Best Retirement Decisions To Make in a Recession

A recession can crash the value of your retirement savings — and force you to tap into what’s left to get through the downturn. But careful planning can help you prepare for and ride out recessions with minimal financial damage and keep your retirement plans reasonably on track.

Terry Turner, writer and researcher for RetireGuide
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    Terry Turner

    Terry Turner

    Senior Financial Writer and Financial Wellness Facilitator

    Terry Turner has more than 35 years of journalism experience, including covering benefits, spending and congressional action on federal programs such as Social Security and Medicare. He is a Certified Financial Wellness Facilitator through the National Wellness Institute and the Foundation for Financial Wellness and a member of the Association for Financial Counseling & Planning Education (AFCPE®).

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    Lamia Chowdhury, editor for

    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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    Stephen Kates, Certified Financial Planner™ and personal finance expert

    Stephen Kates, CFP®

    Certified Financial Planner™ Professional and Founder of Clocktower Financial Consulting

    Stephen Kates is a Certified Financial Planner™ professional and personal finance expert with over a decade of experience working with individuals and families who need help with their finances. With experience as a financial advisor for two of the largest financial firms in the country, Stephen has worked with hundreds of clients to build comprehensive financial plans to grow and protect their wealth.

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  • Published: August 23, 2022
  • Updated: June 24, 2023
  • 5 min read time
  • This page features 6 Cited Research Articles
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APA Turner, T. (2023, June 24). Best Retirement Decisions To Make in a Recession. Retrieved May 22, 2024, from

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Chicago Turner, Terry. "Best Retirement Decisions To Make in a Recession." Last modified June 24, 2023.

What Is a Recession?

A recession is a prolonged period of significant economic downturn in which trade and jobs decline. It can be accompanied by high unemployment and falling stock market indexes. Recessions tend to last six months or longer, but there are outliers. The recession during the COVID-19 pandemic lasted just two months in early 2020, but the Great Recession lasted 18 months from 2007 into 2009.

Recessions are not easily defined. A simplistic definition tends to be two consecutive quarters of real declines in the GDP — gross domestic product. But that is not the official definition of a recession, according to the National Bureau of Economic Activity (NBER).

The NBER has the sole say in determining a recession in the United States. The NBER is a private, nonprofit research organization that bases its call on monthly assessments of personal incomes, business and consumer spending, industrial production and changes in the labor market — as well as quarterly GDP performance.

How Can a Recession Impact Your Retirement Savings?

Recessions pose one of the most severe and uncertain retirement risks. Recessions tend to cause sudden, steep drops in the stock market. This can mean that your retirement investments can decline in value. Recessions also see high unemployment rates.

If you lose your job, you may not be able to continue contributing to your retirement savings — or worse, you may have to tap into your savings to pay the bills.

Ways to Aid Your Finances in a Recession

You should prepare ahead of time to ride out a recession by building up your savings, paying down debt and keeping an emergency fund to avoid tapping into retirement savings.

Ways to Ride Out a Recession
Building a budget and sticking to it before a recession happens will allow you to create a day-by-day spending plan. Include savings and an emergency fund as part of your budget. Living within your means and budgeting for savings can give you a financial reserve to make it through a recession.
Buying an annuity
Buying an annuity can provide you with guaranteed income — but the kind you buy matters ahead of a recession. Fixed annuities do better in a recession and can deliver a steady cash stream during recessions. But variable annuities fluctuate with the markets, and their performance takes a beating in a recession.
Delay enrolling in Social Security
You can start collecting Social Security as young as 62. But the longer you wait — until age 70 — the greater your monthly benefits will be. Payments increase by 8% each year you wait. On top of that, you receive a cost-of-living adjustment — or COLA — each year based on inflation.
Emergency funds
An emergency fund makes you less likely to depend on your retirement savings, credit cards or loans during a recession. The fund should equal six to nine months of your regular spending. It’s good to keep these savings separate from other investments and it should be liquid, so you can access it quickly and without penalties — for example, in a high-yield savings account.

Should You Invest During a Recession?

When the stock market crashes in a recession, it’s a good time to buy stocks. Stock prices drop sharply during a recession. But stock prices tend to rise during the recovery, allowing you to make a larger profit than if you wait to invest.

Should You Keep Contributing?

While a recession can throw a wrench into your retirement planning goals, you should continue to contribute to your retirement accounts if you can.

A standard rule of thumb is to not go against your risk tolerance when investing in a recession.

In other words, keep doing what you’re doing. If you typically put 60% of your retirement contributions into stocks and 40% into bonds, stick with it regardless of what the market is doing.

Asset Diversification

Keep your investments diversified to prepare for a recession — and to ride one out. By spreading out your risk in a lot of different investments, you minimize your risk of loss if a company you invested in fails during the recession.

Some investment advisors recommend diversifying your portfolio with as many as 10 different investment and asset classes. These may include stocks, bonds, cash, mutual funds, real estate and other investments or assets.

Recession-Safe Assets

The safest assets during market loss include individual bonds, CDs or cash through maturity. However, they are more susceptible to inflation risk.

Stocks in large companies with a long, strong record of profitability do well during recessions, but they are a higher risk in the long run. If you invest in stocks, it’s best to choose companies that have a strong track record of weathering past recessions, so they ride out the next one.

Companies with this kind of performance tend to be in the consumer staples sector — producing goods or services that are not usually affected by changes in the economy one way or another. This includes food, beverage, alcohol and household goods companies.

Ahead of a recession, you may also want to look at investments that are not tied to a performance index and won’t be affected by economic downturns. These include bonds, fixed annuities or other non-indexed investments.

Should You Go Back to Work in a Recession?

Going back to work during a recession can help your finances in two ways — give you a steady income stream and allow you to put more money into savings and investments.

You may also want to put off your retirement if you are still working during a recession. This will allow you to continue making contributions to your retirement accounts.

People nearing retirement age also have the option of making larger annual “catch-up” contributions to retirement accounts. For example, if you are 50 or older, you can contribute an additional $6,500 into a 401(k) or an additional $7,000 into an IRA in 2022.

Each year you work also increases the amount of monthly benefit you’ll receive from Social Security.

The downside to returning to work during a recession is that companies tend to lay off employees during recessions, making the job market more competitive for anyone wanting to return to work.

You should also consider how working after retirement can affect your Medicare, Social Security, pension and other benefits.

Last Modified: June 24, 2023

6 Cited Research Articles

  1. Hartman, R. (2022, July 20). How to Retire During a Recession. Retrieved from
  2. U.S. Congress, Joint Economic Committee. (2020, August). The Impact of the Coronavirus Recession on Older Workers. Retrieved from
  3. Argento, R., Bryant, V.L. and Sabelhaus, J. (2013, November). Early Withdrawals From Retirement Accounts During the Great Recession. Retrieved from
  4. Gustman, A.L., Steinmeier, T.L. and Tabatabai, N. (2012, November 4). How Did the Recession of 2007-2009 Affect the Wealth and Retirement of the Near Retirement Age Population in the Health and Retirement Study? Retrieved from
  5. U.S. Government Accountability Office. (2011, October 18). The Effect of the 2007-2009 Recession on Older Adults. Retrieved from
  6. McFall, B.H. (2011, May). Crash and Wait? The Impact of the Great Recession on Retirement Planning of Older Americans. Retrieved from