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How to help recession-proof your retirement savings in 2023

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10'000 Hours/Getty Images

Prepare your retirement for any market with these considerations and reminders.

This article covers:
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The bottom line:

Fluctuations in the market—including cycles of prolonged bull and bear markets—are normal and expected.
Establishing a regular schedule to rebalance retirement savings can help keep you on track for a comfortable retirement.
Work with a financial advisor to gain a professional perspective or second opinion before making significant changes.

Why are people in the United States talking about recession?

If you follow the S&P 500® Index or other market indicators, you saw a drop in average stock returns starting in 2022. Your retirement portfolio may have taken a hit. After 11 years of S&P 500 returns averaging nearly 16% annually,1 recent stock returns may have felt like a disappointment. This, plus inflation hitting 40-year highs, led to additional concerns.

Many investors have wondered what the markets and economy will look like in the years ahead. Are recent trends an exception in an otherwise ongoing, long-term bull market? Or is this instead the start of a prolonged downturn?

The answers are unknown and have prompted conversations about whether the U.S. or global economies are entering a recession. A recession is a significant, prolonged decrease in economic activity. It typically happens when there is a widespread drop in spending.

What should you know about inflation?

No one can reliably predict how inflation will continue to evolve and impact buyers, markets or economies. However, there are a few financial best practices and strategies you can deploy to help beat inflation. Typically, near-term liquidity helps protect against market volatility, and long-term growth may help protect against increasing costs (inflation).

Well-crafted financial and retirement savings strategies should be able to withstand market volatility, and both strong and recessionary economies. It’s important to prepare for market ups and downs by building a diversified, balanced and resilient financial portfolio.

What can you do to help recession-proof your retirement savings?

To help ensure your savings are there when you need them, you can create or modify a financial strategy to prioritize diversification and financial products that support your goals. Stocks, bonds, real estate, annuities, cash and other assets may be combined to provide a reliable stream of income. A mix of liquid and illiquid assets can help you weather the expected ups and downs of markets. Consider diversifying your portfolio based on your risk tolerance. However, note that there is no guaranteed way to avoid the risks inherent to investing.

If you have short-term income needs in a volatile market, predictable and reliable retirement income solutions such as cash, annuities, certificates of deposit, some bonds, and Treasury inflation-protected securities may be worth considering. Read on to learn more about these.

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Where is the safest place to put your retirement money during a recession?

There are three broad categories of investments: stocks, bonds and cash.

  • Stocks offer the potential for growth, but they also are relatively risky and may experience large losses.
  • Bonds tend to be more stable and pay income, and they can act as a stabilizer during volatile times. But bonds also can lose money due to economic conditions or issuer-specific events.
  • Cash is a safe asset class for the most conservative investors, but it might lose purchasing power over time due to inflation.

These asset classes form the foundation of a portfolio, but it can be helpful to diversify further within each asset category. For example, your stock holdings might include large and small companies, but you also might invest in a mixture of foreign and domestic stocks. Likewise, your bond exposure could consist of different government and corporate bonds from around the world rather than one country or sector. (Note that 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.)

You also might consider whether annuities, bonds, certificates of deposit, or Treasury inflation-protected securities can help you meet your financial goals.

Read more about where to consider keeping your cash.

Is it bad to hold cash during a recession?

Cash is a safe asset class for the most conservative investors, but it might lose purchasing power over time due to inflation. Consider whether you can meet your financial goals by holding cash. Ask: Do my asset allocations align with my financial strategy? Stick to a plan and remember the big picture you are working toward.

4 ways to help create dependable retirement income

To help create dependable retirement income that is available in any market environment, consider a retirement income distribution strategy that includes four things: guaranteed income, short-term, medium-term and long-term funds. Here’s how to use those four things together to help build a lifetime of financial security.

1. Start by understanding your guaranteed income sources.

Guaranteed income helps you cover essential expenses and make your savings last. Common sources of guaranteed income include Social Security, pensions, annuities and permanent life insurance. You may choose to fill gaps in the Social Security and pension income with financial products—like annuities or permanent life insurance—that can provide guaranteed income.

Consider these guaranteed income sources when creating your retirement income distribution strategy:

  • Social Security: Make the most of this guaranteed retirement income available to most workers in the U.S., and plan to supplement payouts as needed. When you begin claiming benefits can have a significant impact on the funds available to you. If you’re looking for help on the right time to begin withdrawing, a financial advisor can help.
  • Pensions: While becoming less common, this form of retirement income is typically paid out monthly by an employer. A pension also may include options for a surviving spouse.

  • Annuities: Converting a portion of your retirement savings into an annuity can help provide a steady stream of income. There are four basic types of annuities to choose from.

