3 Places to Put Your Retirement Money During a Recession

Insider’s experts choose the best products and services to help make smart decisions with your money (here’s how). In some cases, we receive a commission from our partners, however, our opinions are our own. Terms apply to offers listed on this page. Some economists have warned that a recession is likely in 2023, which means it might be more difficult to retire next year. If you’re worried about market volatility, financial planner Alex Alba recommends moving your money out of the stock market. Put one to five years worth of expenses in a CD or high-yield savings account instead. Loading Something is loading. Thanks for signing up! Access your favorite topics in a personalized feed while you’re on the go. download the app Concerns about inflation, anxiety over a possible reduction, and volatility in the stock market are prompting many Americans to push back their retirement plans. A Nationwide Retirement Institute survey in August found that 40% of workers age 45 or older have done so. Financial planner Alex Alba of Merit Financial Advisors tells Insider that many of his clients planning for retirement are struggling with this right now. Clients who were planning on retiring in 2023 say, ‘I think my pension’s going to be affected. I don’t know what to do,'” Alba says. So we ran pension estimates, and we asked him, ‘What are you spending right now? And what do you plan to spend in retirement?'” In the current environment, after calculating your annual expenses during retirement, Alba recommends reallocating one to Five years worth of investments in cash assets if you’re risk-averse. For example, if you take out $250,000 for your first five years of retirement starting in 2023, Alba suggests putting $50,000 in a regular checking or savings account first. The remaining amount can be split up in these three places, if you’re worried about a recession that could cause big swings in the stock market.1. Certificate of deposit (CD)”I would utilize CDs to put some of your cash to work if you’re afraid of that market volatility,” says Alba. A certificate of deposit (CD) is a type of deposit account that offers a fixed The interest rate if you keep the money in your account for a set amount of time, ranging anywhere from a few months to five years, or more. Longer CD term agreements typically offer higher interest rates. The fixed interest rate of a CD might give a risk-averse investor more peace of mind, especially since economists are predicting that the stock market might become more volatile in 2023.2. BondsAlba recommends diversifying your cash assets to ensure the highest possible yield in retirement. A bond is a loan you make to the company in exchange for fixed income from interest over a fixed period of time. Bonds typically offer lower returns than other investments. Alba adds, “We’ve had a terrible bond year, but fixed income from bonds will come back eventually.”I bonds, issued by the US Department of Treasury, are one of the most common kind of bonds. As of late January 2023, I bonds offered an interest rate of 6.89%. You can buy up to $10,000 worth of electronic I bonds and $5,000 in paper I bonds in one calendar year. You can redeem your I bond after 12 months, but if you cash in the bond in less than five years, you lose the last three months of interest. Compared to the stock market, Alba says: “I do see fixed-income bonds being a good investment, but you will not experience the same volatility as you would in an equity-based portfolio.” 3. High-yield savings accountAlba’s next recommendation is to move some of your retirement nest egg into a high-yield savings account. Some high-yield savings accounts offer interest rates exceeding 3%, much more than regular savings accounts that typically only offers an APY around 0.16%. Instead of keeping your money in a retirement account, which could decrease in value as we experience more stock market volatility, putting it in a high-yield savings account with a positive interest rate will guarantee that your money grows.It’s important to note that interest Rates on high-yield savings accounts might vary slightly from month to month. However, money kept in high-yield savings accounts isn’t going to decrease in value the same way that money in the stock market might during volatile periods.”Obviously, you want to make sure you have your emergency savings fund first,” Alba says. “I would make sure you’re comfortable in your current situation, paying bills, credit card debt, and all that good stuff first. Ultimately, you’d have to double-check your retirement plan with a financial professional to use cash in a smart way.”

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