3 Income Sources You Can't Bank on During a Recession

You'll need another fallback option.

At this point, it would be premature and downright speculative to state that a recession is definitely happening in 2023. But the reality is that many financial experts are convinced we're headed for a downturn.

The Federal Reserve has been doing its part to cool the pace of inflation by implementing aggressive interest rate hikes. In driving the cost of borrowing upward, the hope is that consumers will start to spend less, thereby narrowing the gap between supply and demand that led to rampant inflation in the first place.

But borrowing is getting so expensive that it has the potential to drive a major decline in consumer spending. And that could spur a recession.

Now, perhaps the scariest thing about a recession is the potential to fall victim to job loss. And that's why you'll often hear that it's so important to grow your savings ahead of an economic downturn. But while you may be able to bank on your savings if you need money to get through a recession, here are three income sources you may not be able to look to.

1. Your side hustle

Right now, the U.S. labor market is strong, and that extends to the gig economy. But if things take a turn for the worse next year, not only might layoffs become rampant, but the gig economy might fold -- at least temporarily. As such, you can't automatically assume the side hustle you're holding down at present will be a viable income source during a recession.

2. Your brokerage account

If you have investments in a regular brokerage account, you have the option to cash them out at any time. But stock values tend to fall during periods of economic unrest. And if you cash out investments at a price that's lower than what you paid for them, you'll lock in permanent losses, which is something you probably don't want to do.

3. Your IRA

If you've been steadily funding an IRA, you might assume you'll just tap that account during a recession if a need for money arises. But the money in your IRA is supposed to be earmarked for retirement. And because IRAs come loaded with tax breaks, the IRS doesn't take kindly to withdrawals that are made ahead of retirement. 

In fact, with an IRA, you're required to leave your balance untouched until age 59 ½. Taking an early withdrawal from an IRA could result in a 10% penalty on the sum you remove.

Shore up your savings

Banking on a side hustle, brokerage account, or IRA to get you through a recession could be a recipe for disaster. Rather than go that route, boost your savings so you have at least enough money to cover three full months of essential living expenses. And for better protection, aim for six months' worth.

We can't say for sure that a recession is going to strike in 2023. But it's best to prepare for one by boosting your savings as much as you can.