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How a Recession Impacts You

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A recession is something that affects everyone, and those who are near or in retirement can feel the impact the most. Join Melissa and Johnathan Rankin as they discuss some of the ways a recession can impact those planning for retirement. All that and more on this episode of The Retire Once Show. A Retirement Podcast designed to help get you to retirement and stay retired.

Submit questions to the show at Retire@theoremwm.com

- Johnathan Rankin CRPC® CEPA®, Founder & CEO,

-  Melissa Rankin - Wealth Management Advisor

- Theorem Wealth Management, Financial Advisor Dallas Texas

- Retire Once Show - 2022 Retirement Podcast Series



00:00 - Introduction

3:10 - What is a recession?

7:57 - How a recession can impact your career.

14:37 - What a recession means for those close to retirement.

16:53 - Sequence of returns risk

20:08 - How a recession affects retirees.


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How much are you paying in investment fees: https://youtu.be/zfBjUHlkuGo

Retiring in a Down Market: https://youtu.be/7UW_5M0SjwY

Top Things Boomers Think Are Cool: https://youtu.be/oqKJuDQ_4GI

Just Google the word recession. You're going to get no fewer than a dozen stories about how one is right around the corner. But what does that really mean? And especially if you're retired or you're looking to retire soon, what does it actually mean for you in this episode of the retirement show? We're going to dig into exactly how he recession can impact your retirement.

Hello, and welcome to the retire. Want show the show designed to help you get to retirement, but most importantly, stay retired. I'm your host, Jonathan Rankin. And I am here with my lovely co. Hi, I'm Melissa Rankin, and we are ready to talk about the recession and this riveting episode number six. That's right.

You know, everywhere you turn, it seems like everybody's talking about the next recession. Is it coming? Is it here? I mean, I just did a, I did a Google search. I just typed in the word recession and these are the articles that came up. So we've got, um, number one, Dallas fed warns cutoff of Russian energy could cause global recession.

Uh, Bloomberg a possible recession in the next year. Question mark. And that was on their radio show. My favorite though, my favorite by far from the wall street journal yield curve, almost flashes recession, maybe, but who knows? When could you be more vague? I was just going to say, so we're getting a lot of maybe possibly, almost that's it.

I'm going out on a limb. I'm going to say that's it right. A recession is coming at some point in the future. Over the next 30 days you heard it here. First. You heard it at the wall street journal first. You almost heard it there, but you heard it here. First. If you're watching this, you saw it here. First, a recession is coming at time.

And the next 30 years, quote me wall street journal 30 years. Well, so that is what we're going to be talking about today is exactly how does a recession impact you if you are retired, if you're on the verge of retirement or retirement coming in the next couple of years, you're just thinking about it. Or even if you're years away from retirement, that's what we're going to talk about today.

But before we dive into that, uh, make sure that if you're watching this to hit that subscribe button on YouTube, Dad for you. That's that red button that says subscribe. I know he hasn't done this yet. So just take your finger and put it right there and then just push it. Just, just push the button, just thing.

And then you're going to get notified. I say, bang, that's being, it's not being now. I'm saying thing. So anyway, father, you and the camera I'm watching. Subscribe and everybody else, all the millions of people that were rivaling, Joe Rogan subscribed to this. And if you're listening to us on apple or Spotify also subscribe, and for everything that we talk about, we're going to link it in the show notes.

So you can check those out as well. We've got plenty of stories down there that talk about all the different topics we're going through today. So, so with that recession, I was going to say, before we get crazy into it and how it affects everybody, what is. Let's start there. Let's start at the very beginning.

What is a recession? So the very beginning they're going, whenever you hear the word recession, you're going to hear people talking about two consecutive quarters of GDP decline. Now for most people, that means nothing. Okay. What does this really mean? How does it impact me? But really what that means is we've got shrinking production and shrinking consumption.

So people are spending less businesses that are producing less. So that's, what's technically happening from an economic stance. But I don't most people it is, but how does it actually impact someone who's watching this or, you know, you or myself, it's, that's what really matters. You know, what we hear on TV are economists talking about technicalities, but what we see, how it impacts people is let's look at what actually happens in a recession.

