Retirement Investments: Safe Options For The Elderly

As people get older, their investment strategies need to change. Older people are generally advised to reduce the risk in their investment portfolios, as they no longer have a rising income from a full-time job and have less time to recover from losses. Safer investments for older people include high-yield savings accounts, certificates of deposit, treasury securities, money market accounts, dividend-paying stocks, annuities, and real estate investment trusts.

High-yield savings accounts

• They are safe: High-yield savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), which means your money is protected up to $250,000 per depositor, per institution.
• They have few fees: Many high-yield savings accounts have no monthly maintenance fees, minimum balance requirements, or other charges. However, it's important to read the fine print to understand all the fees and requirements.
• They offer flexibility: While high-yield savings accounts may limit the number of withdrawals you can make per month, your savings are still more liquid than other investment options like certificates of deposit (CDs) or stocks.
• They are easy to access: Many high-yield savings accounts are offered by online banks, which means you can access your account anytime, anywhere through a website or mobile app.
• They may have higher opening deposit requirements: Some high-yield savings accounts require a minimum opening deposit, which can range from $5 to $100 or more.
• Their interest rates can change: High-yield savings accounts typically offer variable interest rates, which means the APY can go up or down at any time.

When choosing a high-yield savings account, it's important to consider the interest rate, fees, minimum deposit and balance requirements, and the reputation of the financial institution. It's also a good idea to compare accounts from online banks and traditional banks to find the best option for your needs.

Money market accounts

There are some potential disadvantages to money market accounts. They often have minimum balance requirements and may impose monthly fees if the balance falls below the minimum amount. Additionally, they may have limited transactions and restrictions on withdrawals.

When choosing a money market account, it's important to consider the annual percentage yield (APY), fees, minimum deposit and balance requirements, customer experience, digital banking features, and accessibility of funds. It's also crucial to ensure that the account is FDIC-insured or NCUA-insured to protect your funds in case of a bank failure.

Treasury securities

As people get older, they may want to adopt a safer investment strategy. Treasury securities are one of the safest investments available, backed by the full faith and credit of the U.S. government.

Treasury Bills (or T-bills) are short-term securities that mature in one year or less from their issue date. They are purchased for a price less than or equal to their par (face) value, and when they mature, the U.S. Treasury pays their par value. The interest is the difference between the purchase price of the security and what is paid at maturity.

Treasury notes and bonds are securities that pay a fixed rate of interest every six months until the security matures, which is when the U.S. Treasury pays the par value. The only difference between them is their length until maturity. Treasury notes mature in more than a year but not more than 10 years from their issue date, while bonds mature in more than 10 years, most commonly 30 years.

Treasury Inflation-Protected Securities (TIPS) pay interest every six months and the principal value is adjusted to reflect inflation or deflation as measured by the Consumer Price Index. With TIPS, the semi-annual interest payments and maturity payment are calculated based on the inflation-adjusted principal value of the security.

High-dividend stocks

Dividend stocks are shares of companies that pay investors a portion of their earnings, and they can be a great choice for older people looking for regular income. Dividend yields, or the dividend payment divided by the stock price, can vary from company to company. Dividend stocks can be a good choice for older investors because they tend to be well-established companies, adding stability to an investment portfolio.

When choosing a dividend stock, it's important to look for companies with relatively low risk and attractive fundamentals. This means that the company operates in a business that is always needed, has a strong balance sheet, and competitive advantages within its industry. It's also beneficial to look for low volatility, or stocks that fluctuate less compared to the overall market. This can be measured by looking at a stock's beta value, with a beta of less than one indicating a stock that is less reactive to market movements than the average stock.

