7 Ways You Can Still Retire During a Recession

A cyclist takes a ride in Longmeadow, Mass.

It's never a good idea to retire in a year when your portfolio is down. But baby boomers willing to save more, spend less, and work longer should still be able to retire. Yes, it will require some sacrifice and a heaping portion of the "B"-word—budgeting. Here are seven difficult, but not impossible ways to get your retirement plans back on track.

Spend less. Thrifty living is a necessity. Two-thirds of workers and 59 percent of current retirees say they have reduced their spending in the past two months because of fear over the economy, job stability, or rising prices, according to a Harris Interactive and Principal Financial Group online survey of 1,179 employees and 625 age 60-plus retirees. The top areas for cutbacks were media subscriptions, gym memberships, land-line phone services, lawn services, and television services.

Save more. Workers with significantly diminished retirement account balances will have to step up contributions if they wish to retire in the near term. Employees age 50 and up can tuck up to $22,000 into a traditional tax-deferred 401(k) in 2009, up $1,500 from this year. And if you are fortunate enough to work for a company that still offers a 401(k) match, take advantage of it. "Workplace savings is the best thing we have going for us in a recession," says Dan Houston, president of retirement and investor services at the Principal Financial Group.

Work longer. Working longer allows you to tuck some extra cash into your retirement accounts and cuts the duration of time your wealth needs to last. Some 43 percent of Americans and even 36 percent of affluent Americans with investable assets between $100,000 and $3 million say current economic conditions have pushed back their expected retirement age, according to a recent Bank of America survey of 1,000 adults. In addition, continued employment gives your investments more time to accrue returns and recover from market losses. Social Security benefits will also increase by 7 to 8 percent for each year you delay claiming between ages 62 and 70. And working longer doesn't mean forever. Working just one or two extra years or getting a part-time job can significantly improve your retirement prospects.

Don't raid retirement accounts early. An emergency fund with enough cash to cover at least six months' worth of living expenses is a necessity for retirement savers who want to see their nest egg grow and recover from market losses untouched until retirement. Fifty-six percent of workers and 69 percent of retirees currently have an emergency fund they can tap if they lose their job or incur an unanticipated medical expense, Principal found. "The 401(k) should be the last area that is accessed for cash-flow needs," says Craig Averill, a personal retirement solutions executive for Bank of America.

Downsize. Moving into a smaller house or cutting back from two cars to one is a great way to significantly slash expenses in retirement. Some retirees take it even further and move to an area of the country where theire retirement dollars will stretch more. Approximately 27 percent of Americans are considering relocating to an area with a lower cost of living as a result of the current economic climate, according to the Bank of America survey. U.S. News has a search tool that allows you to create a personalized list of great places to retire, including criteria like the cost of housing and proximity to healthcare. You can also check out these affordable and low-tax places to retire.

Get advice. It's painful to watch retirement account balances dwindle every month. Many workers approaching retirement age are looking for reassurance about their investment strategy. One-on-one advice consultations via phone jumped by 40 percent from September to October at Charles Schwab, a company with 1.3 million corporate retirement plan participants. A financial planner who is not trying to sell you something can help put market gyrations into perspective and keep your retirement plans on track. "Have regular meetings with your adviser, maybe every 30 or 60 or 90 days," advises Averill. "There's a lot of anxiety and uncertainty to reassess."

Stick to the plan. Once you've set up an asset allocation with a level of risk you can tolerate, you need to put your retirement savings and withdrawal strategy on autopilot. Some 68 percent of Americans have not changed the way they save, invest, or manage their retirement assets in the past three months, Bank of America found. "Watchful waiting, no matter how deeply your portfolio dips, is still the best option," says Michael Kresh, a certified financial planner and the author of You Can Afford to Retire, with one caveat:. "After 70, you should always have three to five years of living money in highly liquid and stable short-term accounts." This plan will protect retirees from any additional stock market shocks in the future.