How Clients Can Protect Retirement Savings from a Recession

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Planning for retirement includes accounting for all the bills you may need to pay post-retirement. You may have various expenses, like housing, medical, food, traveling, etc. But add one more concern to your list: recession.

With the decline in gross domestic product (GDP) and rising inflation, a recession is a common fear for most Americans. A recession is unavoidable sooner or later. Another point of certainty is that recession hits your retirement savings the hardest.

A decline in stock markets means your investments can lose value. According to Business Wire, the Fidelity Investment analysis showed that the average 401k account balance dropped to $103,800 from $121,700 from Q1 to Q2 2022. That is a 15% drop from Q1 2022 and a 20% drop from Q2 2021.

It is a serious concern, especially for retirees and soon-to-be retirees. It may cause havoc in your life while trying to manage your day-to-day with rising prices and your 401k to secure your retirement. In such situations, you must know what mistakes you should avoid to protect your 401k from recession.

Build your emergency fund

While trying to secure your retirement, building an emergency fund is a crucial step to protect your 401k. Creating a solid retirement account is useless if you are forced to break it before time. Figure out how much money you need to retire and then plan on creating an emergency fund. With an emergency fund, you can protect the rest of your investments.

A recession may last for 18 months, and it is best if you build an emergency fund that would last from at least six to 12 months. In case of uncertainty, you can tap on your emergency fund while letting your 401k grow or recover the loss.