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The Fed just hiked its benchmark interest rate to the highest level in 15 years — further escalating fears of a recession. But here's why soon-to-be retirees shouldn't panic
15 Dec 2022
美联储刚刚宣布了今年的第七次也是最后一次加息——将其基准利率提高到 15 年来的最高水平。
“我希望有一种无痛的方法来恢复价格稳定,”美联储主席杰罗姆鲍威尔告诉 NBC 的记者。“没有。”
最近 4 次联邦基金加息幅度为 75 个基点,而最近一次是 50 个基点的跃升,使目标利率区间达到 4.25% 和 4.5%。
However, keeping your finances on track can help you still reach your retirement goal on time, even with an economic downturn on the horizon.
Why you shouldn’t panic
The Fed is raising interest rates in order to combat persistent inflation — which clocked in at 7.1% in November, according to the latest data.
More rate increases will be on their way in order to bring inflation down to 2%. The Fed expects the rate will hit 5.1% in 2023 and a recession remains likely.
"Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures," the The Federal Open Market Committee said on Wednesday.
A recession is typically characterized by a significant decline in economic activity, rising unemployment levels and low consumer demand. While GDP rose in the third quarter of 2022 and unemployment remains low, high prices and declining real wages are increasing the likelihood that demand will drop and a recession will begin next year.
That said, recessions have lasted less than a year on average since the Second World War, and many economists are expecting next year’s to be relatively mild.
Soon-to-be retirees might have concerns — especially if the value of their IRAs has dropped with the stock market. Average retirement savings have plunged by nearly $10,000, according to data from financial services company Northwestern Mutual.
But if you take some precautionary measures to get your finances in order, you might not be severely impacted by an economic downturn.
What soon-to-be retirees can do to prepare
Fortify your emergency fund
During a recession, when economic activity is stifled and unemployment starts to spike, older workers tend to be at higher risk of losing their jobs compared to those in the middle of their careers.
You can prepare for this possibility by beefing up your emergency fund. Experts generally recommend setting aside three to six months’ worth of living expenses in normal circumstances.
However, if you’re barely making ends meet in the midst of rampant inflation, start with smaller savings. You can build up your cash cushion over time, but be realistic about how much you can conserve.
Scoop up shares on the cheap
Although the market’s been down, this might be a good opportunity to purchase shares while they’re cheap — and benefit over the long-term.
If you’re in a strong financial position, consider building a diversified portfolio with sectors that traditionally perform well throughout economic cycles, like health care, utilities and consumer staples.
Short-term assets, like cash, prepaid expenses and short-term investments, can also help you ride out a recession. They’re meant to be used within a year, which can help you avoid tapping into your long-term investment funds.
Take advantage of low tax rates
The market downturn might actually make for a good opportunity to convert your traditional IRA into a Roth IRA.
A traditional IRA lets you grow your money tax-free until you make withdrawals in retirement. With a Roth IRA, you’ll need to pay your taxes upfront but can benefit from tax-free withdrawals in retirement instead.
So why might it make sense to convert over to a Roth IRA now? While the market’s down, your portfolio value has likely shrunk as well, which means there’s less to pay taxes on.
You’re also currently benefiting from 2017’s tax cuts — which will no longer apply by Dec. 31, 2025.
If you think you might be in a higher tax bracket in the future, consider taking on a lower tax burden now and gaining from tax-free withdrawals in your retirement.
Get expert financial advice
Setting yourself up for a comfortable retirement is nerve-wracking — especially with a 7.1% inflation rate and potential recession peeking around the corner.
根据美联储的数据,只有 40% 的非退休人员认为他们的退休储蓄到 2021 年是正常的。一个解决方案是找一位财务顾问来帮助您管理财务并确保您的资产得到保护。
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