Saving Recession-Proofing Your Finances (No Matter Your Age)

Economists claim a recession is likely. Here’s how to prepare and protect your assets accordingly.

By Emily Guy Birken
PUBLISHED 03/10/2023 | 5 MINUTES

Has your wallet felt a little light lately?

Filling up both your tank and your pantry might seem almost physically painful, and the inflated housing market doesn’t feel much better. These bellwethers may indicate that we’re heading toward a recession.

More than two-thirds of economists believe that a recession is likely to hit in 2023, according to a new survey from the Financial Times. While this may sound scarier than the new Jordan Peele film, there are important steps you can take to protect yourself and your finances from the dreaded “R” word—no matter your age.

The Importance of an Emergency Fund

Whether you just landed your first post-college job or are looking to retire soon, financial professionals agree that an emergency fund is the best place to start.

“Ideally, you should keep three to six months’ worth of living expenses in an emergency fund during your working years,” says Russ Kefauver, founder of Kefauver Financial Planning. However, Kefauver suggests that those approaching retirement aim for a more robust emergency fund of 18 to 24 months’ worth of living expenses.

“Maintaining a larger emergency fund later in life is prudent—whether or not we have a recession—because economic and market downturns are inevitable,” he explains. “Having 18 to 24 months’ worth of living expenses on hand would outlast most historical recessions.”

Seize the Opportunities of a Recession

Riding the wave of a recession is no one’s idea of a good time, but Alexis Woodward, a certified financial planner (CFP) with Blend Wealth, explains that downturns and recessions can potentially be good for investors.

“I encourage clients who are new to investing to think of the market as being on sale during market downturns,” Woodward says. “If you need more of something, it’s always a good idea to buy during a sale. Who doesn’t love a bargain?”

Of course, that doesn’t mean investing through a downturn is right for everyone. Ian Weiner, a CFP and founder of Simply Retire, cautions investors to know when they will need their invested money. “Volatility is to be expected and can be your friend—if you are investing with appropriate time horizons,” Weiner explains. “Don’t invest money in equities that you may need for a purchase within a year.”

Kefauver agrees, adding that “recessions are opportunities for long-term investors. Some of the biggest up days in the markets happen during recessions and downturns.”

Know When to Invest Conservatively

So, what should those approaching retirement do in case of a looming recession?

Since you don’t have time to wait out the downturn, “the one thing people should not do in a recession is panic,” says Kefauver.

Woodward also points out that there is plenty you can do to protect your nest egg if it seems like you may be retiring into a recession. “As previously mentioned, ensure you have an adequate emergency fund and one to two years’ worth of living expenses in very conservative asset classes, such as high-quality, short-term bonds and cash,” she says.

This will ensure that you can fund your living expenses without having to dip into your retirement savings before your accounts recover. Woodward also recommends regularly rebalancing your portfolio through the volatility, as that will help you control the risk and prepare for the rebound—which can help you maximize your returns.

Remember: No One Has a Crystal Ball

Though the majority of economists agree that a recession is likely, the truth is that no one knows for sure what the future will bring. “Despite what pundits say, recessions and markets can’t be timed,” Kefauver says.

This doesn’t mean we should simply ignore the predictions of economists and financial professionals, but we shouldn’t allow predictions to frighten us into impulsive financial decisions.

“True investing is not sexy,” Woodward says. “Whether you’re investing in a recession or a bull market, you should have a plan and stick to it.”

Millie content is licensed from Dotdash Meredith, publisher of Millie, Real Simple, InStyle, Investopedia, The Balance and more.

Emily Guy Birken is a former educator, lifelong money nerd and Plutus Award–winning freelance writer. She is the author of five books including “The 5 Years Before You Retire” and “Stacked: Your Super Serious Guide to Modern Money Management,” written with Joe Saul-Sehy. Emily lives in Milwaukee with her spouse, two sons, a dog and a cat.


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