3 Retirement Moves to Make in Case a Recession Is Looming

As the stock market slides and more Americans are worried about a recession, it's normal to feel concerned about your retirement.

Analysts at the Federal Reserve Bank of New York estimate a 27% probability of a recession in the next 12 months. However, that's according to the most recent data published in early March, and that figure could change in the coming weeks.

Regardless of whether a recession is looming or not, it's wise to prepare for one anyway. Here are three concrete moves you can make right now to better protect your retirement.

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1. Check your asset allocation

Perhaps the best way to limit your risk during a recession or bear market is to double-check that your asset allocation is appropriate for your age and timeline. Asset allocation refers to how your investments are divided within your portfolio -- most commonly, between stocks and bonds.

Stocks are more volatile than bonds in the short term, but they also generally see higher average returns. If you have at least a few years to leave your money invested, it's wise to invest more heavily in stocks to maximize your returns. Your portfolio may be hit hard in the immediate future, but as long as you have enough time before retirement to ride out the storm, your savings should recover before you need them.

If you're planning to retire within the next couple of years, though, you may need to be more conservative with your investments -- allocating more of your portfolio to bonds while leaning less heavily on stocks.

There's no exact science for how much you should allocate to each, but a general rule of thumb is to subtract your age from 110, and the result is the percentage of your portfolio to devote to stocks. Keep in mind, though, that if you're particularly risk-averse or have a non-traditional timeline (such as retiring much earlier than most people), your asset allocation may vary.

2. Strengthen your emergency fund

One of the most important things to remember about the stock market is that even if your retirement fund loses value, you're not necessarily losing money. Given enough time, the market will eventually recover. It always has, despite facing devastating recessions in the past.

However, if you withdraw your money before the market recovers, you could end up selling your investments for less than you paid for them -- locking in losses.

If you're already retired, you may not be able to avoid pulling from your savings. But it's still wise to limit your withdrawals, and having a robust emergency fund can help. When you have a few months' worth of savings stashed in an emergency fund, you can lean more heavily on that money and leave more of your savings in your retirement fund.

If you're not yet retired, it's even more important to have an emergency fund. Withdrawing from your retirement fund during a recession can not only lock in immediate losses, but it might also limit your earning potential over time. The smaller your account balance, the less your savings will grow when the market eventually recovers -- and the harder you'll need to work later to catch up.

3. Take a deep breath -- and try not to panic

These are scary times for many people, and if you're feeling panicked about the future, you're not alone. That's normal. But even the worst recessions are only temporary, and they don't last as long as many people might think.

The S&P 500 bear market triggered by the Great Recession, for example, lasted 408 days -- or just over a year. The dot-com bubble burst in the early 2000s led to two consecutive bear markets lasting a total of 746 days, or roughly two years. Both of these market downturns lasted far longer than the average of just 286 days.

^SPX data by YCharts

While past performance doesn't predict future returns, even the worst bear markets throughout history rarely last longer than a year or two. That doesn't necessarily mean the next one won't be rough, and we don't know that any future bear markets will follow previous trends. But historically, the good economic trends tend to last far longer than the bad.

The future is uncertain right now, and that can be incredibly daunting. By taking a few steps to better protect your retirement fund against a recession, though, you can rest a little easier knowing you're doing everything you can to secure your financial future.