While it's easy to say a recession is coming, it's much more difficult to know when it will happen. For retirees who are often relying on fixed incomes and hard-earned savings, any economic downturn can be particularly worrying. Fortunately, there are steps you can take to prepare yourself for the next recession, whenever it arrives. Here's how.
Pay down debt
Take a critical look at your finances. Do you have any high-interest debt? If so, a payoff plan like the debt snowball or debt avalanche can help keep you on track and accelerate how quickly you pay it down. Even if you're carrying old student-loan debt or a low-interest loan you took on before rates began to rise, consider paying it off. Your regular payments may not seem like much when the economy is booming, but during slowdowns and periods of high inflation, every dollar counts.
With each debt you jettison, you gain more financial flexibility for the next recession, even if it's years away.
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Put money away
You've probably heard the advice to have an emergency savings account, but the value of such an account can become especially clear during a recession. Whether you suddenly need a new radiator or surgery for your beloved pet, the goal is to avoid using a credit card to pay for necessities, only to be saddled with sky-high monthly interest charges on the balance. An emergency fund with enough money to cover three to six months' worth of expenses is the easiest way to prepare for unforeseen expenses.
If you're still short of your emergency savings goal, chip away at it a little at a time. Having even $1,000 saved may not seem like a fortune, but every little bit helps.
Separate cash from investments
Beyond the emergency fund, it's good to have cash or other easy-to-liquidate assets on hand for your regular expenses. The stock market often weakens during a recession, so withdrawing from your retirement accounts during one means you're forced to sell a larger share of your assets to net the money you're counting on to pay the bills. Doing so will drain your accounts faster, leaving you with fewer assets that can generate growth as the market recovers. This can be especially devastating early in your retirement.
If you're still a few years away from retirement, now is a good time to start storing cash in places that are easy to access. If you're already in retirement, ensure you're comfortable with your ability to cover your household expenses and any required minimum distributions.
Reevaluate your budget
One of the least fun things to do in life is tighten your belt. In this case, that means working through your budget to identify areas where you can trim your spending. For one person, it may be going out to eat less, while another may benefit by tweaking their vacation plans for the upcoming year. It's all about doing what you can until the downturn passes (and it will pass).
The U.S. has experienced over a dozen recessions in just the past century. No matter when the next one arrives, the steps outlined here can help you meet it head-on.
