As you try to make smart decisions about your retirement savings during an unstable economy, it can be helpful to review past economic downturns, including the Great Recession. From 2007 to 2009, the housing market plummeted, while foreclosures and mortgage defaults soared; stocks suffered a bear market, and many Americans found themselves living on less income.
With uncertainties on the horizon, it can be concerning to look at your investments and save for the future. Historically, it has taken some time for the economy to recover from a recession.
Some retirement planning lessons from the Great Recession include:
— Protect your 401(k) during a recession.
— Diversify your retirement money.
— Invest with a long-term mindset.
— Save consistently.
— Choose the right level of risk.
— Purchase a house that is within your means.
How to Manage Your 401(k) During a Recession
If you have a 401(k) through your employer, a market downturn may present some long-term advantages. “If possible, continue contributing to your 401(k) during a recession,” said Doug Carey, president and owner of WealthTrace in Zionsville, Indiana, in an email. “Market downturns present an opportunity to buy stocks at lower prices, and consistent contributions allow you to take advantage of this strategy known as dollar-cost averaging.”
With dollar-cost averaging, you invest a fixed amount at regular intervals regardless of market conditions. This could build your long-term returns, as the investments may grow over time and be of greater value when you retire.
If you are concerned about a bank crash, determine how your 401(k) is protected from such events. Retirement accounts typically have safeguards in place. The amount of protection you have will depend on what is offered by your plan’s custodian and the type of investments you have.
[Read: Ask a Financial Pro: How Much of My Retirement Should Be In Bonds?]
Diversify Your Retirement Money
Allocating funds to low-risk investments may seem like a wise approach to keeping your money secure. However, investing all your funds in a single type of investment is not a low-risk strategy. “Spread your investments across different asset classes, such as stocks, bonds, real estate and international investments,” Carey said. You might choose a mix of stocks, bonds, an IRA, a 401(k) and real estate or insurance products. “Diversification helps mitigate risk and reduce the impact of a downturn on your portfolio,” Carey said.
[Read: Retirement Challenges in 2025: Market Volatility, Inflation and Social Security]
Invest With a Long-Term Mindset
If you have money invested in the stock market, a market downturn will often cause its value to decrease. “When a stock’s value plummets, it’s the worst time to sell,” said Leslie Tayne, founder and managing director of Tayne Law Group in New York City, in an email. “If you hold onto your investment long enough, it will eventually recover and possibly hit its highest level ever.”
Additionally, if you have the resources, continue to invest. “The stock market recovered dramatically starting in 2010 and had doubled from its lows by the end of 2013,” Carey said. “Those who stayed out of the stock market during that time missed out on this recovery.”
| Years of Recession | End of Recession Year | Dow Jones Industrial Average Closing Price at End of Recession Year |
| 1974 to 1975 | 1975 | 802.89 |
| 1979 to 1980 | 1980 | 891.14 |
| 1981 to 1982 | 1982 | 884.53 |
| 1989 to 1991 | 1991 | 2,929.04 |
| 2001 | 2001 | 10,199.29 |
| 2007 to 2009 | 2009 | 8,885.65 |
| 2020 | 2020 | 26,890.67 |
Save Consistently
Some investors attempt to time the market, believing they can buy low and sell high. “By their nature, markets are fickle, except that they mostly go up in the long term,” Mark Murphy, chief executive officer of Northeast Sequoia Private Client Group in New York City, said in an email. “Therefore, you should anticipate setting aside a regular monthly dollar amount in a retirement account, and when possible, a company-sponsored 401(k).” If you receive a raise, allocate a portion of the additional income to long-term savings.
Choose the Right Level of Risk
Over time, you can evaluate your investments to ensure they align with the level of risk you’re comfortable with. “The closer you are to retirement, the more conservative the investments you should choose,” Murphy said. “Think in terms of dividends and CDs, guaranteed or nearly guaranteed income that comes with little to no risk.” Revisit your plan annually to reassess your risk tolerance and consider how many more years you’ll continue to work.
Purchase a House That Is Within Your Means
Prior to the Great Recession, some homebuyers purchased properties that were difficult to afford. Since the pandemic, rent and housing prices in some regions of the country have increased substantially, creating hardships for some Americans seeking a place to live.
As you search for a home to buy, evaluate your overall budget and savings and use a mortgage calculator to see what you can afford. “It’s imperative to know what life costs for you month to month,” Murphy said. After setting up a long-term savings plan, look at setting aside enough funds to make a down payment. You may also want to determine the portion of your income that will be used to make house payments so that you don’t stretch your budget too far.
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6 Retirement Planning Lessons From the Great Recession originally appeared on usnews.com
Update 04/23/25: This story was published at an earlier date and has been updated with new information.
