The theme this week on the One Minute Retirement Tip podcast is: How To Recession-Proof Your Retirement.

Today, I’m sharing with you why you never want to enter your retirement years during a recession. A big drop in your portfolio in the early years of retirement can have lasting and serious consequences. In fact, it’s one of the most damaging strokes of bad luck you could ever experience with your finances. 

Why is a recession in the early years of retirement such a big problem? Think of your retirement portfolio as a large bucket of water. If a come by and pour out a quarter of the water in that bucket in the first few years of retirement, we have a problem.

That bucket of water needs to last you maybe 25-30+ years and I just skimmed off a lot of water! What if now, on top of that you dip your hand in the bucket and take out monthly withdrawals of water from your bucket. After all, that’s what you need to live. 

As the stock market recovers, more water will get added back to the bucket, but if you’re taking handfuls of water out, it may never recover enough to get back to a full bucket.

When your investment portfolio takes a big hit like that so early in retirement, all of a sudden you could be forced to make some tough decisions. Do you go back to work? Cut your expenses and stop your portfolio withdrawals? 

The withdrawals on top of the stock market downturn are what makes a recession in the early years a 1-2 punch. That and how much time you still need to rely on your retirement portfolio for income. Big drops and recessions are less bad 10-15 years into retirement, simply because you didn’t dump all that water out in the early years. You dumped the water out when you may only need to make your bucket of water last another 15-20 years, not 25-30 more years. 

You’re also moe likely to not have a recession and a big market downturn hit you as bad further into retirement, since you’re more likely to have less in stocks at that point and maybe your portfolio only drops 10-15%, not 25-30%, simply because you’re more conservatively invested at that point. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance