Can You Safely Retire Amid Recession Fears?

By Chad Willardson

When you’re on the cusp of retirement, you’ve probably spent decades building up your nest egg. You’ve sacrificed some luxuries to contribute steadily to IRAs, 401(k)s or brokerage accounts. You might have even planned to exit the workforce at a specific time. But now you’re hearing rumblings about a U.S. economic downturn.

People throw around terms like “recession” and cite slowing GDP growth, rising interest rates and unsteady job numbers. Some call it alarmist talk; others say the economic signals are too big to ignore. Regardless of how you interpret what’s going on today, if you’re a soon-to-be retiree, the question you’re likely wondering is, “Can I retire comfortably, or does my retirement plan need to change?”

I’ve professionally advised families through multiple economic cycles back to the end of the tech bubble, including both expansions and recessions, and I can tell you that your plan should never be set in stone. It has to adapt to current situations and changes. Overlooking persistent inflation, an inverted yield curve or shaky consumer sentiment could be more costly down the line. Let’s sort through these considerations and discuss what you actually need to know before punching the clock for the last time.

Do Market Fluctuations Impact Your Retirement Plan?

If you’ve ever logged in to check your investment account and felt your heart skip a beat at a sea of red, you know how nerve-wracking market volatility can be. Stocks, ETFs, real estate and crypto don’t move in straight lines; they go up and down with volatility, often in reaction to the “exciting” news of the day. For example, news on Federal Reserve policies like interest rate hikes or shifts in consumer behavior. Recession speculation in the summer might not directly dictate your retirement next year, but it will definitely influence asset values in your retirement portfolio.

For example, corporate earnings typically take a hit if a recession sets in, and share prices can fall. Also, when interest rates climb to fight inflation, bond prices often drop, though the yields on new bond issuances might become more attractive. Housing can cool off, too, if rates go too high too fast, which will make it harder to sell properties or maintain rental income at ideal rates.

But guess what? Fluctuations are perfectly normal. For investors, volatility is part of the deal. Even in booming economies, you’ll have daily or monthly swings in asset prices. But if you’re about to retire, you don’t have the same luxury of riding out extended downturns that someone 20 years from retirement does. You might soon be relying on withdrawals for your day-to-day expenses. A big dip right as you begin those withdrawals could damage the longevity of your retirement savings. But it doesn’t automatically mean you should retire later; it means you need to plan carefully around how you’re invested and how and from where you’ll withdraw funds.

Can You Still Retire During a Challenging Market?

The short answer is yes. People retire in all sorts of market conditions, and many do so successfully. The difference is in how prepared you are for volatility and potential income disruptions. A few considerations:

Liquidity: If you have a solid emergency fund or a stash of cash that can cover your living expenses for at least two years, you’ll be much less stressed about selling investments at a market low.

Diversification: Being diversified across different asset classes—stocks, bonds, real estate investment trusts and even commodities—provides a buffer against a downturn in any single sector. Over-reliance on one high-risk area could be an issue if that sector tanks.

Spending plan: Retiring in an unstable market environment often requires a “bucket” approach. This means partitioning investments by time horizon to avoid selling long-term investments when the market is down. Keep your higher growth, higher risk assets invested for decades while keeping shorter-term spending money available for use.

Are There Risks to Retiring During a Recession?

Retiring during a recession carries at least two main risks: sequence of returns and employment fallback.

Sequence of returns risk: If the market drops in the first few years of your retirement, the impact on your portfolio can be more devastating than if a downturn hits later. Why? Because you’re withdrawing money at the same time your assets are taking a hit, which may limit the chance for recovery.

Employment fallback: If you were to partially retire but then realize you need supplemental income, you might face a tougher job market. During recessions, even if official unemployment figures appear stable, hidden weaknesses like underemployment could have a significant impact. Companies may freeze hiring or demand pay cuts. You might find it harder to land part-time work that fits your skill set.

