4 Retirement Mistakes to Avoid in a Recession

In recent months, economic headlines—whether driven by shifting trade policies or changing market forecasts—have caused some major banks to lower the likelihood of a near-term recession. But if the past year has taught us anything, it’s that predicting recessions with certainty is impossible. With that in mind, what follows is a timeless list of actions retirees should avoid during any recession, whether it happens this year or further down the road.

1. Not Maintaining a Sufficient Cash Reserve

Emily & Mark (names have been changed to protect client privacy) retired recently, after working with us to carefully plan their transition. When they stepped into retirement, they had set aside enough cash to cover one year of regular living expenses, plus an additional 24 months of planned one-time costs.

For example, they budgeted $20,000 for a home improvement project and $25,000 annually for travel, with monthly living expenses of $10,000. Altogether, their cash reserve target was $165,000. While that may sound like a large amount, this cushion allows them to maintain their lifestyle and ride out any short-term market downturns without needing to sell investments at a loss.

It’s worth noting that during economic slowdowns, the Bank of Canada often lowers interest rates to encourage growth. This means that the cash savings Emily & Mark are holding likely earn less interest than before. But that’s perfectly fine. If you’re in a similar position, the peace of mind and financial stability provided by your cash reserve far outweigh any temporary dip in interest earnings.

2. Abandoning Your Investment Plan

As Emily and Mark got within a few years of retirement, they changed their investment strategy as part of their long-term financial plans. Creating more of a defensive, capital preservation approach. The worst thing Emily & Mark could do is to override this or any disciplined system that’s in place. Not because they’re wrong. They could perfectly call the top. Unlikely, but possible. To perfectly call the top and the bottom, impossible.

Every retiree has a rate of return that’s necessary to maintain their lifestyle in retirement. Along with that, they have a risk tolerance, which dictates how much downside they’re willing to stomach before they pull the seat-eject. Your portfolio should reflect these two things and should not swing dramatically based on predictions about what the market will do this year.

Our financial planning software is designed to account for market downturns—it's not just prepared for them, it expects them. These built-in assumptions help determine whether your plan can support your lifestyle through various market conditions. Ultimately, this is what guides your ability to adjust spending over time with confidence.

3. Trying to Time the Market

Remember as retirees, you’re investing for the long term, not chasing short-term bargains.

The challenge with trying to buy the dip is knowing when a true dip has occurred. If you invest after a 10% decline, only to see the market drop another 20%, you’ve bought in too soon!

It’s also important to remember that markets often recover well before the economy does—typically six to twelve months in advance. By the time you know for sure that a recession is underway, the market may have already bounced back. Staying your course is always the safest route to take.

4. Putting Life on Hold

One of the great privileges of working with retirees is the wisdom they share—not just with us, but with other clients as well. When you talk to those who’ve faced mobility challenges later in life, they rarely regret what they spent; instead, they regret the places they didn’t go and the experiences they missed.

Our financial plans are built conservatively. They assume you’ll continue spending the same amount from age 60 or 65 all the way through retirement, with 2% annual inflation applied to your expenses. In reality, most people tend to spend more in their early retirement years—on travel, home improvements, and hobbies—and less as they age and their lifestyles slow down. Eventually, big-ticket items like travel and renovations taper off, and your spending naturally declines.

But by building a plan that assumes your expenses will steadily rise, we’ve added a cushion of safety. This margin gives you the confidence to enjoy life’s experiences—like that long-awaited trip—even during a market downturn.

Skipping a trip in a tough economy only makes sense if you couldn’t afford it in the first place!