So we talk about shrinking production. So businesses are starting to take a hit. Their profits are going down. They're starting to reduce their production because demand's not there. So they're likely to start cutting back on their employment. You know, the people that are working there, that's why you typically see unemployment rise because businesses cut back or they shut down.

Um, you see people save more and so not a lot of shopping going on. No, not allegedly what you're getting at exactly, because what happens is when there's a recession and people start seeing others in. You know, their neighbors or their friends start losing their job. They get worried that they might be next.

And so they just kind of go into this hunker down mode and start saving more. And a lot of people think that's a good thing, but there was this, uh, this quote by an old economist famous quote that said, uh, one person spending is another person's income. So if you think about it, it's like a downward spiral.

You know, if, if you stop domino effect, that's it. And if you stop. Well, then a business is not going to earn money and that business has to start, has to lay off someone else who then isn't going to spend, and it just kind of trickles down. And that's why in recessions, we see unemployment rise as well. So also in recession, we can see prices fall.

Now I know right now with high levels of inflation, No gas prices near all time highs. The Fed's working to combat that. And Melissa's laughing right now because we just took a road trip and I complained the whole time about gas prices. And I just have to say, I know they're high and I'm not trying to discount that fact.

However, you would have thought it was like $15 a gallon, the way he was talking about it. And I don't mean talking, I mean, complaining. At every, I don't know, 50 miles when we pass a gas station, I am prudent. That's the way I am prudent. And yet some would like to call it cheap, but yes, cheap prudent, same thing, but it is high.

And I know that the feds working on that, so in a recession, we do see prices fall. Um, but one thing on our road trip, if anybody out there. Nosy age at which your four almost five-year-old son will actually take a road trip without talking your ear off the whole time. Please let me know. That was a long, uh, it's not for no, it's not for 12 hours of nonstop.

Daddy, what is that daddy? What's that? What about that? What kind of truck is that? That's what we heard for 12 hours. It was a long familiar with Jerry Maguire. Pretty much like the scene where the little kid asks nonstop questions about the zoo, or is that what he talks about? The zoo or something that was Harvey.

Every single thing we passed, every car, every truck he wanted to know the bleeping zoo's closed. Ray. That's my favorite quote for that. And now he does this ain't bleeping, but where this is a, this is a family show. It's a retirement show. We're not here to curse and use lewd Lincoln. Lewd crude, crude, lewd, same thing anyway.

Okay. So back to their session. So prices, fall banks start to lend less because with people out of work, they're fearful that people aren't able to pay their debts. So they get a little bit more tight on who they're lending to. And I mean, the reality is people out of work do sometimes struggle to pay their debt, especially if they can't find a job pretty soon.

And then at the same time we see in shreds. I know it's counter-intuitive because right now in straits are rising and we're, we're hearing a lot about prices rising because of inflation. So we're not here to say that we're in a recession right now. We're just helping you prepare for what happens if we ended up going that route.

So in the next 30 years, in the next three years, at some point in the next 30 years, you heard it here first on the retire one show. So with all that in mind, I mean, now that we know what a recession is, how does it actually affect people? How does it affect people who aren't even close to retirement?

Just your, your regular. Working people who are still, you know, nine to five. And yet I guess if you will. So I look at this, you know, this demographic of people of having really two risks, they've got one of the financial asset risks. So we know that asset price or prices fall, which also means houses, houses typically fall in price.

Uh, we're seeing right now, um, stocks fall, we saw that in 2008, we saw that. You know, pandemic recession, that was even, it was brief, but at stocks fell, um, dot com stocks fell during that recession. Now, like we talked about in one of our previous episodes, stocks don't always fall during a recession, but it tends to happen.

And it's happened over the past three recessions. So something to be aware of, but then you also have the risk of losing your financial income, which, you know, losing your job. If you're not ready to retire, that could be your biggest risk. And so, and that would have a huge impact if you're not, you know, ready to retire or have a nest egg, if you will, to kind of see you through that.

So I can see where that's a huge concern. And we saw that in 2008 when working with clients and they were maybe five to 10 years away from retirement. And all of a sudden their company started shutting down and they were out of work for a year or two years and it created a struggle. For everything. So, uh, when we talk about the first risk financial assets, so what can you do if we're headed towards or in a recession just to help alleviate that risk a little bit, we'll start by assessing your risk appetite.

