Preparing Your Retirement Savings & Assets for a Recession

storm warning

Retirement should be a time to relax and enjoy the fruits of your labor. The likelihood of a 2023/2024 recession, unfortunately, means that even the affluent can no longer afford to take a comfortable lifestyle beyond the workforce for granted. In the simplest terms, even good-sized nest eggs could be diminished if they are left unprotected.

This makes it essential to prepare as much as possible in advance. Take it from a  registered investment advisor in Connecticut: Affluent individuals and families who have substantial assets, in particular, should be more proactive than usual: A recessionary period paired with today’s high inflation and market volatility could erode a troubling amount of your unsecured wealth. 

This article covers these topics:

  • How to recession-proof your portfolio 
  • How should high net-worth individuals prepare?
  • Getting defensive: update retirement projections
  • “Will I have enough money to retire?”
  • How retirees could be impacted this year
  • Start planning out your taxes, if you haven’t
  • Don’t let recession news surprise you
Chapter 1

How to Recession-proof Your Portfolio

protect your retirement planAre we headed for a recession in 2023/2024? Probably. The economy is cyclical, and it is not uncommon to experience periods of contraction or recession. So, it is not surprising that many of us are predicting that the U.S. economy could be headed for a recession this year or next. As unappealing as that sounds, with adequate preparation, it doesn’t have to spell disaster for your portfolio.

However, before we dive into specific strategies, let’s talk about the meaning of “recession” and what one could look like today. A recession is sometimes defined as two consecutive quarters of negative economic growth (measured by GDP). However, we saw that in Q1 & Q2 2022 without recession. Only the National Bureau of Economic Research (NBER) can officially declare a recession. They are the sole arbiter. During this time, businesses may struggle, unemployment rates can rise, and consumer spending may decrease.

In fairness, there is still a chance that it won’t happen. The Fed could thread that proverbial needle and engineer the elusive “soft landing”. It just doesn’t look like that chance is huge. In fact, JPMorgan Chase estimates that the odds of a recession happening before the end of the year are over 50%. Once the economy takes that kind of a downturn, it is likely that things may have to bottom out before improving. 

In other words, the economy could continue to contract for a period of time before beginning to recover. It’s also possible that the recovery may be slow and gradual rather than a rapid bounce-back. Some estimates suggest a phase of around ten months, but it’s probably best to prepare for longer, just in case. 

Even now, it is still possible to retire with confidence in Woodbridge and Connecticut. That’s why I discuss steps for preparing your high-net-worth retirement plan as a whole to better withstand a recession in the sections that follow. In the meantime, however, here are some investment-portfolio-specific tips:

  • Diversify your investments. This is one of the most important things you can do right now. It refers to spreading your money across different strategies, asset classes and types, such as stocks, bonds, and real estate, as well as different sectors and industries within those asset classes.
  • Invest in defensive sectors. During a recession, some sectors may be hit harder than others. For example, consumer discretionary stocks may suffer as people cut back on spending, while defensive sectors such as healthcare, utilities, and consumer staples often perform better. You may also want to consider companies with strong balance sheets, low debt levels, and solid cash flow.
  • Consider alternative investments. These can include things like real estate, commodities, and private equity. They often perform differently than traditional stocks and bonds, which can help to reduce your overall portfolio risk. However, it is important to do your research and understand the associated risks.

Maintain a long-term perspective. Recessions can be stressful, but history has shown that the market eventually recovers. Rather than trying to stress about the market or make short-term trades based on feelings and emotions, focus on your long-term investment goals and risk tolerance. Investing is a marathon, not a sprint

Chapter 2

How Should High Net-Worth Individuals Prepare?

high net worth retirementDespite the challenges, there are several ways for the financially independent to prepare themselves for a recession. The first, simplest, and most crucial strategy is to focus on your long-term financial goals. In times of economic uncertainty, it can be tempting to panic-sell your investments, but that seldom ends well.

There’s an old saying in the financial industry that until you commit to selling off assets, your losses are “only on paper.” This refers to the fact that nearly all investments have up and down phases—and once you sell at a loss, you’ve cut yourself off from future gains it makes. 

Of course, not every asset will make up its losses to the same degree. A few may underwhelm so consistently that we should consider utilizing their sale for tax loss harvesting. Regardless, in this time of lingering supply chain issues, there are still, for example, multiple manufacturers whose stock may see gains again once those issues are resolved.

The next strategy to consider is updating or reviewing your retirement projections. For example, you may want to adjust your retirement age, increase your savings rate, or consider a more conservative investment strategy. You should also consider the impact of inflation, particularly when it leads the Federal Reserve to raise interest rates. 

Over time, inflation can erode the value of your investments, which can impact your retirement savings. That’s why we should go over your projections together soon if we haven’t already. As I mentioned in the section above, it’s also important to verify that your portfolio is well-balanced and diversified. 

This can help mitigate risks during economic uncertainty by avoiding over-investment in any one type of asset. While you’re at it, it’s a good idea to review your asset allocation strategy regularly, making adjustments as needed, as well. 

