The best ways to prepare yourself for a recession in your 20s, 30s, 40s and 50s, according to financial experts
Concerns about the United States entering a recession have spiked in recent weeks after President Trump launched an aggressive tariff campaign. While Trump initially put a 90-day pause on reciprocal tariffs, the president is now wavering on that promise after saying this week that they would be reimposed within two to three weeks if deals weren’t reached.
Meanwhile, a trade war has escalated with China, the U.S.’s biggest trading partner. It has sparked worry among investors, causing the U.S. stock market to roller coaster in recent weeks as prices have plunged only to surge back up, or vice versa, sometimes within the same day.
Economists have predicted a recession happening this year at varying degrees. This week, Apollo Global Management’s top economist Torsten Slok projected a 90% risk of a recession this year, pointing to the impact that tariffs could have on small businesses as one of the main pillars of the U.S. economy. (Apollo is a majority owner of Yahoo Inc.)
Economists polled by Reuters have increased the chance of a recession happening within the next 12 months to 45%, up from 25% last month. And the Federal Reserve Bank of New York’s model indicates a 30% chance of a recession over the next year.
Yahoo News spoke with two financial experts about what consumers should know heading into a possible recession.
Let’s start with the basics
David Bieri, associate professor of public policy at Virginia Tech, and Gene McGovern, principal of McGovern Financial Advisors, want Americans to know two basic things heading into a possible recession.
1. Don’t panic
“Don’t do what Wall Street is doing, which is panicking,” Bieri said. The ups and downs of the stock market aren’t an issue if you’re looking to cash out in 5 or 10 years down the road. “They’re only a problem if you need to liquidate right now,” he added.
That’s why Bieri suggests that you don’t immediately respond to what’s happening with the stock market — like buying or selling stock — “unless you absolutely have to.”
Meanwhile, McGovern wants to make clear that a recession is not a depression. “People are still going to get jobs and buy houses and cars. Economic activity doesn’t stop, it just slows down a bit,” he explained.
2. Recessions are bound to happen
McGovern also says recessions are normal and inevitable, and happen about every 7 years. “There’s nothing terribly special about recessions that you wouldn’t do if you’re sort of doing a good job of managing your finances at any age,” he said. “That’s in part why you do that — so that you can deal with situations like recessions when they come up.”
I’m in my 20s. What should I do before a possible recession?
Secure a job
Bieri recommends securing a job — a reliable one that can build skills. Although he knows this can be hard in a gig economy, where the labor market is made up of temporary, part-time or project-based work.
Be flexible and less picky
“People are not moving for jobs anymore because they prioritize things to do with the quality of life,” Bieri told Yahoo News. “I don’t want to invoke alarmist attitudes, but the new environment that we’re looking at may demand it.”
Assess what cash you have on hand and your long-term debts
“Pay attention to your liquidity and solvency,” Bieri said. Liquidity is how easily you can convert your assets into cash, like money in a checking or savings account, to meet short-term financial obligations. “Solvency means that if you had to, can you be completely debt-free?” he said. “None of us are. Most of us have mortgages. But what we need to remain is to be liquid enough so that we can service our debt.”
What can interfere with a person’s liquidity, according to Bieri, are “buy now, pay later” services, like using Afterpay when buying groceries from Instacart. “All of a sudden, your debt servicing takes such a massive chunk of your budget that people get financially astray.”
“It’s very tempting to kick the can down the road and to consume now and pay later,” he says, “but a bit more of tilting towards an old-fashioned attitude is very much the message that I would have to the youngsters.”
Don’t stop contributing to your 401(k)
Meanwhile, McGovern’s main piece of advice for this group is don’t stop contributing to your 401(k) because you have the benefit of having time on your side.
“It’s tempting to maybe stop putting that money into the 401(k), because it’s maybe 6% or 7% of your salary every month,” McGovern said. “If there’s one thing you don’t touch, that would be the place I would start.”
What advice do you have for people in their 30s and 40s?
Prioritize your 401(k) and paying down personal debts
McGovern classified this age range as “the jugglers” — people who may have children, a mortgage, are trying to save for their child’s college education and their own retirement, or maybe have older parents who need help.
McGovern compared this situation to that of adults on an airplane being told to put their oxygen masks on first before helping others. “Make sure you take care of yourself first,” McGovern said. If you’re trying to prioritize finances, you shouldn’t stop saving for retirement, even though people might tend to think saving for their child’s college is more immediate. “Honestly, there are two things there: You can borrow money for college, but you can’t borrow money for retirement,” he said.
His other piece of advice: “If you’ve got debts to pay down, maybe refinance your mortgage, but don’t take on new debt if you can avoid it.”
I’m in the 50-60 range and on the cusp of retirement. What advice can you offer?
Assess your stock, bond and cash allocation
For people who don’t have time on their side to wait out a stock market recovery, McGovern says that in addition to having an emergency fund, “make sure your asset allocation is correct for you and have a plan for your retirement income and what’s going to happen if you get laid off.”
Consider rolling retirement accounts into a Roth IRA if laid off
If a person on the verge of retirement gets laid off due to a recession, one thing to consider is rolling over traditional 401(k), 403(b) or individual retirement arrangements (IRA) accounts into a Roth IRA.
“They have a period of time when they aren’t making a lot of money,” McGovern said. “If you make a Roth conversion while you’re in these low tax years, from a lifetime perspective, you’re really minimizing your lifetime income taxes because you pay tax of 12% instead of 22 or 24 or higher. … It’s generally a good deal.”
Contemplating a home downsize? Now is a good time.
If you’re in this age group, concerned about a recession and have considered downsizing your home, McGovern says it may be a good time to consider doing so.
“You’re going to cut your expenses, and you could walk away with a good chunk of cash, and in many cases, that can be tax-free,” he said.
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