The Recession Survival Guide for Seniors

If you’ve been watching the news lately, you’ve no doubt seen many stories about a potential recession on the horizon. It seems the United States is on the cusp of what might turn out to be a recession; much of that is evident through a variety of economic factors that are quickly changing, including rising home food, and gas prices, runaway inflation, and the Federal Reserve trying desperately to get things back under control with unprecedented rate hikes.

But what does this mean for seniors?

If you’re retired and relying on income from IRAs or other investment accounts, you might be in for a bumpy ride during a recession. If you’re still working, a recession often brings the unfortunate downsizing of companies and organizations; that means your job might be eliminated. No matter your situation, it’s a sure bet that prices for just about everything will continue to go up. But there are other consequences as well, some that can hit right at the heart of your health.

What is a Recession?

According to The National Bureau of Economic Research, a recession is defined as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” Now that we’re entering the latter half of 2022 and have seen negative growth for the first two quarters of the year, it’s clear that this might be recession territory. But it’s really based on three factor s: duration, diffusion, and depth.

The duration criteria seem to be met, as we’ve seen difficult financial times across the country for many months now. Diffusion basically means that most sectors are affected by the economic downturn. “Most” is the key word here, as some sectors can continue to boom while others flounder. The third criterion, depth, looks at the percentage rate of decline in the overall economy. Though this is pretty complicated as well, a dip of 5% or even more has been seen in recessions in the past, and experts say we aren’t quite there yet[1].

Should Seniors Be Worried?

Recessions can bring many negative things along with them, such as volatile or tanking stock markets, a drop in production among companies as sales slow, increased costs for consumers across the board, downsizing among companies and in turn, widespread loss of employment. So if you are not yet retired, the potential of losing your job might be very real in the midst of a recession.

But besides that, there are other aspects about personal finance for seniors to consider. The higher mortgage rates that can come along with inflation mean that it’s tougher to sell a home – or to buy one, for that matter. At the same time, home values could drop. The rates on credit cards and loans can become more expensive. Financial markets might see a downturn, which means the money you have invested could dip – sometimes dramatically. For instance, when the Great Recession finally eased up in 2009, about $3.4 trillion in retirement savings were lost[2]. And the interest you were earning on a variety of investments can drop significantly, cutting out a large chunk of what you thought you’d be able to spend.

But perhaps one of the most overlooked issues has to do with health. Though population health as a whole actually gets better during a recession for a variety of reasons – for instance, when a decline in alcohol use leads to a decline in traffic fatalities– some individuals might experience poorer health outcomes during an economic downturn. [3]

According to the Population Reference Bureau, adults between the ages of 45 and 66 who lost employment during a recession had a higher risk of death than those who lost their jobs at other times. There is also a link between the unemployment levels of a community and the symptoms of depression among adults aged 51 or older within that community. In addition, those who live in a community where there are many foreclosures were more likely to report being depressed.

It’s not just a short-term problem. Those who lived through a recession from age 25 to 49 were found to have a decline in cognitive function years later, between the ages of 50 and 74. This suggests that the stressors a recession can bring can have a long-lasting or permanent toll on a person’s health as they get older[4].

Obviously stress can do awful things to the body and the mind. Health problems can abound, including headaches, weight loss or weight gain, insomnia, difficulty concentrating, muscle strain, and so much more. Some of those health problems could put you at greater risk of medical emergencies or falling. Now is the time to get an affordable Alert1 medical alert pendant, bracelet, or watch. These devices, especially medical alert systems with fall detection, can go a long way toward peace of mind, and that can ease some stress.

How to Weather a Recession – Things to Do Right Now

We can’t be entirely sure when a recession will hit, but there’s no doubt that one will. Since 1854, the U.S. has weathered 35 recessions[5]. So it’s not a question of if, it’s a question of when. But that question doesn’t have to affect your life in a big way if you keep these tips in mind and plan ahead.

