Retirement Planning: Safely Investing For Peace Of Mind

As you approach retirement, it's important to make sure you have a clear plan for how you can afford to live on a fixed income and understand where and how your cash is invested. Generally, the closer you get to retirement, the less risk you should take and the more attention you should pay to less risky options. Here are some low-risk options to consider:

High-yield savings accounts

• Annual Percentage Yield (APY): High-yield savings accounts offer APYs that are significantly higher than traditional savings accounts, often around 5%. The APY can be variable, so it's important to keep an eye on any changes.
• Accessibility: These accounts provide easy access to your money, and some even offer ATM cards for convenient withdrawals. However, there may be limits on the number of withdrawals per month, typically six.
• Fees: Many high-yield savings accounts have low or no monthly service fees, but there may be charges for certain transactions, such as wire transfers or early account closure.
• Minimum Requirements: Some accounts have minimum deposit or balance requirements, while others allow you to open and maintain an account with no minimum balance.
• Safety: High-yield savings accounts at most banks and credit unions are federally insured, usually up to $250,000 per depositor, providing security for your funds.
• Digital Features: Online and mobile banking platforms are commonly offered, making it convenient to manage your account and transfer funds.
• American Express® High Yield Savings Account: This account offers a competitive APY with no minimum balance requirement and no fees.
• UFB Portfolio Savings: This account provides a high APY with no monthly maintenance fee and the convenience of an ATM card for withdrawals.
• Capital One 360 Performance Savings™: With no minimum deposit or balance requirements, this account offers a strong APY and a user-friendly mobile app for seamless account management.
• CIT Bank Platinum Savings: This account offers a high APY on balances of $5,000 or more, but a lower APY for balances below that threshold.
• LendingClub LevelUp Savings Account: LendingClub provides a high APY and a variety of funding options, including cash deposits at MoneyPass ATMs and wire transfers.

Short-term bonds

As you approach retirement, it's important to make sure you have a clear plan for your investments. Short-term bonds are a good option for those seeking a stable return with less risk. They are debt securities issued by governments and corporations to raise funds, and they offer a fixed rate of interest paid periodically until the bond matures.

When considering short-term bonds, pay attention to the expense ratio or fee, as a lower expense ratio will benefit you as an investor. Examples of short-term bond funds include the SPDR Portfolio Short-Term Corporate Bond ETF, iShares 1-5 Year Investment Grade Corporate Bond ETF, and Vanguard Short-Term Bond ETF.

As you plan for retirement, it's recommended to consult a financial advisor to review your individual savings and investment plans and ensure they align with your goals.

Dividend-paying stocks

When considering investing in dividend-paying stocks, it is important to evaluate the company's dividend yield relative to its peers. A very high dividend yield can indicate an unsustainable payout or a low stock price. It is also important to consider the company's payout ratio, which indicates the proportion of income paid out in dividends. A payout ratio above 80% could mean the company is putting too much income into dividends and not retaining enough for future growth.

There are two main types of dividend-paying stocks: those that offer a higher dividend and those that issue smaller dividends that grow steadily over time. It is important to consider your goals and risk tolerance when deciding which type of dividend stock to invest in. If your goal is to create an immediate income stream, you may want to focus on stocks with above-average dividend yields. On the other hand, if you are a growth-oriented investor, you may want to consider stocks that have a track record of increasing their dividends over time.

Some examples of dividend-paying stocks include:

• Toyota Motor Corp. (TM)
• Ford Motor Corp. (F)
• Estee Lauder Cos. Inc. (EL)
• United Micro Electronics (UMC)
• United Parcel Service Inc. (UPS)
• Altria Group Inc. (MO)
• Insteel Industries, Inc. (IIIN)
• Eagle Bancorp Inc (MD) (EGBN)

It is always recommended to consult with a financial advisor to determine the best investment strategies for your individual needs and goals.

Real estate investment trusts

As you approach retirement, it's important to make sure you have a clear plan for your finances and investments. While taking risks with your investments can pay off when you're younger, it's generally recommended that you take less risk as you get closer to retirement.

One option for a lower-risk investment is real estate investment trusts (REITs). REITs are companies that own, operate, or finance income-producing real estate. They allow you to earn income from real estate without the complexities and challenges of directly owning property.

• REITs are highly liquid, as they are typically publicly traded on major stock exchanges, making buying and selling shares relatively easy.
• They invest in a wide range of property types, including offices, apartment buildings, warehouses, retail centres, medical facilities, data centres, cell towers, infrastructure, hotels, and more.
• Most REITs are equity-based, generating revenue through rent. However, there are also mortgage REITs, which lend money to real estate owners and operators and generate income through interest on mortgages and loans.
• REITs must pay out at least 90% of their taxable income to shareholders as dividends, providing a steady income stream for investors.
• They have historically delivered competitive long-term returns and can serve as a hedge against inflation.
• REITs have specific tax implications. In most cases, dividends are taxed as regular income, which could result in higher tax bills, especially for investors in higher tax brackets.
• While REITs offer stable cash flow and attractive risk-adjusted returns, they offer limited capital appreciation due to the high percentage of income paid out to investors.
• As with any investment, there are risks involved. REITs are sensitive to interest rate changes, economic downturns, and sector-specific challenges.
• It's important to do your research and consult a financial advisor before investing in REITs.

Overall, REITs can be a good option for retirees looking for lower-risk investments that provide stable income and diversification to their portfolios. However, it's crucial to carefully consider and research this option, weighing the benefits against the potential risks.

Certificates of deposit

CDs are considered to be one of the safest savings options. They are insured and, in the rare event that the issuing institution fails, your money is protected. In the US, the Federal Deposit Insurance Corporation (FDIC) insures bank accounts, and the National Credit Union Administration (NCUA) insures credit union accounts. Both schemes protect up to $250,000 of your funds.

CDs are a safer and more conservative investment than stocks and bonds, but they offer a lower opportunity for growth. They are a good option if you want to save for a specific goal or project, such as a vacation, a new home, or a car. They are also a good choice if you want to invest some of your savings more conservatively, with lower risk and volatility than stocks and bonds.

CDs are available at banks, credit unions, and brokerages. The interest rates they offer are usually fixed, although there are variable-rate CDs that could earn a higher return if rates rise. The term of a CD can vary from three months to 10 years or more. The longer the term, the higher the interest rate.

One strategy for investing in CDs is to build a CD ladder. This involves buying multiple CDs with different maturity dates, so that you have access to the higher rates offered by longer-term CDs, while still having a portion of your money become available at regular intervals.

There are some downsides to investing in CDs. Your money is locked into the investment, and if you withdraw it early, you will be charged a penalty. CDs may also earn less than stocks and bonds over time, and inflation can eat away at the value of money locked in at a fixed rate.

Frequently asked questions