• Public Storage (PSA): Public Storage is a dominant leader in the self-storage industry, with low maintenance and operational expenses. The company has a low-risk profile and a strong balance sheet, making it a stable investment choice. Public Storage has a history of increasing its dividend payouts and currently offers a yield of 3.9%.
• Realty Income (O): Realty Income is a net-lease REIT specializing in freestanding, single-tenant retail properties. They have a predictable and stable business model, with long-term lease agreements and tenants from recession-resistant areas of retail. Realty Income pays a monthly dividend yielding 5%, making it an attractive choice for those relying on investments for income.
• Altria Group Inc. (MO): Altria, the company behind Marlboro cigarettes, has stated its intention to pay out most of its earnings as dividends. It has a high dividend yield of 9.4% and is a well-known and popular brand worldwide.
• Devon Energy (DVN): Devon Energy is an oil and natural gas producer with a focus on competitive shareholder returns. The dividend yield is 6.9%, but it's important to note that payouts may fluctuate based on the company's earnings.
• Dow (DOW): Dow is a chemical production company with segments in packaging, specialty plastics, industrial intermediates, and performance materials. It offers a dividend yield of 5.2%.
• International Business Machines (IBM): IBM is a large tech company that has paid dividends for over 100 consecutive years. With more than two-thirds of its revenue coming from software and consulting services, IBM provides a stable dividend yield of 3.6%.
• Verizon Communications (VZ): Verizon is a leader in communication and technology services, generating over $135 billion in revenue in 2022. With a strong cash flow, Verizon offers a dividend yield of 6.3%.
• Chevron (CVX): Chevron is a massive oil and gas company that generates large amounts of free cash flow, enabling consistent dividend growth. With a history of annual dividend increases for 37 years, Chevron offers a dividend yield of 4.2%.
• Lockheed Martin (LMT): Lockheed Martin is a highly profitable aeronautics, defence, and space technology company with a strong and consistent free cash flow. The company has raised its dividend per share annually for the past 21 years and currently offers a dividend yield of 2.7%.

Real estate investment trusts (REITs)

REITs invest in a wide range of real estate property types, including offices, apartment buildings, warehouses, retail centers, medical facilities, data centers, cell towers, infrastructure, and hotels. Most REITs focus on a particular property type, but some hold multiple types of properties in their portfolios.

REITs are required to pay out at least 90% of their taxable income to shareholders as dividends each year, and most pay out 100%. Shareholders then pay income taxes on those dividends. This makes REITs an attractive option for older investors looking for a steady stream of income.

There are three broad categories of REITs, divided by their investment holdings: equity, mortgage, and hybrid REITs. Equity REITs operate like a landlord, collecting rent and managing the property. Mortgage REITs (mREITs) don't own the underlying property but provide financing for real estate and earn income from the interest. Hybrid REITs combine the investment strategies of both equity and mortgage REITs.

Within these categories, there are several types of REITs, including:

• Office REITs: These own and manage office real estate such as skyscrapers and office parks.
• Industrial REITs: They own and manage industrial facilities such as warehouses, distribution centers, and light manufacturing.
• Retail REITs: These own and manage retail spaces such as malls and shopping centers.
• Hospitality REITs: They own hotels and resorts, usually managed by a third-party brand, and rent out space to guests.
• Residential REITs: These own and manage residential properties such as apartment buildings and single-family homes.
• Timberland REITs: They own and manage timberland, specializing in harvesting and selling timber.
• Healthcare REITs: These own and manage healthcare-related real estate such as senior living facilities, hospitals, and medical office buildings.
• Self-storage REITs: They own and rent out self-storage facilities to individuals and businesses.
• Infrastructure REITs: They own and manage infrastructure such as fiber cables, telecommunications towers, and energy pipelines, leasing capacity to mobile carriers and energy companies.
• Data center REITs: They own and manage data storage facilities, leasing space and providing services to technology companies and other businesses.

REITs offer several benefits, including passive income through high dividends, tax advantages, diversification from the stock market, and attractive total return potential. However, there are also some drawbacks, such as higher tax liabilities, sensitivity to interest rate changes, property-specific risks, and the risks associated with high debt levels.

Older investors considering REITs should carefully weigh the benefits and risks and consult their financial advisors before making any investment decisions.

Frequently asked questions