5 Easy Steps to Recession-Proof Your Retirement

Finance

The coronavirus pandemic has affected everyone’s daily life around the world, in ways that range from social distancing all the way through employment furloughs and lay-offs across several major industries.

The worst part is that we’re not in the clear yet. Many experts are worried that the United States is entering into a recession, having already been rapidly hurled into a bear market within a mere twenty-four days.

Yes, we’re not that far from the 2008 recession and potentially facing another one. These same experts were optimistic that any economic hardship would be short-lived, merely paralleling the dip in business output that accompanied nationwide distancing and quarantines. The situation has turned out to be more complicated than that.

But with chaos, there can be opportunity. Just because the economy might be entering some difficult times doesn’t mean that we all need to be financially doomed. There are several simple steps you can take to fortify your lifestyle and recession-proof your retirement, so you can stay dry while weathering this (economic) storm.

  1. Pay off your highest-interest debt ASAP.

This is good advice for all occasions, recession or otherwise. Starting with your highest-interest debt means you accumulate less interest over time, which in turn means that more money remains in your wallet. You’re free to spend it on other things—including saving for retirement.

You might even consider calling your debtors and asking them to reduce your interest rates. You don’t need perfect credit to do this, nor do you need to be in extreme hardship; many people don’t realize that this is an option available to them.

  1. Diversify the assets you invest in.

Diversification is one part of what’s known as risk management strategy. In other words, this strategy involves your investing in several different types of things in order to reduce the potential damage than can be done to your entire portfolio if something stops performing well.

You might choose to open several different retirement accounts. You might choose an aggressively diverse combination of stocks, bonds, and funds in your conventional IRA. You might even choose to branch out into less conventional assets via a self-directed IRA; for example, if you wanted to buy precious metals or even cryptocurrency, you might do so within an IRA and even enjoy tax-free growth.

  1. Build a part-time side gig.

Even something like a hobby can turn lucrative through a side gig. Maybe there is an opportunity you’ve considered but haven’t quite pulled the trigger on, or a store you like to spend time in, or an activity you currently do for free anyway but could consider monetizing. Adding another source of income to your life can help you get closer to your savings goals or provide you with an added layer of financial stability if things get rough.

A part-time side hustle gives you some scheduling flexibility and might be easier to acquire than a full-time role. You can also layer side gigs, depending on how your financial situation—and the job market—evolves over time.

  1. Leverage HSAs.

Some experts tout the possibility that a health savings account (HSA) might be better than a 401(k) for retirement savings. First off, in order to qualify to have an HSA, you need to have a high-deductible health plan; the benefit of this high deductible is that it lowers your monthly premium, leaving more money in your hands on an ongoing basis. If you’re generally in good health, this might be a relatively safe option for you.

If you can show valid receipts for medical expenses incurred since you opened your HSA, you can withdraw money tax-free.

While 401(k)s and IRAs offer tax-free contributions and tax-free growth, an HSA adds another layer: tax-free withdrawals. This triple tax benefit is better than the double tax benefit of standard retirement vehicles.

  1. Build community.

For so many reasons, connecting with those around you can be a rewarding move. But even putting aside the mental health and emotional support system benefits, building a personal network of close contacts—from acquaintances through friends—can serve you through retirement.

Having what Forbes deemed “a robust social portfolio” can help keep you healthy, easily find joy and recreation, and even potentially serve you with advice or even income opportunities throughout your life. You don’t have to struggle with figuring out retirement on your own.

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