August 15, 2022
What we’ll cover:
Good to know: During a recession, some companies may offer early retriement packages to senior employees to help reduce overhead. If you've been offered a package, your advisor could also help you understand the potential benefits and drawbacks of taking the offer.
Good to know: Generally speaking, the longer you wait to take Social Security (i.e., until after your full retirement age), the higher your monthly benefits will be.
While delaying retirement has its potential benefits, it may not always be an option during a recession when companies are likely shedding jobs to help cut costs – sometimes forcing older workers to retire earlier than they planned.
Retiring before you’re financially ready to do so and in the midst of a recession could put a lot of strain on your retirement plan.
Think about it this way: Without a job, you may have to start tapping into your retirement funds for income sooner than expected.
Keep in mind, too, that you would be making these withdrawals during an economic downturn – a time when your portfolio may be seeing little or no earnings (or even losing money to market volatility).
You’re essentially taking out money without putting any back in. And during a recession, the market is probably not generating enough growth for you to offset these withdrawals.
This is why retiring during a recession could have an adverse impact on your retirement funds, increasing the chances of you running out of money while you’re still in retirement.
This type of retirement-timing risk is commonly referred to as a sequence of returns risk. And it’s something that you may want to discuss with your financial advisor, who can assess your risks and help you decide if you need to adjust your retirement plan accordingly (e.g., spending goals or withdrawal rates).
They can also review your strategies to make sure that your plan is appropriately diversified and rebalanced so that you’re not exposing yourself to more risk than you’re comfortable with.
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