You CAN Retire In A Recession

Finally, after years of planning and saving, contributions to the pension plan and stock options purchases, you have just transformed your business plan into a self-directed plan individual retirement account (IRA) with your broker in anticipation of a cozy retreat.

However, you retired in the middle of a recession, with a volatile stock market, fluctuating energy prices and low interest rates. Here are some steps you can take to prevent turbulent economic conditions from denting your retirement plans.

Key points to remember

  • When retiring during a recession, retirees might consider part-time employment after leaving full-time employment.
  • A part-time job can reduce your withdrawals from your retirement accounts, allowing the balance to recover from a market correction.
  • Having an income in retirement can help you postpone collecting Social Security for a few years, which increases benefits later.
  • An annuity can help create a steady stream of income, and some of your IRA funds can be transferred to purchase an annuity.

To retire or not to retire

Whether or not you should postpone your retirement will ultimately depend on several factors. One of the first questions to consider is whether you want to stop working altogether or perhaps take up a part-time job after quitting your full-time job.

At first, this idea may seem overwhelming, but it could be an opportunity to explore your interests or hobbies in a lucrative way. You can become a personal trainer, organize small events, walk dogs, fix cars or computers, whatever you like and earn some extra money.

If you work 20 hours per week in a job that pays $12 per hour, you will earn $960 per month or $12,000 per year. This equates to a 12% annual distribution on a portfolio valued at $100,000. Work at home are also becoming increasingly viable.

Those who know how to write may be surprised to find that they can earn a living in front of their computer, especially if they know a specific topic that others are interested in. If you’ve spent a lot of time in certain areas, you might be the expert companies are looking for. provide items and discussion with new classes of workers.

Main advantages of part-time work

Working part-time or becoming self-employed later in life can provide two other key benefits in addition to actual earned income.

You may be able to postpone your Social security benefits or other retirement account distributions for a few years, which means your monthly checks will be larger when you start receiving them. If you were to work for another five years after leaving your current job, that could mean thousands more dollars in Social Security money for the rest of your life.

Your portfolio will have time to recover if you have suffered market losses in recent years. If the $200,000 that was in your 401(k) plan a year ago is only worth $150,000 now, so consider storing it in five years Certificates of deposit (CD) while you keep working. If CDs pay 5%, your portfolio would be worth over $190,000 at maturity without market risk.

Time to buy?

History shows that those who are brave enough to jump into financial markets during recessionary periods can reap big returns in subsequent years. Those who bought in the S&P500 index on October 20, 1987, the day after the Black Monday crash – would have increased by just over 50% two years later. Those who invested in the index in late 1982, when the market was beginning to recover from a recession, would have seen a 61% gain in two years.

If you have cash or near-cash savings, you might want to seriously consider investing at least some of it in one of the broader indices, for example through an index fund. Of course, this strategy is not for risk averse people and should be carefully considered before taking any action.

A wise investment when bear market can do wonders for the overall value of your portfolio over the next few years. For example, suppose a retiree in the situation described above has an additional $50,000 in a Money market funds. If the retiree invested the amount in an index fund and obtained a return similar to the examples mentioned above, a large part of the loss suffered previously could be recovered in a relatively short time.

Of course, the money used for this type of rebound investing should not be used as income. Other more stable funds or a part-time job should be used for this purpose.

Other investment strategies

Buying the market at or near lows isn’t the only option for those looking to bolster their portfolios. Many variable annuity carriers offer purchase average new money programs, such as IRA Bearings.

The funds are initially placed in a secured fixed account which generally pays a higher rate than CDs or standard fixed income investments. The contract holder will then review the selection of mutual fund sub-accounts within annuity and create a portfolio defined to the extent of its risk tolerance, the investment objective (which is most likely long-term growth), and the time horizon. A defined portion of the account balance is then systematically transferred to the sub-account wallet over a defined period of time, usually six to 12 months.

Variable annuity

A variable annuity can be a way to take advantage of market volatility while earning a decent rate in a fixed account at the same time. But once the entire balance has been transferred to the market, you can continue to improve your performance by rebalancing your wallet.

This service is now a standard feature in most variable contracts and works as a continuous average dollar buy strategy by consistently investing the same amount over time, allowing more shares to be bought when costs are low and fewer shares to buy when costs are higher. This strategy effectively keeps the initial portfolio allocation constant over time and also increases your overall return on capital.

Qualified Longevity Annuity Contract (QLAC)

A qualified longevity annuity contract (QLAC) is a type of deferred annuity funded by an investment such as a 401(k), a 403(b) or an IRA. A QLAC can be turned into a lifetime income stream that is immune to stock market corrections. In addition, QLAC is exempt from the minimum distribution required (RMD) set by the Internal Revenue Service (IRS) that require distributions from a traditional IRA or 401(k) once the owner reaches age 72.

Under current IRS rules, a person can spend 25% or $135,000 (whichever is less) of their retirement savings account or IRA to purchase a QLAC in 2020 and 2021.


In December 2019, President Trump signed the Every Community Establishment for Retirement Enhancement Act (SECURE). Part of the law was intended to increase the number of annuity contracts. However, there is a “fiduciary safe harbor” rule that reduces the risk that a plan member will have to sue the plan. fiduciary if the insurance company cannot pay the annuity as promised. In addition, annuities sold under qualified plans may be withdrawn from the plan “in kind”.

Take advantage of your losses

Finally, this can be a good time to reap capital losses if you have impaired securities outside of your retirement plan. Even stocks you plan to hold for the long term can pay off capital losses if you are ready to part with it temporarily, and of course, paying particular attention to the washing rules. But a substantial capital loss realized now can provide a $3,000 carry-forward deduction for future years.

This strategy can be used with any type of individual security, although municipal bonds are most commonly used.

The essential

While retiring during a recession or bear market is never fun, there are several things retirees can do to protect their portfolios from the long-term fallout. Realize capital losses, average cost and portfolio rebalancing are just a few of the strategies you can use to stay afloat in choppy market waters.

Staying calm and making rational decisions is also of paramount importance during this critical time. Those who think with their heads and don’t act out of fear can often benefit greatly during these times.