What Is A Recession And How to Protect Your Retirement Plan

Shawn Plummer

CEO, The Annuity Expert

What is a recession? A recession is when the economy slows down and unemployment rates increase. Protecting your retirement plan during a recession can be challenging, but it is not impossible. This guide will discuss a recession and how you can protect your retirement plan in case of one. We will also provide helpful tips for staying ahead of the curve during these challenging times.

What Is A Recession?

A recession is a period of time when the economy shrinks, as measured by gross domestic product. A recession typically lasts for at least six months and is often accompanied by high unemployment and falling stock prices.

Recessions can occur when a sudden significant decline (economic shock) in demand for goods and services or a financial crisis. While recessions are often difficult for businesses and individuals, they can lead to new opportunities as businesses adapt and innovate to survive.

Ultimately, recessions are a natural part of the economic cycle and provide an opportunity for economies to reset and grow long-term.

How Does A Recession Work?

A recession occurs when there is a decrease in the Gross Domestic Product (GDP) for two consecutive quarters. This means that the economy is not growing as it should. During this time, businesses tend to slow down economic activity or stop production, which leads to layoffs. As more people lose their jobs, unemployment rates go up.

What Causes A Recession?

Many factors can cause a recession. Some of the most common causes include:

  • A significant decline in economic activity (consumer spending)
  • An increase in interest rates from the Federal Reserve Bank
  • A decrease in business investment
  • A stock market crash

How Long Does A Recession Last?

A recession is defined as two consecutive quarters of negative economic growth, measured by a country’s gross domestic product (GDP).

So, how long does a recession last? In the United States, the longest recession lasted 18 months, from December 2007 to June 2009. However, recessions can vary in length depending on the country and the economic downturn. For example, Iceland’s recession following the financial crisis lasted only six months, while Greece’s recession lasted more than six years.

Ultimately, the length of a recession is determined by several factors, including the countries involved, the severity of the economic downturn, and government policies.

However, one thing is certain: recessions are never enjoyable experiences. They are often accompanied by high unemployment rates, falling incomes, and rising prices. As a result, it is always best to avoid them if at all possible.

Bear Market Vs. Recession

For investors, there are few things more worrying than a bear market. After all, it can feel like the ground is suddenly shifting beneath your feet, and it can be tough to know what to do next. However, it’s important to remember that a bear market is not the same as a recession.

A recession is defined as two consecutive quarters of negative economic growth, which usually leads to a bear market. However, a bear market can also occur without a recession.

For example, a sudden drop in consumer confidence or an increase in interest rates can trigger a bear market. So, while a recession is something to be concerned about, it’s important to remember that a bear market is not necessarily the same.

How Do You Prepare For A Recession?

If you are concerned about a recession, there are some things you can do to prepare. Here are a few tips:

  • Save money: Try to have at least six months of living expenses saved so that you can weather any tough times.
  • Invest in stocks: When the stock market declines, it allows buying stocks at a lower price.
  • Pay off debt: If you have high-interest debt, such as credit card debt, try to pay it off before a recession begins. Buy life insurance if you’re the sole earner and a premature death occurs. This will financially protect your family without additional trauma.

What To Do In A Recession

Many people are feeling anxious about the current state of the economy. While it’s normal to feel some uncertainty during times of economic upheaval, there are some things you can do to help weather the storm.

One of the most important things you can do is to stay informed. Keep up with the latest news and developments to make informed decisions about your finances. Additionally, it’s important to create a budget and stick to it. Make sure you’re only spending money on essential items, and try to save as much as possible.

Recessions can be difficult, but by taking some proactive steps, you can help reduce the impact on your life. Stay informed, budget carefully, and be mindful of your spending, and you’ll be on your way to weathering the storm.

What To Invest In During A Recession

Wondering how to invest with a recession coming? Many think investing in fixed-rate investments like bonds during a recession is best. However, fixed indexed annuities can be a better choice. With a fixed indexed annuity, you earn interest based on the performance of a stock index, but your investment is fixed, so you don’t have to worry about losing money if the stock market crashes.

