Most financial planners will tell you that retirement and recession are mutually exclusive entities. Many articles have been written on how to retire in a recession, using various strategies such as hanging on to a part-time job, taking early Social Security and reallocating your investment portfolio. But believe it or not, there are some actual financial benefits to retiring during a recession. Here are some ways that retiring during an economic downturn may benefit you.

IN PICTURES: 5 Tax(ing) Retirement Mistakes

Lower Property Values
If you have been waiting for the right time to buy that vacation home or rental property, this may be it. Property values can decline precipitously during a recession, so your purchase price may be only half of what it was five years ago. This can also allow you to reallocate a portion of your investment portfolio in a sensible fashion. (For more on property values, check out The Top 4 Things That Determine A Home's Value.)

Lower Cost of Living
High unemployment and bad markets mean less disposable income. Retailers must therefore slash prices in order to draw in customers. Take advantage of all the freebies, specials, closeout prices and promotional items thrown at you by department stores, credit card companies, restaurants, movie theaters and other providers of entertainment and travel agencies. Airlines often get into price wars during recessions, and local grocers churn out coupons, rebates and free samples in an effort to keep shoppers happy.

Less Income Tax
Although selling securities when prices are down obviously reduces your return on capital, it also reduces the tax you pay on your gains. Those who have to liquidate long-term holdings in order to retire during a recession can therefore usually expect to pay less in taxes than they would in a bull market. This can also be an excellent time to convert large IRA or qualified plan balances into Roth accounts, since your earnings from your job have disappeared. Not only will you pay less tax because of your lack of compensation, but your retirement account balance will probably be lower as well. These factors combine to allow you to pay the lowest amount of interest possible on your conversion.

For example, if you earned $80,000 from your job and have $100,000 in a Traditional IRA that used to be worth $140,000, then you will now only pay taxes on the $100,000 balance in the account, instead of on $220,000, the amount of income that you might have had to declare a few years earlier when you were working and the markets were high. (This example does not take into account the income threshold that previously applied for Roth conversions, which was lifted in 2010.) (To learn more, see Roth Or Traditional IRA... Which Is The Better Choice?)

Immunity From Unemployment
No more job hunting, no more worries about layoffs, no more updating your resume, no more fruitless interviews or application forms. You're retired now, and other people can fight for a job instead of you. (Now you have time to worry about your kids finding jobs instead.) (What will you do during your retirement? Read Retire In Style for hints on how to strike a healthy balance.)

Emotional Satisfaction
If you have struggled to keep up with the Joneses, then you can sit back and derive a perverse pleasure from watching them lose much of what they own when one or both of them get laid off and can't make the monthly payments on their second home, sports car and cabin cruiser.

The Bottom Line
Of course, retiring during a recession will still bring many financial challenges, but it's not all bad. In fact, retiring at any given time will present its own unique challenges. While there is a lot of press covering the perils of retiring now, don't forget that there are some advantages. So try taking advantage of the benefits, rather than focusing on the disadvantages. (For more, check out You CAN Retire In A Recession.)

Catch up on your financial news; read Water Cooler Finance: Google Gains, Taxpayers Pay.

Related Articles
  1. Investing News

    Is the White House too Optimistic on the Economy?

    Are the White House's economic growth projections for 2016 and 2017 realistic or too optimistic?
  2. Economics

    Can the Market Predict a Recession?

    Is a bear market an indication that a recession is on the horizon?
  3. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  4. Stock Analysis

    Are U.S. Stocks Still the Place To Be in 2016?

    Understand why U.S. stocks are absolutely the place to be in 2016, even though the year has gotten off to an awful start for the market.
  5. Investing News

    U.S. Recession Without a Yield Curve Warning?

    The inverted yield curve has correctly predicted past recessions in the U.S. economy. However, that prediction model may fail in the current scenario.
  6. Investing

    Retirees: 7 Lessons from 2008 for the Next Crisis

    When the last big market crisis hit, many retirees ran to the sidelines. Next time, there are better ways to manage your portfolio.
  7. Economics

    The 2007-08 Financial Crisis In Review

    Subprime lenders began filing for bankruptcy in 2007 -- more than 25 during February and March, alone.
  8. Economics

    Industries That Thrive On Recession

    Recessions are not equally hard on everyone. In fact, there are some industries that even flourish amid the adversity.
  9. Fundamental Analysis

    Is a U.S. Industrial Recession on the Horizon in 2016?

    Find out why the industrial economy may be teetering on an industrial recession and what could prevent it from going over the cliff.
  10. Fundamental Analysis

    Gloom and Doom for Global Markets in 2016?

    Learn about the volatility in global markets during the beginning of 2016. See why famous investors are saying some economies could see recessions.
RELATED FAQS
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do interest rates increase during a recession?

    Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>
  3. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  4. How does the risk of investing in the industrial sector compare to the broader market?

    There is increased risk when investing in the industrial sector compared to the broader market due to high debt loads and ... Read Full Answer >>
  5. How can I hedge my portfolio to protect from a decline in the retail sector?

    The retail sector provides growth investors with a great opportunity for better-than-average gains during periods of market ... Read Full Answer >>
  6. What is the correlation between term structure of interest rates and recessions?

    There is no question that interest rates have enormous macroeconomic importance. Many economists and analysts believe the ... Read Full Answer >>
Trading Center