Chapter 3

Getting Defensive: Update Retirement Projections

registered investment advisor ConnecticutWith the bond market already in unprecedented territory, it’s more important than ever to update your retirement projections, taking steps to protect your wealth. Inflation and market volatility were prevalent, even before we knew that a recession was so likely. All of these factors can have a significant impact on your retirement projections and long-term financial planning, in general.

That makes it essential to take proactive measures that are both ongoing and long-term. Your investments should be regularly monitored and adjusted as needed. At the same time, it’s critical to develop/maintain a plan that takes into account a range of possible scenarios. In addition to current market fluctuations, unexpected expenses and changes to peoples’ personal circumstances happen every day.

Another way to ensure that you are well-positioned for the future is to work with a seasoned wealth manager who is also an Accredited Investment Fiduciary®. As a professional financial planner with decades of experience in the industry, I have a deep understanding of the complex issues surrounding retirement planning.

Chapter 4

“Will I Have Enough Money to Retire?”

have you saved enough for retirementAs they approach retirement age, many people wonder if they will have enough money to live comfortably throughout their golden years. With rising healthcare costs and a potentially longer lifespan, it’s important to plan ahead and ensure that you have enough savings to support yourself. Again, affluence used to be a sort of shield against these concerns, but bear markets, inflation, and a likely recession have raised a red flag in multiple sectors.

For instance, some future retirees may want to consider their Social Security break-even age. This refers to the point at which the total value of your benefits received could equal the total value of the benefits you would have received if you had delayed claiming your benefits. Delaying your benefits can increase your monthly payment, but it also means receiving fewer payments over your lifetime. 

Another factor to plan ahead for is the possibility of needing long-term care in a nursing home. If you’re turning 65 today, you have a 75% chance of needing this kind of care in the future. The resulting costs can be significant, which is why you may want to consider purchasing long-term care insurance. Opting to react defensively after the fact can put a strain on your savings. 

At Heritage, we specialize in helping high-net-worth individuals prepare financially for their golden years. We’re ready to help you assess your current financial situation and identify potential gaps in your retirement planning. Together, we can develop a personalized strategy for ensuring that you have enough savings to support yourself after leaving the workforce. 

Chapter 5

How Retirees Could Be Impacted This Year

the economy's impact on retireesRetirees who rely on investments or have a fixed income may struggle to make ends meet during a recession. The always-rising cost of healthcare and other essential expenses can be an additional burden for those living on a fixed income. 

This is why a recession can add an extra layer of stress to those who are caring for aging parents. Seniors often need more help with medical expenses or other essential costs. Again, it can be worth considering long-term care insurance for parents, as well. 

This type of coverage helps with the costs of long-term care, such as assisted living or nursing home care. It can provide a sort of financial safety net, since a senior’s needs aren’t always covered by Medicare or other insurance policies. It typically includes in-home care, assisted living, or nursing home care. 

Before you commit to a long-term care insurance policy for your parents, do your research and shop around. Policies offering comprehensive coverage with a strong financial rating are often worth considering. You may also want to consider working with us to help you navigate these options although we do not sell insurance products.

Chapter 6

Start Planning Out Your Taxes, if You Haven’t

retirement tax planningWhether we like it or not, taxes are a necessary part of life. At first glance, they don’t seem like the most exciting topic to think about, but taking the time to plan them out long-term, may help grow your nest egg. Tax savings can also serve as a possible wealth preservation tactic during a recession.

The key is to begin as early as possible since a long-term approach is generally best. Rather than simply focusing on this year’s tax bill, we consider how your decisions will impact your taxes over the long haul. The reason why is simple: While a single year’s income tax mitigation could net you a few thousand dollars, a long-term approach has the potential to recoup much more.

For example, contributing to a retirement account such as an IRA or 401(k) does more than merely reduce your current tax bill. It also provides tax-deferred growth and potential tax savings toward your retirement. Another useful strategy I’ve already mentioned is tax loss harvesting, selling investments that have decreased in value in order to offset gains elsewhere in your portfolio. 

Bundling your deductions can help, as well. If you’re close to the standard deduction amount, consider making larger charitable contributions or paying your property taxes early in order to push your deductions over the threshold. This can help to maximize your tax savings, ultimately reducing your long-term tax bill.

Chapter 7

Don’t Let Recession News Surprise You

financial advisor ConnecticutA recession may be inevitable, but it doesn’t have to catch us off-guard. We can be prepared for it—with a plan in place to weather the storm. For example, make sure you have an emergency fund that can cover your expenses for at least three to six months. You may also want to review your budget and look for ways to cut back on more extravagant expenses.

On the other hand, it may not require anything so drastic. Heritage Capital, LLC is a fee-only fiduciary investment advisory firm that specializes in managing risk during turbulent times. We offer a range of financial planning for high-net-worth individuals to help you navigate the upcoming recession with the least discomfort necessary. 

Working with us means getting customized solutions based on your unique financial needs and goals. We take into account your risk tolerance and your investment timeline, as well as your short- and long-term financial objectives. It all factors into our high-net-worth retirement planning for Connecticut. 

This can yield peace of mind from knowing that your investments are being managed by extensively-experienced professionals seeking your best interests. You can try our services and investment approach for free before committing to a long-term relationship. 

So, if you’re thinking of switching financial advisors in Connecticut, you can get a second opinion in New Haven. Contact us to learn more.