This makes them a great option for people who are worried about the potential for another recession. In addition, fixed indexed annuities often have higher interest rates than bonds, so you can potentially earn more money on your investment.

How To Recession-Proof Your Retirement

Suppose you are retired or close to it; you may wonder how to prepare for a recession. After all, an economic downturn can significantly impact your retirement income and lifestyle. Here are a few tips to help you weather the storm:

  1. Review your budget and expenses: One of the first things you should do is look closely at your budget and expenses. Determine what items are essential and what can be cut back on or eliminated. This will help you free up some cash flow to help cover unexpected expenses during recessions.
  2. Build an emergency fund: An emergency fund can be a lifesaver. This fund can help you cover unexpected expenses, such as a job loss or medical bills. Build up your emergency fund to cover at least three to six months of living expenses.
  3. Invest in recession-proof Investments: Another way to prepare is to invest in less likely assets impacted by an economic downturn. For example, you may want to consider investing in fixed and fixed index annuities, bonds, or other less volatile investments.
  4. Stay diversified: It’s also important to stay diversified with your investments. This means not putting all of your eggs in one basket. By diversifying, you can help reduce your overall risk and potentially increase your chances of weathering a global recession.
  5. Have a plan: Finally, it’s essential to have a plan in place if you experience financial difficulties during an economic recession. This plan should include how you will pay your bills, cut back on expenses, and what you will do if you lose your job. A plan can help reduce stress and give you a sense of control during an uncertain time.

While an economic decline can be brutal for everyone, retirees may face unique challenges. However, by following these tips, you can help ensure that you are prepared for the future.

What Are The Effects Of A Recession?

An economic shock can affect individuals, businesses, and the economy as a whole. Some of the most common effects include:

  • Increased unemployment rate: As businesses lay off workers, unemployment rates increase.
  • Decreased consumer spending: When people are unemployed or worried about losing their jobs, they tend to spend less money.
  • Decreased business investment: Businesses may slow down or stop production altogether, leading to even more layoffs.

What Are The Warning Signs Of A Recession?

A few economic indicators signaling a recession may be on the horizon. These include:

  • An increase in jobless claims: This is one of the first signs that unemployment is rising.
  • A decrease in retail sales: As consumers cut back on spending, businesses may see a decrease in sales.
  • An increase in foreclosures: If more people are unable to make their mortgage payments, this is a sign that the economy is struggling.
  • A decrease in stock prices: When asset prices fall in the financial markets can be a sign that investors are losing consumer confidence in the economy.

Are We In A Recession Now? (2022)

The short answer is: that we don’t know yet.

The longer answer is a little more complicated.

To determine whether or not we are in a recession, economists look at various indicators, including GDP growth, economic expansion, employment levels, and retail sales.

Some of these indicators point towards a recession, while others do not.

It is still too early to say whether or not we are in a recession.

However, if you are concerned about the possibility of an economic downturn, you can take steps to protect your retirement plan.

Here are a few tips:

  • Save regularly and make sure you have an emergency fund. This will help you weather any short-term economic downturns.
  • Stay diversified. This means having a mix of different types of investments in your portfolio. This way, if one investment goes down, you will still have others doing well.
  • Consider investing in conservative investments such as bonds and cash equivalents. These will not lose value if the stock market crashes.
  • Finally, consider a deferred annuity with a lifetime income rider. An annuity is a retirement plan that will provide you with a stream of income you cannot outlive, no matter how long you live and the state of the economy.

Will There Be A Recession In 2023?

This is impossible to say for sure, but signs point in that direction. With the trade war, increasing interest rates, and the government hitting excessive debt levels, many economists predict we will see a recession in 2023.

What Happens If We Go Into A Recession?

