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How to help protect your retirement savings in a recession

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As you diligently invest your money for a full and meaningful retirement, talk of an impending economic downturn may leave you feeling shaky. While you don't want to react emotionally, you could take it as an opportunity to take a holistic look at your retirement plan. Simply reviewing to see if adjustments are needed to your investments can help you feel steady and on course.

We'll walk through some proactive steps for how to help protect your retirement savings in a recession based on your life stage:

What to do if you're retired or about to retire

  • Review your asset mix with your financial advisor.
  • Avoid selling assets or reducing contributions based solely on market conditions.

A recession generally means the economy has seen two or more consecutive quarters of negative growth. If that timing coincides with your approaching retirement, you may feel like your retirement savings are vulnerable. But ideally, the potential for economic swings over the years has already been built into your portfolio. Still, it's a good idea to revisit your strategy to make sure you're adequately managing risk.

At this stage of life, consider splitting your investment assets into two buckets:

1. Long-term growth assets

In this bucket, you'll lean toward higher-risk investments that will allow you to continue experiencing growth potential. This bucket would primarily include equities—stocks or stock mutual funds—but could also include real estate securities.

2. Near-term, liquid sources

This bucket is considered your safety net to weather market volatility. The goal of these accounts and investments is to preserve principal. These lower-risk, easily accessible accounts may include higher-quality short-term bonds, money market funds and certificates of deposit, and more common accounts like savings and checking accounts.

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Avoid making emotional decisions during volatile markets

When market prices drop, investors may want to sell off assets to minimize losses. But that often has the opposite effect in the long run. If you have less exposure in the market, you may not reap the benefits when Wall Street eventually rebounds. You could be making it more difficult to achieve the asset growth you'll need to support a long retirement, especially after accounting for inflation.

One of the best things you can do, even amid economic unease, is to steady your nerves, keep a long-term view of your finances and balance all the consequences that any rush decisions could cause.

Work with a financial advisor to review your retirement investment plan regularly at this stage of life. They can guide you to make thoughtful decisions with your money.

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What to do if retirement is 10 years away

  • Review the diversification of your overall portfolio.
  • Invest a set amount each month to increase long-term returns.

If you're a decade away from retirement, you have some time for the market to recover from a slump. Even so, an investment checkup during economic uncertainty is a good idea. Make sure you have a diversified asset mix that's consistent with your age and target retirement date.

Diversification is critical even if you mainly invest in mutual funds. Stock funds typically bundle companies of a specific size, location or industry, but economic downturns don't affect all industries equally. Varying your exposure across these segments could mitigate the short-term impact of a recession. You also want diversification across bond maturities, which can soften the potential impact to your nest egg of any future interest rate hikes.

When retirement is still several years away, perhaps the most effective step you can take is to remain steady with your contributions, no matter what's happening to asset prices. Regularly adding money to your workplace retirement plan or an individual retirement account (IRA) can help ensure that you'll stay on track to meet your retirement needs.

It helps to consider the advantages of dollar-cost averaging, which means making consistent investment contributions at set intervals. In doing this, you may end up purchasing more shares of a stock or mutual fund when its valuation takes a hit, but you'll be setting yourself up for greater growth when the next bull market begins.

You may be practicing dollar-cost averaging already if you have a workplace retirement plan. You can also set up automatic contributions to an IRA or brokerage account that go toward the purchase of a fixed dollar amount of securities.

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Moves to make if retirement is more than 10 years away

  • You may be poised for greater risk, so check your asset allocation and rebalance as needed.
  • Continue to make steady contributions when stocks are "on sale."

When you're just starting out or at the mid-point of your savings stage, you have time to make up for any losses your investments may experience. Things that seem drastic now can change in the relatively near future.

Consider that after the housing market collapsed in the fall of 2008, the S&P 500 index fell to around 680 points at one point in March 2009, creating a wave of fear. However, by 2013, it had climbed to a new high, around 1,800. Today, the index stands at more than 4,000, even after a recent downswing. While there are never any guarantees regarding future market performance, history repeatedly shows that the market has rewarded patient investors.

The reality is that economic slumps present an opportunity to ramp up your contribution levels if you're a little behind the curve. When valuations are down, each dollar you invest buys more shares than it would during a bull market. So you're amplifying the impact on your savings when things eventually turn around.

Generally, the younger you are, the more growth-oriented you want your investments to be. That usually means creating a stock-heavy portfolio with greater short-term risk but more growth potential over the long run. When the market swings, maintaining your desired asset mix often requires rebalancing your holdings. When stock prices dip, you may find that they suddenly make up a smaller portion of your account than you intend. Consequently, you may want to slightly increase the amount of your contribution that's going to equities in order to bring your investments back into alignment.

You'll also have the benefit of compounding interest during this life phase—ultimately earning more with invested money over time than if you let it sit in a savings account. The interest your investments earn may even offset the effects of inflation, boosting the purchasing power of your money in the future.

Get professional guidance

The fulfilling retirement can still be in reach amid recession predictions. A sound plan can keep you pointed in a positive direction despite any temporary economic swings. In the meantime, periodically assess whether your asset allocation is the right mix for achieving your long-term goals. Most importantly, stay the course and shy away from any decisions that are based more on emotion than what's truly in your best interests.

A local Thrivent financial advisor can partner with you to vet your portfolio and steer you along the right path.

Investing involves risk, including the possible loss of principal. The product prospectus, portfolios' prospectuses and summary prospectuses contain more complete information on investment objectives, risks, charges and expenses along with other information, which investors should read carefully and consider before investing. Available at

While diversification can help reduce market risk, it does not eliminate it. Diversification does not assure a profit or protect against loss in a declining market.

Dollar cost averaging does not ensure a profit, nor does it protect against losses in a declining market. Because dollar cost averaging involves continuous investing, investors should consider their long-term ability to continue to make purchases through periods of low price levels and varying economic periods.

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