The 4 basic types of annuities

  • Fixed annuities: This most basic type of annuity guarantees a minimum interest rate but has no portfolio growth potential.
  • Variable annuities: The performance of this type of annuity will respond to fluctuations in the market. Variable annuities put you in a higher-risk environment with the potential for rewards or losses.
  • Immediate annuities: These are designed specifically to provide an immediate guaranteed payout that can last for a specific amount of time (in some cases, a lifetime). The drawback is that you're trading liquidity for guaranteed income.
  • Deferred annuities: This type of annuity provides guaranteed income in the form of a lump sum or monthly income payments generally in the future. The annuity can be either variable or fixed. It will be invested in the market and has the potential to experience growth over time. Deferred annuities can be a good option if you prefer to defer taxes until your payouts begin.

2. Next, focus on the long-term (10+ years).

Saving for retirement is typically a long-term process that uses the power of time and compounding to create a sustainable income source later in life.

Use equity investments to help achieve long-term growth. Stock market exposure can help your retirement savings keep up with inflation as you invest for the long run. Continually review and adjust your investments with assistance from your financial advisor. Diversify assets and income sources among different tax categories. This helps you anticipate and react to changing tax rules and personal circumstances that may alter your tax situation.

There will be years when you see gains from equity investments. There also will be years where you lose money. Investing in the markets involves risk, and there are no guarantees. Remember the long-term outcomes that this part of your retirement income distribution strategy aims to achieve.

3. Then, focus on the medium-term (4-9 years).

Medium-term funds should generally be income-oriented assets. These funds help replenish your short-term liquid assets as needed. When choosing assets for this part of your retirement income distribution strategy, remember that these funds are targeted for use in 4-9 years. You want them to be available when you need them.

Expect to target moderate growth assets in this category. Strategies to achieve moderate growth can vary. You might simply choose moderately aggressive assets. Or you might target moderate growth through a balanced mix of conservative and aggressive assets.

Example moderate growth assets might include annuities, dividend stocks or fixed income investments.

4. Finally, focus on the short-term (0-3 years).

Build short-term (liquid) income sources into your portfolio that help you weather market volatility. Predictable and reliable income sources can help fill the gap between your income goal and available income, like Social Security, or distributions from a retirement plan or pension.

These near-term funds should have up to three years of your annual “gap” need set aside, depending on your financial situation and risk tolerance. Liquid assets are saved with the aim to preserve principal. They should be put in lower-risk, easily accessible accounts. You may not make much money here, or anything at all, but that is not the function of these savings. This category is structured so that market volatility shouldn’t affect these funds significantly, meaning that you don't need to sell stocks at a loss during a poor market environment.

Highly liquid funds include cash, checking accounts, savings accounts and some high-yield savings accounts. Moderately liquid funds may include short-term certificates of deposit, annuities, some bonds, and Treasury inflation-protected securities.

Why is diversification important?

It is common wisdom among investors that diversification is important, and we’ll repeat it again here. Diversify the financial products and tools you use to save for and live in retirement by creating a portfolio that includes a mix of guaranteed income to cover essential expenses and variable income for everything else.

Diversification does not assure a profit or protect against loss in a declining market. However, it is a great way to help build multiple income streams for living in retirement. It increases the likelihood that one or more of your income streams will be there to support you when you need it. Remember that diversification can help reduce market risk but does not eliminate it.

About two-thirds of retirees say if they had to advise their younger selves on a financial matter, it would be to learn how taxes impact retirement savings.
Thrivent’s 2022 Retirement Readiness Survey

Are you prepared for the tax implications of your retirement plan?

Tax considerations are critical to understanding how much retirement savings you truly have. If you’re not thinking about the impact of taxes, you could be dramatically underestimating the amount you’ll have each month. Tax efficiency can help you focus more of your money on the people and causes you care about.

Most income in the United States—including retirement income—is taxed. And the same income tax brackets and rates apply to everyone, even after retirement. Your retirement income also can impact taxation of Social Security benefits. Without a strategy to be efficient with the taxation of your retirement income sources, you could have a hefty tax liability all at once. Changing tax laws are also a potential risk that you will want to account for in your retirement strategy.

Pay attention to whether your retirement accounts are taxed now, later or never.

  • Roth accounts are typically not taxed when income withdrawals are made since you have already paid taxes on these funds.
  • Social Security may be taxed. People generally pay taxes on Social Security benefits when they have moderate to substantial income in addition to their benefits.
  • IRAs, 401(k)s and 403(b)s distributions and other tax-deferred account withdrawals are typically taxed. Additional requirements (required minimum distributions) on these types of accounts could further impact the amount of taxes you'll pay.