If the economy weakens sharply and unemployment rises significantly, we will likely enter a recession. This extended period will last a minimum of two consecutive quarters of negative economic growth measured by a country’s gross domestic product. A recessionary period is typically accompanied by a drop in the financial markets, an increase in foreclosures and personal bankruptcies, and a decrease in consumer spending and business investment.

While an economic decline may not sound good news, it’s important to remember that economies constantly fluctuate. As such, recessions are a normal part of the business cycle. Moreover, they can be helpful in the long run by helping to cleanse the economy of excesses and imbalances.

Nonetheless, recessions can also cause short-term hardship for businesses and consumers alike. Therefore, it’s essential to be prepared financially if we enter a recessionary period.

How Can I Protect My 401(k) From A Recession?

There are a few things you can do to protect your 401(k) from a recession:

First, review your asset allocation and make sure it is diversified.

When it comes to investing, one of the most critical considerations is asset allocation. This refers to the mix of different types of investments in your portfolio, which can significantly impact your overall financial health. For example, if you invest all of your money in stocks, you may see strong growth in the short term, but you will also be at greater risk of losses in a downturn.

On the other hand, investing too heavily in bonds can provide stability but limit your upside potential. The key is to strike a balance that meets your needs and helps you reach your financial goals. In addition, reviewing your asset allocation regularly can help ensure that you are still diversified and positioned for success.

Consider investing in stable value funds.

When it comes to investing, there are many different options to choose from. However, one type of investment that is often overlooked is stable value funds. While they may not offer the potential for high returns, they can provide a measure of stability in an otherwise volatile market. For example, if you are retired and living on a fixed income, stable value funds can help ensure that your nest egg lasts as long as you need it.

In addition, if you are concerned about market turbulence, stable value funds can provide a way to protect your capital. Of course, as with any investment, there is no guarantee that you will make money from investing in stable value funds. However, they may be worth considering if you are looking for a way to preserve your capital and generate a steady income.

Stay disciplined with your contributions.

Getting caught up in the daily grind and forgetting about our long-term goals can be easy. For example, we may tell ourselves that we’ll start saving for retirement next month or eventually pay off our credit card debt obligations. However, these delays can end up costing us dearly in the future. That’s why it’s so important to stay disciplined with our contributions.

By setting aside a fixed amount each month and investing it wisely, we can ensure that we’re on track to reach our financial goals. And while it may require some short-term sacrifices, the peace of mind that comes from knowing we’re prepared for the future is worth it. So give yourself a boost today by staying disciplined with your contributions. It’s one of the best things you can do for your financial well-being.

Avoid making any rash decisions.

One of the most important things to remember in life is to avoid making any rash decisions due to an economic shock. A rash decision is defined as a decision made without careful thought or consideration. This can often lead to regret, whether immediately afterward or further down the road. Rash decisions are often made in the heat of the moment when we feel emotional or under pressure. I

In these situations, taking a step back and taking time to think things through before making a final decision is essential. So often, rash decisions are made on impulse, and we later realize that they were not the best choice. If we can learn to slow down and think through our choices, we can avoid rash decisions that we may regret later.

Consider a fixed indexed annuity.

A fixed indexed annuity is an insurance contract that provides a guaranteed minimum interest rate and the potential to earn additional interest based on the performance of one or more underlying indexes like the S&P 500 Dow Jones, and Nasdaq while offering protection from market downturns while providing the opportunity for growth during periods of market expansion.

Pre-Retirees Are First To Go

Although it is difficult for anyone to lose their job during an economic decline, pre-retirees are usually the first to go. Businesses are looking for ways to cut costs and save money. They may do this by eliminating unimportant positions, which often include those held by older workers. This can be a significant setback for pre-retirees who depend on their jobs to provide retirement income.

Recession-Proof Investments For Retirement

There are a few things you can do to recession-proof your retirement plan.

