and reduce your chance of losses during a recession.
  • Consider investing in CDs, government securities, dividend stocks and money market funds during a recession.
  • If you’re a retiree, consider a part-time job or delaying Social Security benefits to offset the financial repercussions of a recession.

What Happens in a Recession?

During a recession, there’s a severe drop in the nation’s gross domestic product (GDP), a high unemployment rate, along with wholesale and retail sales adjusted for inflation.

You can expect stock markets to become volatile, causing panic buying and selling. Within a recession, the housing market has been known to take hits too, according to U.S. News. Prices of homes drop, but there’s an increase in foreclosures and short sales.

A recession threatens the financial stability of millions. Your retirement savings plan will likely take a hit if you have high-risk investments. In addition, if you’re looking to downsize, you won’t be able to sell your home for much.

If you lose your job during the recession, you will likely no longer have healthcare coverage and may need to anticipate paying for medical costs out-of-pocket.

The key to weathering a recession is to prepare in advance. Also, think in terms of timeframes. Your short-term savings should be in stable instruments like cash, CDs or bonds. Longer-term savings can remain invested.
How Long Do Recessions Last?
Historically, official recessions have lasted between two months to five years, but on average, a recession typically lasts around 17 months.
Source: U.S. News

Unfortunately, all the features that define a recession sound recognizable to most Americans. It begs the question: Are we currently in a recession in 2023?

RetireGuide asked Barbara O’Neill, CFP®, CEO of Money Talk and author of “Flipping a Switch” if she thinks we’re currently in a recession. “It’s hard to say if we’re in a recession or not since the National Bureau of Economic Research (NBER) has been giving conflicting signals.”

“At one point last year, the NBER was saying one of the big indicators of a recession was two consecutive quarters of drop in the GDP. It happened, but they still didn’t announce a recession because, at the same time, they were seeing a lot of job openings, which we still have today.”

O’Neill stressed the importance of assessing your personal financial situation — not just a NBER declaration of a recession. “There’s the personal recession and the official reception. The bottom line is if people are hurting now, you could be in a personal recession, even though it may not be official.”

While a recession can be daunting, there are ways to proactively prepare to avoid taking large losses.

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Tips To Survive a Recession

O’Neil offered RetireGuide three tips on surviving a recession. “My number one tip to best handle a recession is to have an emergency fund to cover at least three to six months of expenses. My second tip is to lower your debt since it’s always easier to have low debt versus high debt during a recession. It’s also a good idea to consider a bear market fund, which is beneficial in an economic downturn.”

Create a contingency plan with a financial advisor to determine how much you’d need to cover three to six months of living expenses. Make sure to include reducing your debt in your plan.

A bear market fund is a mutual fund that can provide returns during a market downturn. If you’re considering a bear market fund, make sure you diversify your investments first, since this option can be on the riskier side.

3 Recession Survival Tips
  1. Have an emergency fund that covers three to six months of living expenses
  2. Eliminate as much debt as possible in advance
  3. Consider a bear market fund (with a financial advisor’s aid)

How To Prepare for a Recession if You Are Retired

If you’re retired, there are several ways to offset the financial burden of a recession.

Recession Preparation for Retirees
Delay Your Social Security Benefits
Each year you delay your Social Security benefits, the amount you will receive increases until the cut off at age 70. Say you’re 67 years old, and you assume we’re going to be in a recession by next year. You could wait to collect benefits until you’re 68 so you have a higher benefit amount when the recession arrives.
Get a Part-Time Job
You can put off retiring for a few months by getting a part-time job and bulking up your savings.
Downsize in Advance
If you have a large home, you could sell your home before the recession hits and home prices drop. Then you’d have a lofty nest egg to purchase a smaller, modest home with a lower mortgage to handle during the recession.

What To Invest in During a Recession?

“You could invest in high-interest brokered certificates of deposit (CDs), or CDs from online banks. I recommend laddering the CDs since we don’t know what’s going to happen with the economy. Dividend-paying stocks, government securities and money market funds are also good investments during a recession,” O’Neil told RetireGuide.

Gold can also be a worthy investment since it has historically performed well, or even increased in value, during a recession.

If possible, try to keep investments that are fairly liquid. Having cash on hand will make it easier to weather a recession.

Investments Considered Safe During a Recession
  • CDs
  • Dividend-Paying Stocks
  • Government Securities
  • Money Market Funds
  • Gold

Laddering your CDs is a noteworthy tactic to consider. By laddering CDs, you’re hedging all the interest rate uncertainty since you’re locking in current rates.

If rates go up by the time your short-term CDs mature, you can reinvest at a higher interest rate. And if the rates start to come down, then you still have the other long-term CDs with locked, higher rates to limit your risk.

Make sure you regularly review and rebalance your investments during a recession. Ask for advice from a financial advisor before making rash decisions with any high-risk investments.

Frequently Asked Questions About Preparing for a Recession

What are recession-proof jobs?
While no job is 100% recession-proof, waiters, private bankers and emergency-related roles are expected to be secure in 2023.
How to prepare for a recession with food?
Prepare for a recession by purchasing nonperishable foods and using “buy now, pay later” services if you need to cover food costs.
Is a recession coming?
Although there have been signs indicating a recession is coming, the National Bureau of Economic Research (NBER) has not announced a recession yet in 2023.

Editor Malori Malone contributed to this article.

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Last Modified: August 12, 2023

5 Cited Research Articles

  1. Gobler, E. (2023, April 27). What Assets Are Recession-Proof? Retrieved from https://www.usatoday.com/money/blueprint/investing/what-assets-are-recession-proof/
  2. Thorsby, D. (2023, April 27). When Will the Housing Market Crash? Retrieved from https://realestate.usnews.com/real-estate/articles/when-will-the-housing-market-crash
  3. Brooks, K. (2022, December 28). The Top 10 Recession-Proof Jobs for 2023. Retrieved from https://www.cbsnews.com/news/recession-jobs-2023-payscale-report/
  4. Corporate Finance Institute. (2022, December 5). Recession. Retrieved from https://corporatefinanceinstitute.com/resources/economics/recession/
  5. Kerr, E. (2022, July 14). What We Can Learn From Past U.S. Recessions. Retrieved from https://money.usnews.com/money/personal-finance/family-finance/articles/how-long-do-recessions-last-what-we-can-learn-from-past-recessions