With all the talk lately about a looming recession, I’ve been thinking about strategies retirees and early retirees can adopt to protect themselves from serious financial disruption if the forecast recession hits our doorstep. It reminded me of how my parents retired and recession-proofed their retirement.

In the fall of 2008, I asked my 87-year-old widowed mother how she was doing, given the stock market crash that triggered the Great Recession. “I’m fine,” she told me, “but I’m worried about what you’ll inherit as my retirement investments have gone way down.” At that point I assured him that “we children” do not care about our heritage and are much more interested in their well-being.

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My mother was retired for 31 years after a full life of parenting and preschool teaching. She lived to be 92 years old and never worried about running out of money. There’s a lot we can all learn from my parents’ situation, and their lessons still apply to this day:

  • I had a lifetime monthly pension from my father, who had worked until he was 65 as a professor at USC. That pension and his Social Security income never went down in value and continued to be automatically deposited into his checking account despite the economic downturn in the stock market. This income covered his basic living expenses, so he did not worry that the stock market crash would seriously affect his life.
  • When my parents retired, they didn’t have the opportunity to maximize their Social Security benefits with smart claim strategies, which can now significantly increase Social Security benefits for today’s early retirees.
  • While most retirees today do not have substantial pensions from their employer, they can purchase a “personal pension” by using a portion of their retirement savings to purchase a low-cost income annuity.
  • He supplemented his pension and Social Security benefits with income from interest and dividends from his retirement investments, which were significantly invested in the stock market. Although the value of his shares had decreased significantly, the amount of dividend income from him had decreased by a lesser and tolerable amount. Research supports the observation that dividend income from stocks fluctuates less than the underlying value of the stock.
  • His dividend income covered his discretionary living expenses, such as entertainment, travel, and gifts for his children and grandchildren. She could reduce these expenses if necessary. He kept the principal in reserve in case he needed it for long-term care or other emergencies.
  • She had paid off the mortgage on her house, which substantially reduced her living expenses. The house was modest by today’s standards, but it suited his needs perfectly. Because it was small, it was easy to maintain and didn’t lead to expensive utility bills.
  • She kept her living expenses low and had no credit card debt. He was driving a 7 year old car at the time and kept it for the rest of his life.
  • He remained in good health and kept his weight at healthy levels. He ate lots of fruits and vegetables and exercised by walking, swimming, and gardening. He even grew some of his own food.
  • He supplemented his Medicare coverage with a Medicare Supplement Plan, so he had low out-of-pocket medical costs.
  • She volunteered once a week at a non-profit thrift store. She did the same tasks that she would if she were working for a salary, so in theory, she could have found a job that offered her a small paycheck if she needed it.
  • She kept in touch with friends and relatives and saw family members at least once a week (all of her adult children lived nearby).

The 2008 financial crisis didn’t really change his life much. He still had about the same amount of income and living expenses, and he continued to do what brought him joy in life. As I thought about my parents’ retirement, I realized that my mother and father made some smart decisions that protected their retirement against the recession. My mother ended up successfully browsing through seven recessions, crashes, market sell-offs, and/or bear markets after my father retired in 1981.

Compared to my parents, today’s retirees have more tools at their disposal to help protect them against financial disruptions. These include online purchase of certificates of deposit and annuities to help maximize your income, easy access to investments in government bonds like I-bonds and reverse mortgages. There are also a host of retiree health insurance products in addition to Original Medicare, such as Medicare Advantage plans and Part D prescription drug plans.

Let’s be realistic; Taking these steps to protect your retirement from recession doesn’t mean you won’t feel any financial upheaval during economic downturns. the goal is survive these recessions so you can still live a good life.

If you’re like most retirees, you’ll be retired for 20 to 30 years. It’s inevitable that he’ll need to survive a handful of financial downturns over the rest of his life, so it’s smart to adopt strategies today that will help him navigate through future economic storms.

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