With these uncertainties in play, you can’t just rely on “everything will bounce back eventually.” The question is how soon, and whether you’ll have enough runway to avoid locking in losses or struggling to generate extra income. Some folks hedge their bets by doing contract work or consulting, even after “retiring.” Others reduce expenses so portfolio withdrawals stay minimal in the early years.

Is Delaying Your Retirement the Solution?

It might be. Delaying retirement is one of the most straightforward ways to navigate economic turbulence personally. You get extra months (or years) to build up savings, while your existing investments have time to recover if markets falter. Plus, working longer often means more benefits from Social Security if you haven’t claimed them yet, and continued access to employer-sponsored health insurance.

But let’s not paint it as a one-size-fits-all approach. Some people are burned out and physically or mentally need to retire sooner. Others may have personal obligations, like taking care of a spouse or an aging family member, which complicates the idea of working extra years. And for some, their industry might be on shaky ground, meaning job security isn’t guaranteed either. Many people these days opt to work part-time or do some consulting in the industry of their expertise so they can still use their skills and keep some cash flow alive.

Best Ways to Protect Your Retirement Funds

Regardless of when you decide to retire, a prudent plan to protect your funds can make all the difference. Here are some best practices:

Rebalance your portfolio: This might seem very obvious, but people usually let their asset allocations drift. If your stocks have soared in the past, you might be overweight in equity. If a recession happens tonight, you might want to lock in some gains and redirect them into more stable bonds or cash equivalents. On the flip side, if the market has already fallen, rebalancing might mean adding more stock exposure to set yourself up for future gains. Stick to a disciplined, consistent schedule and rebalance according to your risk tolerance.

Consider a larger cash buffer: Holding cash seems counterintuitive in a high-inflation environment because inflation erodes purchasing power. But if you’re retiring, having a bigger cushion can help you ride out market dips without tapping your long-term investments at fire-sale prices. The extra liquidity can give you psychological comfort, too.

Review your withdrawal strategy: A common rule of thumb is the 4% rule, but that’s not a law that determines everything. If we enter a recession or if you see your portfolio diminishing faster than you’d like, you might need to dial down withdrawals—maybe to 3% or even less—at least temporarily. This can stretch your nest egg further. You could also consider a “dynamic withdrawal strategy” and adjust your spending based on your portfolio’s annual performance. It also depends on how old you are and where your cash is coming from.

Stay informed but avoid emotional reactions: Economic news is sometimes sensationalized, especially if you start seeing headlines about rising unemployment, “technical recession” debates or a slowdown in business confidence. Make decisions based on your personal financial plan, not the latest doom-and-gloom article. By all means, understand that government agencies may spin certain data points, or new definitions of a “technical recession” might pop up to downplay the situation. But let that be context, not a trigger for panic-selling.

Retiring Amid Recession Talk

The talk of an imminent recession might sound like a broken record at this point, and you’re probably wondering if this time is different. While no two economic cycles are exactly the same, the fundamentals of retirement planning remain consistent. You want enough assets to cover your living costs throughout retirement, along with a strategy that balances risk and reward. Inflation, ongoing interest rate hikes, uncertain job numbers and shifting consumer sentiment all suggest we could face a slowdown in the near term. But does that mean you should slam on the brakes for retirement? Not necessarily.

If you have an adequately diversified portfolio, a cash reserve and a sensible withdrawal strategy, you can still retire during a market downturn. Just be ready for a bumpy ride. But if your finances are borderline or if you rely heavily on continued growth in your investments, it might be worth postponing. Or you can try a middle ground, like partial employment, to ease the transition.

Keep an eye on policy changes and political shifts, and discuss them with your financial adviser; don’t be afraid to ask questions. Economic downturns can lead to calls for changes in monetary or fiscal policy—like adjusting tax rates or spending policies—that could alter your retirement calculations. These shifts might even come into play around election cycles, where voter sentiment can influence the direction of economic policy.

About the author: Chad Willardson

Chad Willardson is the founder of Pacific Capital and ELEVATED.