Opinion: 4 ways to help recession-proof your retirement savings

We keep hearing that we may be in a recession or almost. Anyone who was working when the Great Recession hit in 2008 knows the negative impact it had on their finances. But the economic indicators in 2022 are not the same as in 2008 – so we don’t know how bad this one will be, if and when it will happen. Although the causes of a recession are beyond our personal control, we can each take steps to protect our own finances from the ripple effects.

A recession is generally defined as two consecutive quarters of decline in gross domestic product (GDP), although it must also be declared as such by the National Bureau of Economic Research (NEBR). We have now passed the first milestone, as GDP fell 0.9% in Q2 2022 after falling 1.6% in Q1 2022. But we have not yet passed the second with the NEBR, and there is no is not certain that we will.

But what matters to all of us is the state of the economy, and right now that may seem uncertain.

Whether or not we are talking about a recession, we are living in an uncomfortable period for our personal finances. It’s time to help protect your finances against the recession

As a retirement plan provider, we hear what people ask about their finances every day. We know from proprietary data that retirement savers identify planning for retirement, paying down debt and ensuring savings are invested wisely as top priorities. We understand that when times are tough, retirement accounts can seem like good places to help ease the pain. ​It’s important to consider that this could cause other potential problems, as you may lose the time and opportunity to grow your investments and then miss out on your retirement planning goals.

To help you get your finances in order without risking sacrificing your retirement savings, I have four tips to share that could help you weather a recession or other personal financial downturn.

1​.​ Create an emergency fund before you need it

When people don’t have enough money to cover an emergency, they typically turn to credit cards, loans, family, and their retirement savings. But borrowing from all these sources has consequences. Consider setting up an emergency savings account, separate from your checking accounts and other accounts you use for regular spending, so you’re less tempted to use it. Experts recommend that you save three to six months of expenses in an emergency account, to help you deal with a job loss or a surprise expense.

​​2.​ Keep saving in your retirement plan, even if the market is down

The idea behind investing is “buy low, sell high”. When the stock market is down, it can actually be a good time to contribute to your retirement plan. Over time, continuing to save and invest in all market conditions can help smooth your returns.

Why? Because of what is called average purchase price. Cost average does not guarantee a profit or eliminate the risk of loss. However, when the market is high, you invest in funds at a higher price, so your 401(k) contribution buys fewer fund units. The reverse is also true: when the market is down, you invest in those same funds at a lower price, so your 401(k) contribution buys more fund units. Over time, the ups and downs can help balance your overall returns.

Investors should also be aware that systematic investing involves continuous investment in securities regardless of fluctuating price levels and retirement savers should consider their resources to pursue the strategy over the long term.​​

3. Understand the funds available in your 401(k) plan, your time until retirement, and your risk tolerance

Your 401(k) should offer you a variety of investment options. If you’re not comfortable choosing your own investments, consider the plan’s default option or see if your plan offers advice or a professionally managed account. An important rule of thumb to understand is that in general, the longer you have until retirement, the more risk you can take in your investments.

4.​ Build a defensive budget that carefully considers “wants” and “needs”

When the economy is good, it’s easy to call our daily iced soy latte with a caramel pump a need. And though many of us do need a little caffeine to start the day, there are more economical ways to get that jolt. Prepare a budget that can help protect your finances against a downturn. Start separating your wanna of your Needs and prepare a budget that can help you support yourself and consider putting some of the rest aside in your emergency or retirement savings account. Your retirement plan provider may have resources available to help you do this, or you may want to consider talking to a financial professional who can help you. The right things to do, whatever the evolution of the economy

After several years of low unemployment and substantial market growth, many Americans may not know what it’s like to go through a recession. Whether or not the economic uncertainty we are currently experiencing bears this label, there are things you can consider doing today to help protect your finances in the event of a recession, which may also make sense even without a recession. Regardless of economic conditions, saving for emergencies and retirement, getting your 401(k) investments on track, and creating a defensive budget all make financial sense.

Sue Reibel is CEO of John Hancock Retirement.

Disclosure: There is no guarantee that any investment strategy will achieve its objectives. The content of this document is provided for general information only and is believed to be accurate and reliable as of the date of publication, but may be subject to change. It is not intended to provide investment, tax, plan design or legal advice (unless otherwise stated). Please consult your own independent advisor for any investment, tax or legal reporting.​ ​John Hancock provides record keeping services to retirement plan clients through the following entities in the United States: John Hancock Retirement Plan Services LLC, John Hancock Trust Company LLC and John Hancock Life Insurance Company (USA) (unlicensed in NY), 200 Berkeley Street, Boston, MA 02116, and John Hancock Life Insurance Company of New York, 100 Summit Lake Drive, Valhalla , NY 10595. Securities are offered through John Hancock Distributors LLC, Member FINRA, SIPC. NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE. © 2022 John Hancock. All rights reserved.​

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