You know, I would, that's something that you want to consistently update, meaning how much risk are you able to take? What can you tolerate? Because the last thing you want to do yeah. Make a bad decision, you know, like going, we're pulling all of your money out of your investment strategy, just because you lost your job.

And now, you know, the market's down. You think about how that can really have a compounding effect long-term on your wealth. Um, use this time to monitor your expenses and, you know, try to cover possible whether that's, you know, little things like subscriptions. I know. I mean, there's, I saw a study that the average person has like $500 in unused subscriptions.

You mean like Netflix, Hulu, Amazon, or your car wash? I was just going to say, I am not canceling the carwash. She is not, I do get my car washed. Yeah. One time, every six weeks that does not justify a monthly subscription to a car with. So this is a prime example. I'm not going to cancel mine. However, this is a prime example of something that could be canceled.

I'm monitoring that expense and I'm looking to cut that expense. So that is one thing you could do is, uh, you can cut out your wife's, uh, carwash expense. Like I will. And make sure you to build an emergency fund. So, you know, have at least six months to 12 months of just cash savings in the bank. So if something were to happen, you have that to fall back on.

Uh, because on the job front, it really. That second risk, that financial income risk. That is that's the real risk I think for this group, because you probably have 10 plus years to retirement. So yes, financial assets going down. Eventually we know they come back over time, but it's that financial income.

So I look at, look at the industry coming in. I mean, that's it, that's a huge risk. We'll look at the, you know, we talked about that chart from Deloitte that said, you know what industries were. More stable. Yeah. Or in the highest impact. So you look at what was it? Mining, logging, manufacturing, construction, all those industries had over a 10% employment decline during recessions, whereas teachers and healthcare.

I mean, they had less than 1%. So being in that, being in one of those more susceptible industries, this. Prompt you to really start looking at what you're doing on the financial side, but also what are you doing on the job front? You know, just because we're not in a recession right now, doesn't mean that we're not going to one, as we talked about in the next 30 years, we'll be in one, but use this time for updating your resume, just to have it ready to go.

Uh, build out and become active on LinkedIn. If you're not already, that is one of the most powerful places from a job search front that's, it's your resume, but it's also your network. So, you know, I saw statistics use it too. I mean, I saw a statistic over 55 million companies are on LinkedIn and 55 million at five nine, and there are 87% of recruiters use LinkedIn as a, as a site.

So you think. When you're getting in front of companies, you're getting in front of recruiters, but also use this time to reconnect with old colleagues that might have moved on to a different position at a different company, that if something happened to you, Maybe you can transition with them or maybe they know somebody, but it's a great time before a recession to start putting those feelings before you need the favor.

And you're, you're looking for a job at least then you've already had the, oh, Hey, remember me? Not, oh, by the way. Yeah, you want to be fresh in someone's mind if something happened. Uh, there also courses on how to find a job during challenging times. They rolled this out in the pandemic when there was a lot of job loss then, but there's still those courses there and they teach a lot of good things.

So use this time just to, just to prepare, not just your finances, but prepare your life for parents. Your budget, prepare your family. And I, this isn't like shelter in place with a, you know, a tornado warning or those old school, you know, nuclear bomb warnings where you just sit around your desk, like that's going to do anything.

It's earthquakes. I thought it was, I did them for nuclear bombs. Okay. So yeah, this was, if we got into a nuclear bomb situation, you get under your desk and that's going to save you. It's going to save you the little desk with didn't it just have the top, just the top when you opened it and everything like that.

But this. I hate to be doom and gloom and say, well, start selling some of those news articles, start prepping yourself and go to it's not go to Costco and get the, the big thing of food that you're going to use just to, you know, feed your family. If we go into a funk bucket. But. Be smart. Prepare yourself for something that might happen.

Let's hope it doesn't. But if we go into recession, we know that employers cut back on their employees. And if that happens to impact you, at least you'll be ready for it. Um, now that's for people who are just years away from retirement, 10 plus years. What about the next stage of life? Where you're, let's say thinking about retirement or.

Maybe not super close, but within the five to 10 years, like you said, so it's definitely on your mind. You're thinking about it. It's a little more immediate, I guess this is, we run into this group a lot and we have in the past two recessions, 2008, and then, you know, the pandemic where we've done a lot of retirement planning and maybe retirement was a year or two years away that we were forecasting and.

