If you’re on the cusp of retirement and you fear a recession is on its way, what steps should you take to protect your finances?
For millions of Americans in this situation, one simple answer is: Sell your home while you still can.
And move into somewhere smaller. (Or rent.)
About 13% of baby boomers, or roughly one in eight, told pollsters they had recently done just this, downsizing their home to reduce their costs in the face of a risky economy.
It’s hard to fault the logic. These home prices surely can’t last forever. According to the U.S. Census Bureau, the average sales price of a U.S. home is still a third higher than it was in late 2019, during the boom and just before the pandemic.
The average 30 year mortgage rate back then was 3.7%.
Today: 6.7%.
Logic says either the mortgage rate has to fall—a likely outcome in an economic downturn—or house prices will.
Or maybe both.
And while you might not want to try to time the housing market if you’re young or middle-aged, if you are in your later 50s or older you won’t have the same flexibility about timing.
Meanwhile, 26% of those surveyed said they planned to keep working full time, and 22% were planning to delay their retirement, in many cases by several years.
Some 758 people 59 and older were surveyed on behalf of Retirement Living, a website that reviews retirement-related products and services.
According to the survey, the average boomer thinks they need $1.2 million to retire comfortably. The “average” had only $680.000.
And averages can be very misleading. According to the Federal Reserve’s three-yearly Survey of Consumer Finances, the “average” (or “mean”) household headed by someone aged 55 to 64 has a net worth of $1.2 million. Sound good? That number is skewed by the few very, very rich.
The median household—meaning the one right in the middle, if you lined them all up from poorest to richest—had just $214,000.
One sixth as much.
As for this long-awaited recession: When will it start? Will it come at all? Economists disagree.
Economic forecasts are notoriously unreliable. During the global financial crisis of 2007-8, for example, many professional economists were still insisting the U.S. was going to be OK months after the recession had already begun.
The money markets currently see inflation, and interest rates, tumbling in 2024. That could mean inflation has been defeated, or the economy has gone into a recession, or both. Meanwhile, for those nearing retirement the smart strategy is Jack Reacher’s: Hope for the best but prepare for the worst.
