Retiring During a Recession? Here Are Some Things to Consider

August 15, 2022

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What we’ll cover:

A recession can be particularly challenging for people who are nearing or have just entered retirement.
A recession may force some people to retire earlier than they planned due to job loss. It may also lead others to postpone retirement, so that they can avoid tapping into their retirement accounts during an economic downturn.
Working with a financial advisor may help you to better manage and minimize the financial risks of retiring during a recession.

A recession can make life tough for everyone, but it can be partciularly hard on people who are nearing or have just entered retirement.

The five years before and after retirement are often referred to as the “fragile decade.” And hitting a recession in this period could have a serious impact on your retirement funds. Two key reasons:

It could be harder for you to make up for any market losses in your portfolio while you're in the fragile decade.
If you’ve started to draw on your retirement funds, the withdrawals combined with potential market losses could deplete your account faster than you had planned.

In this article, we'll go over three key recession challenges and tips for retirees and those nearing retirement.

1. Unexpected early retirement

Unemployment numbers tend to go up during a recession when consumer spending falls and business activities slow.

Losing a job is an awful thing to go through, and it can be especially nerve-racking when it happens during a recession and if you’re close to retiring.

If you find yourself in this situation, you'll want to understand how the job loss may impact your retirement plan. Got a financial advisor? This would be the time to tap their expertise.

Your advisor could give you a clear picture of where you stand financially and your retirement readiness. They could also help you understand your options and the financial implications of any decisions you may be considering.

For example, are you in a position where you could retire early? Or would you need to find a new job and continue working for a few more years in order to reach your retirement goals? Do you have enough in your emergency fund to give yourself some time to make any necessary transitions?

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.

2. Market losses and delayed retirement

A recession often means more trouble for the markets.

Unlike younger workers, near-retirees don’t have as much time to ride out the ups and downs of the market, making it more difficult to recover from any losses in their retirement plan.

This is why some people may choose to postpone retirement during a recesssion.

The hope is that by working for a few more years, they could try to make up for those losses. After all, if you’re working, you can continue to contribute to your retirement accounts. That’s a few more years of savings you could put away. And because you’re still earning an income, you could leave your retirement funds alone for a few more years – delaying your withdrawals.

If you’re thinking about working a few more years before retiring, ask your financial advisor to run the numbers, so you can see how delaying retirement could impact your portfolio as well as the timing of your Social Security benefits down the road.

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.

3. Sequence of return risk

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.

This article is for informational purposes only and shall not constitute an offer, solicitation, or recommendation. This article was prepared by and approved by Marcus by Goldman Sachs® but is not a description of any of the products or services offered by and does not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, or any of their affiliates, subsidiaries or divisions. Goldman Sachs Bank USA is not providing any financial, economic, legal, accounting, tax or other recommendation in this article and it is not a substitute for individualized professional advice. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA, or any of its affiliates, none of which are a fiduciary with respect to any person or plan by reason of providing the material or content herein. Neither Goldman Sachs Bank USA, nor any of its affiliates make any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.