The recession will change the average income of both the young and old. The young will have to stop saving for retirement and the old may have to return to work.
Most financial advisers will tell you to,
1. Live on a Budget
2. Get Out of Debt
3. Start Saving For Retirement Now
4. Learn About Investing
This has been good advice for the last decade, while we had a strong economy with low inflation. But times have changed, and we no longer have a strong economy or low inflation – which is why I recommend changing your financial strategy. Financial advice is relative to the economy, but because the economy has been consistent for so long, most financial advisers haven’t had to change there ideas for decades. But the economy has changed and the financial advice needs to change with it.
The popular financial books like “Your Money or Your Life” and “The Total Money Makeover” will no longer be relevent. New books will need to be written about saving, inflation and creating new jobs. Ronald T. Wilcox just released a new book about how America needs to return to high savings, which is the foundation of economic growth. “Whatever Happened to Thrift?: Why Americans Don't Save and What to Do about It”.
Let’s be honest and realistic - the average family net worth is negative $120k.
Stop Investing in Your 401k or IRA
It you don’t have a 6-months emergency fund (about half your income) or you are not completely out of debt, then I suggest you stop saving and investing for retirement. Forget about retirement for now. Most people that are saving for retirement are just kidding themselves into thinking that they have some money for the future, when in fact their net worth is still declining year after year because they are adding debt faster then they are saving for retirement. They confidently continue to spend more money then they make because they believe they have saving some money for retirement.
A better strategy is to focus on a budget, live on less then you make and get out of debt first and foremost. After you are out of debt and have a 6-month emergency fund, then start thinking about investing and retirement. But, even if you have no debt and a 6-month emergency fund, the recession will more than likely effect someone in your family with a job loss or a reduction of income. Therefore, your extra income will likely be needed to help the people around you.
Reference Article: 2008: Bad Time to Invest in your 401k