9 Moves Retirees Should Make Before a Recession Hits (So You're Never Forced to Sell Investments at a Loss)

A recession may test even a well-built retirement portfolio, but the biggest damage often happens when retirees are forced to sell investments after markets have already dipped. Selling during a downturn locks in losses and leaves fewer assets available to recover when markets rebound.

The goal isn't predicting the next market downturn but building a retirement plan that continues working even in a recession. Here are nine moves worth making now.

Build a cash buffer of one to two years

The last thing you want during a recession is to sell investments after the market has fallen. Holding enough cash to cover one to two years of living expenses might help prevent that. If stocks drop 25%, you may rely on your cash reserve while waiting for markets to recover.

With many high-yield savings accounts currently paying around 4%, that money may still generate a modest return while remaining accessible.

Recalibrate your withdrawal rate

Morningstar's base-case safe withdrawal rate for someone retiring in 2026 is 3.9%, up from 3.7% last year, for portfolios with 30% to 50% in equities. If you are withdrawing 5% or more, an early recession might shorten portfolio life.

Adjusting withdrawals based on market conditions helps. Spending slightly less during downturns and more during strong years could significantly extend portfolio longevity.

Shift some growth exposure toward dividend-paying stocks

Trim some holdings in higher-growth sectors such as technology, or cyclical ones like energy, and reinvest that cash into more defensive sectors, including consumer staples, health care, and utilities.

Dividend-paying stocks in defensive sectors provide income regardless of price fluctuations, meaning you might collect the dividend without selling the position during a downturn. That income stream reduces dependence on forced equity sales to cover living expenses when markets are falling.

Build a bond ladder with staggered maturities

A bond ladder staggers bond maturities across one to five years, so there's always a maturing bond available to liquidate. In a recession, you redeem the shortest-duration bond for cash and let equities recover.

Each year, you add a new, longer-duration bond to the far end of the ladder, maintaining the structure. This approach eliminates the forced-sale problem for a multi-year window without requiring you to predict market timing.

Add Treasury Inflation-Protected Securities (TIPS) for inflation protection

TIPS are government bonds designed to adjust with changes in the Consumer Price Index (CPI), helping protect purchasing power. Their yields are often lower than corporate bonds, but they provide stability during inflationary periods.

Exchange-traded funds (ETFs) like the iShares TIPS Bond ETF or Vanguard Short-Term Inflation-Protected Securities ETF offer simpler access than buying individual bonds. TIPS may help preserve income when inflation rises during economic uncertainty.

Review your asset allocation for the withdrawal phase

Retirement requires a different portfolio approach than the accumulation years. Withdrawals, required minimum distributions (RMDs), and a shorter recovery window make risk management more important.

A portfolio built mostly around stocks may be too aggressive once you rely on it for income. The right allocation is one you could stay invested with during downturns, because a plan abandoned in a panic can't deliver its expected returns.

Diversify income beyond portfolio withdrawals

Income sources outside your portfolio might reduce pressure during market downturns. Social Security, pensions, annuities, rental income, or part-time work provide cash flow without selling investments at depressed prices.

If you have not claimed Social Security, delaying benefits is especially valuable. Each year you wait between ages 67 and 70 increases your monthly benefit by 8% permanently, providing a guaranteed increase that might be challenging for markets to replicate.

Consider a fixed annuity for a portion of essential expenses

An immediate or deferred fixed annuity converts a lump sum into guaranteed monthly income for life, regardless of market conditions. While it doesn't grow like equities, it covers essential expenses without any dependence on portfolio performance.

For retirees whose Social Security and any pension don't fully cover basic monthly costs, allocating a portion of savings to an annuity reduces the minimum withdrawal needed from investments in any market environment.

Stress test your portfolio before conditions deteriorate

A simple stress test might reveal how your portfolio may handle a downturn. Ask what happens if markets fall 30% over the next 12 months and remain depressed for two years.

Could you cover expenses for 24 months without selling stocks at a loss? If not, your cash reserves or income sources may need adjustment. Identifying weaknesses now gives you time to make changes before volatility arrives.

Bottom line

Between rising inflation, slow GDP growth, poor consumer confidence, and the ongoing conflict in Iran, the risk of a recession is too high to ignore. Recession probability estimates from EY Parthenon, Wilmington Trust, and Moody's Analytics currently sit at 40% to 48.6%.

Retirees who complete these moves while markets are stable have far more flexibility in their retirement plan than those who wait until volatility forces their hand.

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