Recession comes once again, use this time to cut out your wife's car wash if it's not being used and just manage your overall expenses. But I would say start now by modeling your retirement plan as if you stopped working today. So what does that look like if you stop working today, but you know, you've been planning on retiring in the next one to two years.

So let's say that your retirement plan has you stopping or retiring January 1st, 2020. Okay, well, that's a, you know, a little over a year and a half away and you're on track. Everything's going well. But what happens if you retire today? What does that look like? Because losing your job might not be a risk.

And I've seen it dozens of times where it was actually a blessing because the company that they were working for offered a severance. And so the amount of people that I've seen raised their hand asking to be terminated, getting a, getting a severance was actually a good one. So just model out your retirement and then make sure that your retirement savings is properly allocated to handle volatility.

And we did talk about that in our volatility episode, where it, making sure that you are updating that risk tolerance and that your. You're taking all the proper amount of risk after three years of really good market returns. You should be doing that anyway. Yeah. I mean, that is that shouldn't be, especially if you're that close to retirement.

Yeah. And that's, but that's where we've seen after three years of good market returns, some of those things have gotten a little out of whack. And so now is a great time to just reassess that part of it. And a lot of that is to, if you do retire, let's say, have to retire immediately or in the next couple months because of recession comes and you're offered a separate.

Well, so you, do you want to make sure that your portfolio is prepared for, you know, sequence of return risk as well that we hear about quite a bit, but secrets over sharing risk. The sinkers return risk is the risk that the market drops early on in retirement while you're starting to take retirement distributions, and that can really impact the longevity of your portfolio.

And you seen projections where if you're taking out 5% a year, but then in that first or second year of retirement, you've got a 10% correction. That can have a long-term effect of you running out of money, maybe you're 15 or 16 or even Sooners isn't that what the 4% rule is for it is, you know, the 4% rule was research that was done to show that 4% was deemed a safe withdrawal rate, adjusting for inflation to have a portfolio last for 30 years and generate income now.

So to basically see you through retirement. Exactly. And so it has shown. Anytime you retired during the, in this research show. Even if you retired in 1929, you, before the major crash, you actually still never ran out of money using that 4% withdrawal rate. So that is one thing I will say, sequence return is a risk, but every time, if every time you look it up, they're always talking about a five or 6% withdrawal rate.

And it's usually a lot higher than that 4%. So if you're sticking to that 4%. Yeah, I think you're, you're doing okay. Generally a safe bet. Yeah. And you can also one way to mitigate, uh, the sequence of return risk is to use what's called dynamic spending. You get to spend more in that I know you'd spend more memories, less car washes, more subscriptions, so you can spend more when the market as well and you, but you have to be willing to spend less when we're in a bad market or even freeze distribution.

So you have to be flexible if you're using a dynamic spending, but it is one way to help mitigate the risk. But to me, one of the biggest risks there is on top of the sequence of returns is. How to handle that mentally, you just retire. You, you have no more income from a stable salary that you use. And now the market's falling.

You're starting to take port withdrawals out. I think that's why the bucket strategy does make sense. If, you know, just to help someone stick with an investment strategy, Sophia, if you can try to avoid any of the knee jerk reactions. Yeah. So if you are, if you just now retire, but you have, let's say call it two years of retirement reserves just in that first immediate bucket.

That means you can use. You know, your long-term stocks just continue to go up and down over the next, you know, five plus years, you're going to feel a lot more confident than if everything was just in one portfolio and you started watching it, plummet it just mentally, you know, each event each investor's different, but I've seen that the bucket strategy really helps just with that mental accounting of being able to separate out what's immediate for now.

You know, reassuring a client, you're going to be okay for the next two to three or however long that first bucket is set up for. And then from there you have time for your long-term assets, you know, your stocks to, uh, to come back over time. Okay. So that's for the people who are close to retirement within a few years.

What about when you're already retired? I mean, that, like you said, that just seems scary. I can't imagine. You're like, okay. I just stopped with my regular income and now I'm this and the world around me is ending well. So if you're, it depends on if you just retired. Yes. That's kind of goes into that sequence returns, but if you've been retired for awhile, let's, let's go back and look at, okay.

