Opinion: 4 ways to help recession-proof your retirement savings

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We keep hearing that we may be in or close to a recession. Anyone who worked when the Great Recession hit in 2008 knows the negative impact it had on their finances. But the economic indicators in 2022 are not the same as they were in 2008 – so we are not sure how bad this one will be if and when it happens. Although the causes of a recession are beyond our personal control, there are steps each of us can take to help protect our own finances from the ripple effects.

A recession is generally defined as two consecutive quarters of a decline in gross domestic product (GDP), although it must also be declared as such by the National Bureau of Economic Research (NEBR). We’ve now passed the first milestone as GDP fell 0.9% in Q2 2022 after a 1.6% decline in Q1 2022. But we haven’t passed the second yet with NEBR and it’s not certain , that we do it.

But what matters to each of us is how the economy feels, and right now it can feel uncertain.

Regardless of whether it is called a recession or not, we are experiencing an unpleasant period for our personal finances. It’s time to help recession-proof your finances

As a pension plan provider, we hear what people ask about their finances every day. We know from proprietary data that retirement savers identify planning for retirement, paying off debt and ensuring that savings are invested wisely as top priorities. We understand that when times are tough, retirement accounts can look like great places to help ease the pain. ​It is important to consider that this can cause other potential problems as you may miss out on the power of time and the opportunity for investment growth and then potentially not reach your retirement planning goals.

To help manage your finances in a way that doesn’t potentially sacrifice your retirement savings, I have four tips you can share that can help you through a recession—or any personal financial downturn.

1. Create an emergency fund before you need one

When people don’t have enough money to cover an emergency, they typically look to credit cards, loans, family and their retirement savings. But borrowing from all these sources has consequences. Consider starting an emergency savings account, separate from your checking account and other accounts you use for regular expenses—so you’ll be less tempted to use it. Experts recommend saving three to six months of expenses in an emergency account to help you cope with a job loss or unexpected expenses.

.2. Continue to save in your pension scheme – even if the market is down

The idea behind investing is “buy low, sell high.” When the stock market is down, it can actually be one well time to contribute to your pension scheme. Over time, continuing to save and invest in all market conditions can help smooth out your returns.

Why? Because of something called dollar cost averaging. Dollar cost averaging does not guarantee a profit or eliminate the risk of a loss. But when the market is high, you invest in funds at a higher price, so your 401(k) contribution buys fewer fund units. The reverse is also true: When the market is low, you invest in the same funds at a lower price, so your 401(k) contribution buys more fund units. Over time, ups and downs can help balance your overall return.

Investors should also be aware that systematic investing involves continuous investment in securities regardless of price level fluctuations, and pension savers should consider their resources to continue the strategy over the long term. .

,,,3. Understand the funds available in your 401(k) plan, your time until retirement, and your risk tolerance

Your 401(k) should offer you a variety of investment options. If you’re not comfortable choosing your own investments, consider the plan’s default option or see if your plan offers advice or a professionally managed account. An important rule of thumb to understand is that the more time you have before you retire, the more risk you can consider in your investments.

4. Develop a defensive budget that takes a sharp look at ‘wants’ and ‘needs’

When the economy is great, it’s easy to call our daily iced soy latte with a pump of caramel a need. And although many of us do need some caffeine to start the day, there are more budget-friendly ways to get that jolt. Prepare a budget that can help you defend your finances against a downturn. Start taking yours apart want to from your need and create a budget that can help you pay for your needs, and consider putting some of the rest aside in your emergency or retirement savings. Your pension scheme may have resources available to you to help you do this, or you may want to consider talking to a financial professional who can help you. Good steps to take no matter what the economy does

After several years of low unemployment and significant market growth, many Americans may not know what it’s like to go through a recession. Whether or not the economic uncertainty we’re currently experiencing feels like it, there are things you can consider doing today to help shore up your finances against a recession—which might just make sense, even without a recession. Regardless of the financial situation, saving for emergencies and retirement, getting your 401(k) investments on track, and creating a defensive budget all make good financial sense.

,Sue Reibel is the CEO of John Hancock Retirement. ,

Disclosure: There is no guarantee that any investment strategy will achieve its objectives. ​The contents of this document are for general information only and are believed to be accurate and reliable at the date of publication, but are subject to change. It is not intended to provide investment, tax, planning design or legal advice (unless otherwise stated). Please consult your own independent advisor for any investment, tax or legal advice. ​John Hancock provides enrollment services to retirement plan clients through the following entities in the United States: John Hancock Retirement Plan Services LLC, John Hancock Trust Company LLC and John Hancock Life Insurance Company (USA) (not licensed in NY) , 200 Berkeley Street, Boston, MA 02116, and John Hancock Life Insurance Company of New York, 100 Summit Lake Drive, Valhalla, NY 10595. Securities are offered through John Hancock Distributors LLC, member FINRA, SIPC. NOT FDIC INSURED. MAY LOSE VALUE. NOT BANK GUARANTEED. © 2022 John Hancock. All rights reserved. ,

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