·         Save money. Look closely at your emergency fund. According to Bankrate, 44% of Americans don’t have enough to cover a $1,000 emergency. If you’re one of them, fix that problem immediately! You want to have at least six months’ worth of living expenses in that fund, enough to cover rent or your mortgage, utilities, food, and other incidentals[6]. To determine what you need to have on hand, look at what you’ve spent over the last six months, subtracting any unusual purchases that won’t be repeated. Put that amount into your savings account so you can access it quickly.

·         Cut your expenses where you can. Now is the time to tighten the financial belt and rein in your spending. Consider areas where you can cut back. For instance, do you pay for cable every month, but could possibly get away with simply streaming a few shows you enjoy for a much cheaper price? Do you pay for a gym membership every month but could get the same benefits by working out at home or with a friend? Even that expensive latte you pick up every morning could be replaced with a make-your-own version at home that costs much less. The idea is to spend less than 30% of your monthly income on discretionary expenses[7].

·         Cut down on debt, especially credit cards. Get rid of credit card debt now, before the interest rates on your debt go up. Rank your cards by the amount of interest you pay on the debt and start putting extra money toward the highest-interest card. The sooner you get it paid off, the more money you have for the emergency fund we mentioned above. If you have a variable-rate loan of any kind, focus on paying that off too.

·         Leave your current investments alone. As you see the market drop and the value of your investments plunge, you might be very tempted to pull your money out. You might panic a bit, but in the vast majority of cases, sitting tight through a recession will allow your money to recover over the long term. Speak with a financial advisor about your investments and whether moving them around, or investing in other areas, might be a good idea.

·         Make smart future investments. Look to invest your money in stocks that are much less volatile. Kiplinger points out that things like food, energy, and utilities are essential, which means that the stocks are likely to stay strong throughout a recession. Look to investments that don’t necessarily bring the highest dividends but will continue to be stable. Speak to your financial advisor about which ones look good for that stability in the long term.

·         Don’t jump into new financial obligations. Now is not the time to buy a new house or trade up for a new car with higher payments. Stay conservative with your money and never jump into new financial obligations when rates are high and market outlook is low.

·         Think about work. If you are fully retired, is it possible to make a little money on the side through a hobby? For instance, if you’re an avid quilter, you might consider selling a few quilts or offering to create custom quilts for a nice price. If you are semi-retired, consider what might happen if you chose to fully enter the workforce again. Talk it over with trusted family members and take the time to ask a financial advisor about the possibilities.

·         Consider Social Security. Have you already started receiving benefits? If not, you might want to consider delaying the start of your benefits to help ensure that you have a safety net for a truly rainy day. If you can avoid taking dividends from investment vehicles or pensions, that’s a good idea too.

·         Take care of yourself. The last thing you want to do is let your health slide. Get the right amount of exercise and eat healthy foods. Take all your medications as directed, and don’t miss your doctor visits. Evaluate your choices with Medicare and supplemental insurance to make sure you’re getting enough coverage. Employ aging in place solutions to help keep you safe. Keep in touch with family and friends for better mental health. Wear an affordable emergency response solution at all times – this can be a lifesaver in the event of emergency and it supplies 24/7 security.

How Long Will a Downturn Last?

No one really knows the answer to that. NBER says a recession lasts an average of 11 months, and they can be mild or severe[8]. Of course, some recessions last longer than others; a recession that began in 1873 lasted a whopping 65 months. But the recession we dipped into in 2020 lasted for only two months[9]. Sometimes recessions are triggered by the natural expansion and contraction of the economy as it adjusts to market forces. Other times, it’s triggered by a particular event, such as the COVID-19 pandemic and the country’s “shut down” during early 2022.

No matter how long the downturn lasts, the best way to weather it is to be in a good financial place before it hits. Start that process now by paying attention to the tips above. And while you’re at it, make sure that your physical and mental health is in as good of a state as your financial health is. Eat right, exercise, get the assistance you need from family and friends, and pay attention to senior whole health – see your doctor, take your medicine, and wear a safety alarm at all times. By taking good care of yourself and your finances, you can get through the storm and come out to a brighter day on the other side.