Retired and Worried About a Recession? Here's Your Game Plan.

Is a recession looming? It's anyone's guess. Though unemployment levels are low, inflation has been persistent. And rising interest rates are causing plenty of upheaval.

There's no reason to believe a recession is right around the corner. But it's also something all retirees should have on their radar.

Now if you're retired, you might be thinking, "Why should a recession matter to me?" Recessions can lead to widespread job loss. But if you're not working, that's probably not a concern.

That doesn't mean you shouldn't plan for a recession, though. When economic conditions sour, the stock market can follow suit. And that could have a direct impact on your retirement savings and income.

Here's how to plan for a recession and associated stock market downturn as a retiree.

1. Review your asset allocation

Retirees are often told to reduce risk in their portfolios. Now's a good time to see how your assets are allocated in your IRA or 401(k) and rebalance as needed.

The stock market has enjoyed strong gains in recent years. But that means your portfolio may be more heavily invested in stocks than it should be given your stage of life. Take a close look and make changes as needed. If you reduce your stock exposure, a market crash may not sting as badly.

2. Build up a cash cushion

If the stock market crashes, selling assets to cover your bills could mean locking in permanent losses. A strong cash cushion protects against that.

Generally speaking, it's a good idea to maintain cash reserves that can cover one to three years of living costs in retirement. But if you need to convert more assets to cash, it pays to do so while they're up, which means you should see how much cash you have and need sooner rather than later.

3. Prepare a pared-down budget in case you need to use it

With the right portfolio composition and cash cushion, you may not need to reduce spending all that much during a recession and stock market crash. But it's helpful to have a pared-down budget ready, just in case.

Take a look at your spending and figure out how to whittle down your costs as needed. Cutting your budget by even 5% during a prolonged recession and downturn could be huge.

A recession isn't something you need to lie awake at night worrying about. But it's also important to prepare, especially since a sluggish economy could impact your portfolio and put your savings at risk. These steps could help you gear up for a period of economic decline while protecting your near- and long-term finances.

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