January 7, 2019
Recession and Retirement: How Are We To React If It Happens Again?
For the past month the stock market has been on one of its periodic roller coaster rides: erratic enough to make you sick. China's economy is cooling down, giving the whole world a cold. Britain is getting close to a no-deal exit from the EU. Tariffs are good...or bad, depending on whether you benefit or are hurt. Even the golden goose, Apple, is having some problems. As of this writing 25% of the government is shut down. At some point those working for no pay are going to decide, no more.
As retirees we are directly feeling the effects of this instability. Our income is baked in. Stocks, mutual funds, bonds, pensions. savings - what we have is all we are likely to have. Depending on your age, it may be getting a little late for the markets to fully recover and world economies to play nice with each other.
During the 2008 recession, my investments lost about 30% in (paper) value. Same for my house. In the ten year since, everything has recovered and grown. Of course, I lost several years just clawing back to level ground. But, the American economy does regularly rise and fall, so I just figured this was part of the game.
That dark period was caused by greed, lax regulatory oversight, and a collective belief that everything only goes one way - up. I am pretty sure none of the people (minus Bernie Madoff) or businesses set out to throw our lives into a tailspin. That was simply a byproduct of unethical and risky decisions by too many people, including those who were offered a mortgage they couldn't afford.
This time around, the situation seems to be more worrisome, simply because I am a decade older than before. I have less time to rebuild what my wife and I are dependent on to keep us happy and healthy for the next fifteen or twenty years.
How far away are we from unpaid TSA agents and air traffic controllers walking off the job, bringing air travel to a grinding halt? The IRS is so short of people that tax refunds may be indefinitely delayed. National Parks are being closed both because of no staff, and our abysmal behavior when a park ranger isn't looking over our shoulder.
What if the economy slips into a recession this year? What if the stock continues to shed hundreds of points a day, only to recover a bit, and then fall again? As retirees what can we do?
This is not a financial blog. I wouldn't pretend to tell you what to do, only what I did and will do again, if need be. The late 80's recession, the dot-com bust of the early 2000's, the turmoil in 2008....we have all been here before.
During those three periods I did not give up on my planning. I did not sell low when things were scary just to sit on the cash. I had enough faith in the country's overall health and in my ability to weather the storm that I did not allow myself to become scared and run down the wrong path.
I cut our expenses. I delayed anything that was discretionary and expensive: house remodeling, vacations farther away that two hours north to the mountains, new furniture..anything that could wait. We sold a weekend cabin in the mountains and several weeks of timeshares in Florida.
We had simpler meals, more leftovers, fewer trips to the movie theater and restaurants. We cancelled magazine and newspaper subscriptions.
We delayed the purchase of replacement cars. Amazon's free shipping and added Prime services hadn't taken off yet; not having that tempt us certainly helped. That meant fewer opportunities for spur-of-the-moment purchases.
Now, in 2019, I am taking some of the same steps. Betty and I discussed our budget in December when things started looking shaky. We agreed that instead of waiting, we would be proactive. With our nest egg down about 10% in the last 30 days we are not prepared to cross our fingers and hope.
If the government can find a path to compromise, the world economy doesn't have a major upheaval and Britain somehow leaves the EU without falling off a cliff and pulling all of Europe down with it, we will restore what we have cut.
I must be honest: after the 2008 recession, not everything we cut from our lives has been replaced. A simpler, more-pared down retirement has been a good fit for us. True, there have been occasional splurges. But, after 17 years of retirement, we are finding quiet times with each other and family leave us quite satisfied.
In one of my strongest memories of the time during and right after the 2008 problems, I remember I felt almost no stress or worry. It was an odd reaction to a serious situation, but I felt calm and that things would work out. I had faith in our ability to weather any storm.
Whatever comes now we believe we can handle it. And, that is a great feeling.