When people retire, that is the time they want to protect capital and have a regular source of income to support their retirement. Unlike young investors, retiree investors are extremely cautious in their investment decisions because they cannot afford to lose their savings to the fluctuating market prices. Although it is less likely to yield high returns than other risky assets, low risks have the advantage of being a safe investment. The following article focuses on different low risk investment opportunities that any retiree would consider when planning for his or her future financially secure existence.

1. High-Yield Savings Accounts

One of the best low risk investment instruments that avail retirees is the high-yield savings accounts. It is also important to note that these accounts pay higher interest than normal saving accounts so that your money grows while you can easily access the funds. Money in high-yield savings accounts is generally protected by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per individual, which makes it more secure. The returns may not be that high, but the liquidity and the safety make high-yield savings accounts ideal for retirees.

2. Certificates of Deposit (CDs)

Another almost risk-free investment that retirees highly prefer is certificates of Deposit (CDs). CDs are essentially saving provided by banks and credit unions, wherein the individual is privileged to save money under a certain fixed period, which can be between several months to years. The bank earns fixed interest which is normally higher than those of normal saving accounts in exchange. It was also established that the longer the term of the CD, the higher the interest rate which is an indication of more cost of funds for the firm. CDs are also like savings accounts; FDIC protects them and is stable and reliable. However, the funds can be withdrawn before the stipulated term, which attracts certain penalties; hence, it is up to the depositor to choose the correct term to ballot.

3. Treasury Securities

Of the government securities we will discuss below, Treasury securities, including T-bills, T-notes, and T-bonds, are almost free from risk. These treasury securities appear in the financial market and boast the full support of the United States treasury. T-bills are short-term instruments with a maturity of one year or less; T-notes have a maturity of 2 to 10 years, and T-bonds have a maturity of 20 to 30 years. Although Treasury securities offer lower interest rates than other securities, the security and safety that delineates Treasury instruments enhances their demand among retirees.

4. Fixed Annuities

Fixed annuities are insurance products that pay their holders guaranteed income for a certain number of years or the rest of their lives. A fixed annuity is when one pays a certain amount of money in a one–time payment to an insurance company, and the company pays the agreed amount of money to the client at the agreed time. Also, in a fixed annuity, the interest rate that is paid goes with the contract and is locked up for the term of the agreement. A fixed annuity is, therefore, low-risk to the retiree who is more interested in having a guaranteed and fixed stream of income in his or her retirement period. The other drawback of using an annuity is that one should get acquainted with the terms and fees of annuities before signing any annuity.

5. Municipal Bonds

Municipal bonds, also called ‘munis,’ refer to debt securities sold to finance projects by state and local governments. Municipal bonds can, therefore, be regarded as a safe form of investment for retirement by retirees as the investment comes with tax advantages and is safe for retirees. Interest income of most municipal bonds is tax-free under federal income tax laws and, in some cases, state and local taxes. Although most municipal bonds are considered safe, particularly those that sound like local governments’ issues, there is always the need to evaluate the creditworthiness of the warranting body before investing in the bond.

6. Dividend-Paying Stocks

Normally, stocks are perceived to be riskier than bonds. Still, regulated dividend stocks could be a good investment for retirees since it would provide them with income and lower risk than other investments. Dividend stocks, on the other hand, refer to shares of companies that make it their practice to pay part of their profits to the shareholders in the way of dividends. The companies that pay consistently high dividends for years are called ‘blue-chip’ stocks and are less risky than growth stocks. Dividend stocks can also potentially generate more income for retirees to accept possible dangers of the stock market and get higher returns.

7. Bond Funds

It’s a fund that seeks to pool money from the public and invest in various bonds subject to bonds’ characteristics such as the grade, maturity, and time until the interest is paid, and manage risks and attendant expenses. Such funds expose retirees to income securities without the burden of purchasing single bonds since they invest in government, corporate, and municipal bonds. This is because the bond funds are opposite to the stocks, providing diversification, professional management, and the constant receiving of income in the form of dividends, thus making the bond a low-risk investment for retirees. However, like all bonds, bond funds are also sensitive to interest rate changes; therefore, the prices are not fixed. This risk should be avoided by retirees investing in bond funds whose durations are short or intermediate at best.

8. Money Market Funds

Money market funds refer to mutual funds that can invest in short-term and high-quality securities like treasury bills, commercial papers, and certificates. Such funds are meant to be relatively stable and liquid, with minimal risk to the principal. MMFs, in most cases, provide a slightly higher return than ordinary saving accounts, which can be considered a secure investment among retirees. Like other money market funds, the funds are not backed by the Federal Deposit Insurance Corporation. Still, investments in them can be virtually risk-free as they are mandated to invest prudently, and their primary objective is to protect the capital.

Conclusion

Today, retirees have many low-risk investment opportunities which they can use to plan for a good retirement. All the accounts, such as high-yield savings, CDs, Treasury securities, fixed annuities, municipal bonds, dividend-paying stocks, bond funds, and money market funds, possess their own advantages and risk types. Therefore, by choosing a balanced combination of these options depending on one’s financial capacity as well as his/her ability to take risks, it becomes easy to build an investment portfolio that offers steady income and, at the same time, protects capital. As low-risk investments are less profitable, it is important to understand that nothing is more precious than the safety of the person’s money in their retirement years.