How to recession-proof your retirement

Wharton’s Olivia S. Mitchell discusses how individuals can plan for retirement when facing an economic downturn.

What are the best ways to make your retirement recession-proof and avoid the losses many people suffered during the last major economic downturn? Nearly three-quarters of economists surveyed by the National Association for Business Economics said the U.S. could enter a recession by 2021. With consumer debt nearing 2008 levels, uncertainties on the health insurance front, and predictions of slower economic growth in the coming years, experts at Wharton note that Americans preparing for retirement should pay down debt, build an emergency fund, and look for big and small ways to save money. 

two golden eggs in a nest

“The first thing I would advise, given that it’s the beginning of the year, is to start to think about getting your tax material together, and try to put together a summary budget,” says Olivia S. Mitchell, professor of business economics and public policy and executive director of Wharton’s Pension Research Council.

Mitchell suggested that people track where they spent their money last year. From there, individuals can determine their average monthly spends. “That will give you an idea of your current trajectory. You’d be surprised how few people do a budget.”

“The potential rising cost of health care is … one of the biggest unknowns” that people heading into retirement ought to consider, Mitchell says. Because it is hard to predict what the health care system will be like over the next 25 to 35 years, “it makes it very unclear as to how much you actually need to save to cover out-of-pocket expenses, costs that are not covered by your medical insurer, and treatments that don’t even exist today,” she explains. Mitchell suggests keeping an emergency fund equalling six months of income, and to pay down loans like home mortgages as much as possible now.

Read more at Knowledge@Wharton.