What happens during recession? Alright, well, business profits. Unemployment rises businesses. Cut back, shut down. Prices. Fall banks lend less. Okay, well, unemployment doesn't impact you because you're not employed. You're retired. True. Um, asset prices fall, but this is still a time like always to assess reassess your risk tolerance.

Make sure you're properly balanced, rebalance your buckets. If you're using that bucket stress. If you are not implementing the bucket strategy and you're taking out, you know, five, six or seven, or even more of a percentage rate on a wood for withdrawals, you want to tackle your expenses. You know, if we see a drop in the market, that's sustainable for a long period of time and you're taking out a 7% withdrawal rate that might not be sustainable for the next 15 or 20 years or how long you need to have your money last.

So, uh, so with that in mind, then, Is the recession a good thing for somebody who's comfortable in retirement. I'm never going to say the recession is a good thing, but yeah, we have a lot of clients that have money that they're not going to touch for a long time. And so, or, or, yeah. And so for those people, if you've got a steady income, you know, whether it's from a pension or social security and you've got.

Assets that are in your utilizing the bucket strategy. And you feel confident that stocks are going to return over time. And you're not the type that worries about, you know, fluctuations in the market by the way. Good job. A little saver. That's right. If that is, if that's you, this is a recessions are a good time to take advantage of lower prices.

You know, if you've got a big ticket item that you need to buy, uh, or want to buy it, Not a carwash, uh, but maybe, maybe a car. If you know those, go on sale, maybe a vacation home. If you're looking for them because we know housing prices come down, um, maybe a, maybe a vacation, something that's a big ticket item.

We'll be cheaper vacation. Are you taking a one that has car washes? So I'm never going to say a recession is a good thing, but you can use it to your advantage because if stocks are falling, all of this gives you time to rebalance and buy stocks as they're lower. And it is, there are buying opportunities in a recession, not just.

Financial assets like stocks, but in things like vacations and, you know, luxury things or leisure things that you yeah. Tangible and exactly. So, um, you can look at it as a positive. I, you know, I hate that every single news program always wants to scare everybody. That a is on the way. It's just, you know, and so many articles are going to tell you how to recession proof your portfolio today.

And it's. I don't think that it's something that you need to rush to make all these major changes to your life, your portfolio. It's just, it's minor changes. It's preparing mentally for what could be a slowdown in the economy. Um, and use this time to get ready to maybe take advantage of something that goes on sale, not you.

Oh, I was like, oh, that's a free pass. No, I. Like, it's not a free pass, but there are a lot of headlines that are going to provoke fear about a recession and that it's rumors sells, fear sells. Absolutely. And it's never going to end the recessions. It's right around the corner. Maybe as the wall street journal says, it's almost, it's never going to end.

And they're going to try to talk about all these things that you need to do. And like I said, there's, you don't have to go out and run and do things. Um, recessions aren't fun, but they are necessary. I mean, having rampant. You know, for a long period of time would damage the economy. So we have to get that under control.

But the key is to prepare and, you know, to do that, make sure you have an updated financial plan. If you don't have one or you just want a second opinion on yours, or you just want to figure out how recession might impact you, or you want to have a conversation with Melissa about car washes. I don't know why you need a service click the link below.

There's a link to our calendar to schedule a conversation. We'd be happy to help you. And before we get out of here, make sure that you hit that subscribe. I'm talking to you again and all the millions and millions of listeners watching this and listening to this. If you're watching us on YouTube, hit that subscribe button.

If you're listening to us on apple or Spotify, don't just hit that subscribe button. We'll also hit that little five star button. Make sure you all five of those stars, all five are filled out. And that way, when you're completed the five star review out of four or five, uh, we thank you for listening. I am Jonathan Rankin and I'm Melissa Rankin and this was the retirement show.

Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC.– Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. –  Advisory services offered through Sanctuary Advisors, LLC., an SEC Registered Investment Advisor. – Theorem Wealth Management is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC. This communication has not been reviewed for completeness or accuracy, does not necessarily reflect the views of Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and is not a recommendation or endorsement of any product, service, or issuer. Third party posts do not reflect the views of Theorem Wealth Management or Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and have not been reviewed for completeness and accuracy. All further communications from this representative must be sent from and received by johnathan@theoremwm.com. For additional information, please refer to one of the following consumer websites: www.FINRA.org, www.SIPC.org.

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