3 Reasons Your Social Security Checks May Be Larger Than Expected
Sometimes, happy financial surprises can happen.
If you’re tired of constantly hearing recession warnings, you may be in good company. But financial experts aren’t just trying to scare consumers for laughs. There are legitimate reasons to believe that economic conditions could decline in 2023.
While inflation has cooled since peaking in mid-2022, it’s still quite high. Not only is that continuing to burden consumers, but it’s something that could cause the Federal Reserve to uphold its aggressive stance on interest-rate hikes.
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If the cost of borrowing continues to climb or remains high, it could drive a serious pullback in consumer spending. That could, in turn, drive the economy into a recession.
One big fear that tends to emerge in the context of recessions is widespread unemployment. If you’re newly retired, though, that may not be something to worry about because you’ve just wrapped up your career and aren’t relying on a paycheck from work.
Recessions and stock market downturns could go hand in hand. And seeing how stocks have yet to recover from the events of 2022, that could put you in a precarious position as a new retiree. If a recession hits and the value of your portfolio declines further, you might risk locking in serious losses due to being forced to tap your 401(k) or IRA when it’s down.
There’s one move you can make to protect your assets in the face of a recession. And the sooner you do, the better.
It’s all about the right investment mix
Investing your retirement savings strategically could help you get through a near-term recession. To that end, you’ll want to focus on two key factors:
- Asset allocation
- Diversification
First, your assets should be allocated in an age-appropriate manner. Even if you have a healthy appetite for risk, you probably don’t want to tie up 75% of your portfolio in stocks when you’re a new retiree. Limiting yourself to 50% or 60% might be a more appropriate strategy.
Furthermore, make it a rule to have one to two years’ worth of living expenses in cash. That way, if market conditions decline in a serious way, you could tap the cash portion of your portfolio without taking losses.
Next, let’s talk about diversification. Within each asset class you’re invested in, it’s important to branch out. So if you’re going to keep 50% of your portfolio in stocks, make sure you’re investing across a range of market sectors.
If you’re worried about assembling the right investment mix, you can fall back on broad market index funds. But either way, make sure you’re not too heavily invested in a single corner of the market because tech-stock enthusiasts learned the hard way in 2022 that even the strongest of rallies can come to an end.
Don’t sweat a recession
The idea of a near-term recession can seem scary when you’re new to retirement. But it doesn’t have to be.
Instead of spending your time worrying about an economic decline, make sure your assets are allocated appropriately and that you’re well-diversified. If you set up your portfolio and finances to withstand a recession, your chances of getting through one unscathed will be higher.
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