In a time when uncertainty seems to be the only certainty, it’s crucial to understand how a recession in 2023-2024 could impact your financial security and lifestyle.
As a high-net-worth individual, you might be particularly curious about the implications of a recession on your retirement savings. In this article, we will dive into “How Could a Recession in 2023 Affect Your Retirement?” and will cover these topics:
- The 2023-2024 Recession Forecast
- How Recessions Typically Affect Retirement Plans
- The Potential Impact on High Net-Worth Individuals
- The Role of a Certified Financial Planner
- Retirement Planning Strategies for High Net-Worth Individuals Amidst Recession
- The Value of Family Wealth Management in Salt Lake City
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The 2023-2024 Recession Forecast
Various financial indicators have started to signal a potential shift in the economic landscape for this year’s third and fourth quarters. For example, one indicator, which comprehensively monitors economic trends by incorporating ten diverse elements from sectors such as manufacturing, unemployment, building permits, and interest rate differentials, forecasts an impending recession by the middle of 2023.
On a more positive note, some statistics have shown an uptick in manufacturers’ new orders for consumer goods and materials which has helped some stock prices gain a little over the past six months.
However, the financial landscape is not universally positive, with the most-watched indicators demonstrating a murky downward trend. This has been evident in non-financial and financial sectors, including credit and Treasury rates.
The recent closures of Silicon Valley Bank, Signature Bank, and First Republic Bank further exacerbated pressure on the financial industry. Simultaneously, the once robust (post covid) labor market has exhibited signs of slowing down. The exceptionally high corporate and public debt levels, compounded by inflationary pressures, have set off alarm bells among economists and investors alike. Wall Street and the global economy are bracing for the impact of a potential recession.
What You Can Do: Preparing for a potential recession demands both foresight and a proactive approach. At Scott Marsh Financial, we recommend strengthening your financial security by creating an emergency fund, typically six months’ worth of living expenses. This financial buffer can be a lifeline during economic uncertainty, offering a safety net against unexpected job loss or reduced income for prolonged periods.
How Recessions Typically Affect Retirement Plans
Historically, economic downturns have produced substantial challenges for retirement planning. For instance, the Great Recession of 2008 and the global economic impacts of the COVID-19 pandemic severely disrupted market stability, casting a shadow over many retirement plans.
In 2023, we face a similar situation as the global economy struggles to regain stability. This unstable period raises significant concerns for high-net-worth individuals in Salt Lake City and elsewhere to recalibrate their strategies for accumulating and preserving family wealth.
The immediate impact on retirement assets can be jarring when a recession hits. For example, when the stock market declines, it can erode the market value of your retirement portfolio, especially if you are heavily invested in common stocks. Based on the impact on your retirement savings, you may have to consider postponing your retirement, necessitating increased savings, taking a part-time job, or reducing your standard of living – all are onerous alternatives.
As a successful individual who has accumulated wealth, your retirement savings often have unique vulnerabilities. Given the complexities of your investment portfolio’s multifaceted nature, adept family wealth management is critical in minimizing the negative impacts and ensuring the accumulated wealth is efficiently conserved and grown over time.
Retirement planning has a dual challenge: One is preserving current wealth and the other is devising strategies to navigate the tumultuous economic terrain.
The Potential Impact on High-Net-Worth Individuals
The following are three possible impacts of a recession on high-net-worth individuals’ investment portfolios:
1. Decreased Valuations for Investments: A recession generally leads to a decline in the overall economy, potentially reducing the value of equity investments in your portfolio. For example, if you have a significant proportion of your wealth invested in common stocks, a recession could lead to lower stock prices, reducing the market value of your investments.
2. Income Reduction: In a recession, you might experience a drop in income if you rely heavily on income generated by fixed-income investments. In another example, job loss may force tenants to stop paying rent, negatively impacting your rental income.
3. Reduced Liquidity: Recessions often increase market volatility, making it tougher to turn certain assets into cash without suffering a considerable loss. For example, selling certain real estate properties could become more difficult if the housing market takes a hit. Likewise, selling certain types of bonds or alternative investments might become more challenging during a recession, which can be an issue if you need the income to help finance your standard of living.
What You Can Do: Having a diversified portfolio and a flexible investment strategy can help you mitigate some recession risks. Consider collaborating with a highly experienced wealth management team like Scott Marsh Financial, with over 30 years of financial planning and investment management experience.
The Role of a Certified Financial Planner in Utah
When you’ve accumulated substantial assets, you should consider the services of a professional who is a financial fiduciary. A CFP® (Certified Financial Planner®) is an expert in delivering tailored financial planning services that cater to your needs. They use a comprehensive and holistic methodology to effectively build financial retirement plans encompassing all aspects of your circumstances and goals. This includes your day-to-day finances, investments, insurance needs, tax planning strategies, and estate/legacy planning.
With a growing community of individuals who plan to retire in Utah, the role of a CFP® can help younger and middle-aged individuals and couples create a solid foundation for their financial futures. A CFP’s expertise also benefits high-net-worth individuals seeking retirement planning, where custom strategies are required to maximize retirement income, manage taxes, and preserve wealth for future generations.
Local Utah-based CFPs® will have an in-depth understanding of the state’s tax codes, legal frameworks, and local real estate and investment opportunities. This regional insight can be particularly advantageous when planning for retirement in Utah.
What You Can Do: Hiring the right financial planning team may be one of the most important decisions you can make for yourself and your family. Be sure that any financial planners you talk with are willing to provide you with full disclosure about their background, education, experience, and any potential conflicts of interest. They should also provide you with full disclosure on how they are compensated. It pays to do your due diligence before you follow the advice of financial advisors!
Retirement Planning Strategies for High-Net-Worth Individuals Amidst Recession
A critical component of retirement planning during a recession involves safeguarding what you’ve worked so hard to already accumulate.
One tactic is to deploy a defensive investment strategy that can help protect assets and mitigate financial risks during periods of excessive market volatility. This approach may involve increasing investments in recession-resistant industries or sectors, such as utilities, consumer staples, energy, or healthcare.
Diversification is extremely important, especially in down markets. You don’t want all of your eggs in one basket! Diversifying your portfolio can help reduce the risk of overexposure to a single investment, economy sector, or country. This is particularly critical during a recession when certain sectors may be hit harder than others.
What You Can Do: As with any financial planning strategy, work with an experienced advisor who understands your specific needs and circumstances as a high-net-worth individual and will benefit from sophisticated investment strategies.
Our extensive experience of over 35 years in the financial industry sets the Scott Marsh Financial team apart. We have been dedicated to imparting financial education to individuals, families, and financial professionals in Utah and throughout the United States. Scott Marsh, an esteemed educator at Brigham Young University, has emerged as a visionary leader within his community and the broader financial industry. The financial well-being of America hinges upon adopting thoughtful financial strategies, behaviors, and prudent tactics based on financial realities.