  • First, make sure you have a mix of different types of investments. This way, if one investment goes down, you will still have others doing well.
  • Second, stay diversified. This means having a mix of different types of investments in your portfolio. This way, if one investment goes down, you will still have others doing well.
  • Third, consider investing in conservative investments such as bonds and cash equivalents. These will not lose value if the stock market crashes.
  • Finally, consider a deferred annuity with a lifetime income rider. An annuity is a retirement plan that will provide you with a stream of income you cannot outlive, no matter how long you live and the state of the economy.

Next Steps

A recession can be brutal for everyone, but it is essential to remember that it is not impossible to protect your retirement plan. If you are concerned about an economic decline, make sure you have an emergency fund, stay diversified, and consider investing in conservative investments.

Following these tips can help ensure that your retirement plan will weather the storm and provide you with the financial security you need during this challenging time. Contact us today for a free quote if you want more information about protecting your retirement plan. We would be happy to help!

What To Invest In During A Recession

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Frequently Asked Questions

How long will a recession last?

This is impossible to say for sure. However, most recessions last around 12 months.

When will the recession come?

This is impossible to say for sure. However, many economists believe we will see a recession in 2023.

What are the effects of the recession?

The effects can be severe. For example, an economic decline can cause businesses to close, increase unemployment, and decrease consumer spending.

What does a recession mean for the stock market?

Recessions may cause the stock market to crash.

What should I do if we enter a recession?

If you are concerned about a recession, you should protect your retirement plan. This may include saving regularly, staying diversified, and investing in conservative investments. You may also want to consider a fixed index annuity to protect your savings while allowing you to earn interest as the economic recovery begins.

How is the recession defined?

A recession is typically defined as two consecutive quarters of negative economic growth.

Why does a recession follow inflation?

A recession often follows inflation because the Federal Reserve Bank raises interest rates to slow down the economy and prevent inflation. This can lead to a sharp decrease in economic activity, which can cause an economic downturn.

Where do I invest during a recession?

You may consider investing in bonds and cash equivalents during a decline in economic activity. These will not lose value if the stock market crashes. You may also want to consider a fixed or fixed index annuity because they offer protection from market volatility while still providing the opportunity to earn interest.

Which investments are recession-proof?

Because bonds and gold can fluctuate in value due to market conditions, fixed index annuities are the most recession-proof investment because they are not affected by the stock market. Like Social Security Benefits, FIAs can provide you with a stream of real income that you can’t outlive.

Is having cash good in a recession?

Yes, having cash is always a good idea. For example, you may want enough cash to cover your living expenses for three to six months. This will help you weather any financial hardships that may come your way.

What is the difference between a depression and a recession?

Depression is much worse than a recession. Depression is a sustained period of negative economic growth, typically accompanied by rising unemployment and decreased consumer spending. Conversely, recessions are typically shorter and not as severe.

What are the benefits of a recession?

While economic recessions may not sound like good news, it’s a normal part of the business cycle. Moreover, these negative periods can be helpful in the long run by helping to cleanse the economy of excesses and imbalances.

What are the drawbacks of a recession?

The drawbacks of a recession include increased unemployment, decreased consumer spending, and businesses closing. However, any economic shocks can also cause the financial markets to crash.

Who benefits in a recession?

Some people may benefit from a recession. For example, if you are looking to buy a house, you may be able to find good deals during a recession. Another example is investors who buy low and reap the gains as the economy recovers.

Should I stop contributing to my 401(k) during a recession?

Many people wonder what to do with their 401(k) during a recession. While it may seem like a good idea to save money, there are some potential disadvantages.

For example, you may miss out on employer matching contributions, and you may also miss out on the opportunity to invest in potentially volatile but ultimately profitable assets.

However, fixed indexed annuities can provide a way to protect your savings while still getting the benefits of market participation. With these annuities, your principal is guaranteed, and you can earn market-linked interest based on the performance of an underlying index. As a result, fixed indexed annuities can offer you the best of both worlds: protection from market losses and the opportunity to participate in market gains.

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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