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Insights & advice

How do recessions affect your retirement?

January 2023 – 15 min read

Key takeaways

  • During a recession, stock and other markets can dip, which can impact retirement savings and investments.

  • Market dips, like recessions, are a normal and unavoidable part of investing.

  • There are steps you can take to help protect your investments and savings, including regularly reviewing your portfolio, your retirement plan, and diversifying.

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How does a recession impact retirement savings?

During a recession, stocks and other investments can drop in value as cautious investors sell or divest to protect their portfolio against losses. Market volatility can impact the performance of investments as well as retirement savings accounts.

How to manage your retirement savings during a recession

Early career

You may shift your financial priorities to deal with the immediate impacts of a recession, such as cutting back on non-essentials to ensure you can pay bills and cover everyday expenses, but it’s also important to try and not lose sight of your long-term goals.

You may have to re-evaluate or create a budgetOpens in a new window to help you reduce your spending, and you may contribute less to your savingsOpens in a new window as a result. 

This could be helpful in the short-term, especially if you’re struggling. However, stopping contributions to your retirement savingsOpens in a new window even for a short time can have a big impact on how much you’ll have in your nest egg when you come to use it.

The money you invest will grow over time through compound interestOpens in a new window; the less you save now, the less interest earned over time, which ultimately means less money in total when you reach retirement age.

When looking at your budget, if you feel you need to adjust to account for inflation, consider reducing your contributions to your personal savings and/or workplace savings plan instead of stopping them completely.


If investingOpens in a new window is part of your financial plan for retirement, you could find that your portfolio is impacted by the stock market. During periods of inflation, consumer confidence drops and interest rates often riseOpens in a new window, and both things can cause stock market volatilityOpens in a new window.

Why is my registered retirement savings plan (RRSP) losing value?

If you have an RRSP, the money in it is invested. This means that if the stock market or real estate markets drop, the value of the RRSP may also lose value. 

However, this may only be temporary; the stock market is cyclicalOpens in a new window, meaning it will go through both highs and lows. Making changes to your asset allocation during a low period could mean potentially missing out on gains when the prices recover. Instead, you may consider making consistent contributions even when markets have dropped, an investment strategy known as dollar-cost averaging, which can help you buy more shares at a lower price point.

Avoiding emotional investing and ensuring your portfolio is diversified can help you manage periods of uncertainty in the market. 

Nearing retirement

If you’re nearing retirementOpens in a new window, you may want to weigh the pros and cons of waiting another year or 2 before stopping work.

On the upside, you could contribute more to your savings while the government takes measures to curb inflation and markets correct themselves. However, you may not want to continue working and maybe keen to start the next chapter of your life regardless of inflation.

Each situation is unique, and the picture of retirement looks different for everyone, so talking this decision through with your loved ones and or your advisor can help you make the best choice for you.

Already retired

If you’re already living on retirement income, there may be other things to consider when it comes to the impact of inflationOpens in a new window.

For example, you may already have a plan in place for how long you want your retirement savings to lastOpens in a new window. That plan may have been based on receiving a set income each month to pay for set expenses.

However, periods of recession are often tied to rates of inflation. If your retirement income remains the same but your expenses suddenly start to rise due to inflation, you may find your money is not stretching as far as you hoped. You may need to re-examine your retirement budgetOpens in a new window and speak to your advisor to see where and if you can make changes.

If you’re continuing to invest during your retirementOpens in a new window, you should consider carrying out a portfolio review to make sure your investment allocations and risk levels remains aligned to your goals.

Other investment can react to inflation too, but the good news is, government pensions such as the Canada Pension Plan (CPP)Opens in a new window /Quebec Pension Plan (QPP)Opens in a new window and Old Age Security (OAS)Opens in a new window are indexed to keep up with inflation. The CPP is adjusted every January while the OAS is adjusted each quarter.

While they may not match inflation exactly and may not be enough to live off on their own, these payments will increase as the price of living does to help retirees manage.

This material is for information purposes only and shouldn’t be construed as providing legal or tax advice. Every effort has been made to ensure its accuracy, but errors and omissions are possible. All comments related to taxation are general in nature and are based on current Canadian tax legislation and interpretations for Canadian residents, which are subject to change. For individual circumstances, consult with your tax, legal or accounting professionals. This information is provided by The Canada Life Assurance Company and is current as of date of publication.