Preparing for taxes in retirement

Learn more about tax considerations for your retirement plan:
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Common questions about taxes after retirement
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How to plan for taxes in retirement
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5 tax strategies for your retirement plan

Should you keep putting money in your IRA or 401(k) during a recession?

Whether you should continue contributing to an IRA or 401(k) during a recession depends on your retirement date, the asset classes you contribute to through your retirement fund, and whether your employer matches your contributions.

If you are nearing retirement or already retired, you may wish to evaluate whether the assets classes held within your portfolio can deliver what you need in the short- and long-term. You may wish to rebalance your portfolio to ensure that your assets are structured in a way to be there when you need them. (Ask a financial advisor for help if you are unsure of how to begin.) Consider funding a solution that provides guaranteed income. Guaranteed income sources like annuities specify exactly how much retirement income you'll receive for the rest of your life once you retire, regardless of stock market performance.

If your retirement is decades away, remember that keeping a diversified portfolio in the stock market long-term has been a historically good way to beat inflation and prepare a retirement income stream. It may be best to keep putting money in your IRA or 401(k) during a recession. These accounts are designed for long-term use.

If you are questioning whether to continue contributing to a 401(k) during a recession, remember to consider that many retirement plans such as 401(k)s offer employer matching. Even in a down market, the matching funds contributed by an employer to the employee’s account can significantly increase the funds available in retirement.

Before making significant changes to your retirement contributions, consider working one-on-one with a financial advisor to gain a second opinion or professional advice.

Are annuities safe during a recession?

The security of an annuity depends on the type of annuity you have. Every type of annuity carries its own unique risks and rewards. For example, fixed annuities are relatively low-risk, guaranteeing income in retirement at a steady growth rate—often around 1% to 2%. However, they do not give you the opportunity to benefit from positive market performance and often do not keep up with inflation.

In contrast, variable annuities are higher-risk, with funds tied to market performance—along with the gains and losses that come with it.

Annuities may have other costs associated with them as well. These costs can vary. Some annuities have surrender charges only, while others have administrative fees, mortality and expense risk charges, and optional rider fees. The money contributed to an annuity typically can't be removed without a penalty charge.

Compare the benefits and drawbacks of the four types of annuities

Which stocks are safe during a recession?

There is no such thing as a safe stock. Investing, by definition, involves risk. Stocks offer the potential for growth, but they also are relatively risky and may experience significant losses. Consider a diversified distribution strategy that incorporates a mix of long-term assets, guaranteed income sources, and near-term (liquid) sources if you are looking to create a portfolio that can withstand changing market conditions.

Dividend stocks

If you are looking for a type of stock that tends to be less volatile than its aggressive growth counterparts, you may want to consider dividend stocks. Dividend stocks are equity securities that represent ownership in a publicly traded company that pays dividends to its shareholders. Dividend stocks can fluctuate in value like other equity investment types, but they also provide income in the form of dividends. They may also provide investors with capital appreciation over time.

Fixed income investments

Equities come in many shapes and sizes—with varying degrees of risk. In the face of recession-related concerns, many investors choose to consider fixed income investments such as bonds, certificates of deposit and Treasury inflation-protected securities (TIPS). These securities provide a regular income in the form of interest payments. They are typically less risky than other types of investments, such as stocks and commodities, making them a good choice for conservative investors. The downside of many conservative investments is that they may not keep up with inflation over 10+ years.

How can you recession-proof your retirement savings in 2023?

In conclusion, you can prepare your retirement for any market condition—good or bad—with a few considerations and reminders.

  • Remember that fluctuations in the market—including cycles of prolonged bull and bear markets—are normal and expected. It’s important to prepare for both.
  • Help build resiliency into your retirement strategy by distributing funds across four places: guaranteed income, short-term, medium-term and long-term funds.
  • Establish a regular schedule to balance retirement savings and help stay on track for a comfortable retirement.
  • Work one-on-one with a financial advisor to gain a professional perspective or second opinion before making significant changes.
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1From 2009 to 2021. Data: Morningstar Advisor.

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

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

Thrivent financial advisors and professionals have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.

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.

Guarantees based on the financial strength and claims paying ability of Thrivent (or issuing organization).

Investing in securities involves risks such as fluctuating principal, and they may lose value. CDs offer a fixed rate of return. The value of a CD is guaranteed up to $250,000 per depositor, per insured institution, by the Federal Deposit Insurance Corp. (FDIC), an independent agency of the United States government.

Holding an annuity inside a tax-qualified plan does not provide any additional tax benefits.

Withdrawals made from a tax deferred product or plan, prior to the age of 59½, may be subject to a 10% federal tax penalty.

Annuity surrenders or partial withdrawals/surrenders may be subject to income taxes and/or surrender charges.

If requested, a licensed insurance agent/producer may contact you and financial solutions, including insurance may be solicited.