Home » Here are 6 strategies to recession-proof your finances at any age

Here are 6 strategies to recession-proof your finances at any age

KEY POINTS

A CNBC poll found more than 6 out of 10 Americans think there will be
a recession next year.
Although Americans age 50 and older feel better prepared for recession
than younger people, 68% of U.S. adults overall don’t feel ready for a
downturn at all, according to a MagnifyMoney report.
Here are some strategies for coping with financial fears, for each
generational cohort from Gen Z to baby boomers on up.

Like many Americans, you may be worried we are heading into a
recession. More than 6 out of 10 Americans — 62% — believe there will
be a recession in the next year, according to the latest CNBC All
America Economic survey conducted in early July.

Older Americans in their late 50s and beyond feel better prepared than
younger generations to handle a looming recession, according to
another report by MagnifyMoney. Yet, overall, 68% of U.S. adults don’t
feel financially prepared for one at all, the survey found.

Here are some strategies to recession-proof your finances, at every age.

In your 20s and 30s: Shore up your assets

The first step to securing your financial future is to create a plan
for reaching your financial goals, from building an emergency fund to
paying off student debt to buying your first home. Uncertainty about
the economy may make you tentative but be determined.

Build your emergency fund

Make sure you have enough cash reserves to pay for unexpected
expenses, like a car repair or medical issue, especially as these
costs continue to rise. Direct deposit 10% of each paycheck into
high-yield savings account to build your cash reserves.

Financial advisors say your emergency fund should cover three to six
months of living expenses. However, in a recession, you’ll likely want
more cash on hand — if you lose your job, it could take up to a year
to find a new one.

Savings rates are still low, but they are slowly climbing. You may be
able to earn 1% or more by saving in an online bank account. Check out
rates on Bankrate.com or DepositAccounts.com.

Strengthen your resume

If the economy falters, you want to ensure that your biggest asset,
your income, remains as steady as possible. Consider the marketable
and transferable skills that can help keep you employed even in
turbulent times.

An overwhelming majority of employers — 93% — say “soft skills” also
play a critical role in hiring decisions, according to ZipRecruiter.
It found top “soft skills” in job listings include communication,
customer service, scheduling, and time management. List these skills
on your resume and LinkedIn profile.

Technical abilities — or “hard skills” — are also important. Software
development, data analysis, and digital marketing are among some of
the “hard” skills most in demand on job websites. Learn or brush up on
these skills. LinkedIn and other online platforms offer free classes.

In your 40s and 50s: Play defense

At this point, you should be approaching or already in your prime
earning years. You likely have more financial responsibilities than
ever before — owning your own home, raising children, and saving for
your retirement. You need to put some protections in place in case the
economy — or life — throws you a curveball.

Get proper insurance coverage

Having ample insurance is one of the best ways to protect your
financial life in uncertain times. You should have an auto policy,
renters, or homeowners insurance as well as comprehensive health,
disability, and life insurance coverage.

Check coverage on your homeowners’ policy to make sure it covers
rebuilding, not just cover the current market value of the home. Home
values may fall during a recession. Also, consider buying an
“umbrella” policy to increase your liability coverage.

Don’t forget to protect your income, your greatest asset. Research
shows you are more likely to become disabled than pass away during
your working years. If your employer offers disability insurance, get
as much as you can. If you’re self-employed, buy coverage on your own.
It is worth it.

In your 50s, you may finally start thinking about what life will be
like when you stop working in your current position or field — and
start a new chapter. Getting through the first “pages” may be a tough
slog in a recession. Start preparing just in case.

Make ‘catch-up’ contributions once eligible

At age 50, you can make extra contributions to your retirement savings
accounts. It may make sense to turbocharge your retirement accounts
now if you already have an ample emergency fund.

With a $6,500 “catch-up” contribution, you could contribute up to
$27,000 to a 401(k) plan or workplace retirement plan this year. You
can also put away up to $7,000 in an IRA with an extra $1,000
“catch-up” contribution.

If you have a high-deductible health insurance policy, you can
contribute up to $3,650 for single coverage and $7,300 for family
coverage in a health savings account. Those 55 and older can
contribute an extra $1,000 to a health savings account.

In your 60s and beyond: Secure retirement plans

The time has almost come for your retirement — or you may be enjoying
it already. A recession could alter or postpone your plans for life
after work.

Test-drive your financial plan

See if your financial plan can withstand the stress of an economic
downturn. Spend your next vacation from work testing out your
retirement budget. What would you do every day? How much money would
you need to live? If you can come up with a budget that can work when
markets are down and the economy is faltering, you should be in great
shape when they improve.

Protect your portfolio

Financial advisors often recommend younger investors in their 20s and
30s keep most, if not all, of their long-term investments in stocks,
since they have the benefit of time. Those in their 60s and close to
retirement, on the other hand, should be less aggressive and add bonds
and cash for a little more security.

Tax diversification is also important. Having a mix of retirement
assets in tax-deferred, tax-free (traditional and Roth IRAs and 401(k)
plans or workplace accounts)  as well as taxable accounts can be a
wise strategy to have more flexibility as economic conditions change.

However, no matter what the economic condition, you should not have
money invested in the markets if it is money that you will need in the
next five years. That should be the case whether the market is soaring
or we are in a recession.

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