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Could a 2024 recession impact my retirement strategy?

Ty J. Young believes the economy may be resilient enough to prevent a recession this year, but there are signals that 2025 may devolve into financial chaos and potential recession

Photo courtesy of Ty J. Young
Photo courtesy of Ty J. Young

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Since the last recession in 2008-09, many retirement investors have been ultra-cautious about their portfolios. While the economy has struggled back, that vigilance remains. Even as financial experts profess cautious optimism about investors’ prospects in 2024, they can’t ignore the small warning signs that disruption may be on the horizon.

After the stock market cratered in 2008, the values of 401(k)s and IRAs declined by $2.8 trillion, a loss of 32%. Saving for retirement was more difficult, too. Many investors had to tap their nest eggs or delay retirement.

So what are the indicators that a recession could happen again in 2024, and how can retirement investors protect their portfolios? Top financial adviser Ty J. Young, CEO of Ty J. Young Wealth Management has a few ideas.

What impact could a recession have on retirement savings?

A recession can have significant repercussions for every aspect of personal finance. But it’s especially hard on those who are planning for retirement or already drawing funds after they retire.

In the short term, retirement portfolios may see value instability as market volatility persists. The Federal Reserve typically lowers interest rates during a recession, which can affect fixed-income investments and income from bonds and annuities. Those who are already retired may be forced to withdraw early to address pressing needs. And doing so could lead to penalty fees.

Looking further out, a recession could force investors to lower their contributions to retirement accounts. Social Security benefits may be reduced or subject to stricter eligibility standards. Inflation could rob investors of their purchasing power and force them to delay their retirement until the market recovers.

Could we see a recession in 2024?

For the most part, the economy has rebounded in the decade-plus since the Great Recession. But lingering signals make experts wonder whether another recession might be lurking around the corner.

This year is expected to be a pivotal one for geopolitics, international finance, and the investment marketplace. While the job market proved to be robust in 2023, there are signs that it may cool off amidst the expected uncertainty of 2024.

Ty J. Young believes the economy may be resilient enough to prevent a recession this year. But there are signals that 2025 may devolve into financial chaos and potential recession.

For one thing, Young believes the Federal Reserve and Executive Branch will do everything possible to stave off recession in this election year. This includes printing more money, a decision that could come back to haunt the economy in 2025.

“Printing money is the go-to response of the government during an election,” Young says. “However, such money printing has already reached the tipping point, creating negative impacts on the bond market and creating rampant, massive inflation. That has the potential to generate stagflation and ultimately a recession due to the consumer being unable to keep up with rising costs.”

One of the strongest indicators of an oncoming recession is a two-quarter reduction of the Gross Domestic Product (GDP), which Young suggests may not happen in 2024. Buy beyond that? “First quarter 2025, without a real budget through regular order and an Executive Branch committed to deficit reduction and industrial competition? It could get ugly.”

What are some tips for investment success?

Especially with an uncertain 2024 on the horizon, investors will need to take deliberate steps to build wealth and protect their investments. Young has some principles for them to keep in mind this year.

Set realistic goals

With all strategies, investors should establish a set of goals that are practical and attainable. They should decide exactly how much they’ll need to have a comfortable retirement and a feasible date for accomplishing their goals. These goals can serve as the impetus for taking a more measured but flexible approach toward retirement savings. 

Plan an effective strategy

There are a few strategies that experts recommend for shoring up retirement savings plans. Diversification is one of the most effective measures, as it spreads one’s capital across several business sectors and investment vehicles to mitigate risk. 

Some also recommend dollar-cost averaging, which involves making regular contributions to retirement plans no matter how the market is performing. Map out your investment plans to increase their stability. 

Stay with your strategy

Many investors get irrational when the investment market fluctuates, leading them to make emotion-based decisions that could do irreparable harm to their retirement plans.

By sticking to your strategy, you’ll foster a healthy sense of discipline over your holdings. Certainly, you may need to make minor adjustments from time to time, but stay true to the bigger picture of your investment strategy.

Protect your retirement fund

You’ll want to think of preserving your investment accounts to save capital and manage risk. Common strategies for fund protection include buying dividend-paying stocks, hedging, stress-testing, and fixed-income investments.

One rising instrument is a fixed-income annuity. It allows an investor to make a lump-sum premium payment to a retirement plan as a premium with locked-in interest rates. It acts as a shield against market volatility. 

Young says fixed-income annuities let investors “avoid stock market losses and grow their money at the same time. It’ll grow with the market as the market goes up and you don’t lose money when the market goes down. It’s a fantastic balance for the average investor.”

Hedge against volatility in 2024

While it looks like we may avoid a full-on recession in 2024, the outlook for 2025 is not quite so clear. But retirement fund owners need not reach for the panic button too soon. Instead, find an accredited, experienced financial advisor to help you find retirement fund solutions that will carry you through dark times.

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Jon Stojan is a professional writer based in Wisconsin. He guides editorial teams consisting of writers across the US to help them become more skilled and diverse writers. In his free time he enjoys spending time with his wife and children.

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