Retirement Reinvented: Exploring The Top Investment Havens For Savvy Seniors

As people approach retirement, it's crucial to make sure they have a clear plan for how they can afford to live on a fixed income and an understanding of where and how their cash is invested. There are several options for retirees to invest their savings, each with its own benefits and drawbacks. Here are some of the most common choices:

- High-yield savings accounts: These accounts allow retirees to earn more interest than traditional savings accounts, and their money is FDIC-insured for up to $250,000 per account type per bank.

- Low-risk investments: Options such as short-term bonds, Treasury Inflation-Protected Securities (TIPS), and money market funds offer capital preservation with the potential for slightly higher returns than savings accounts.

- Annuities: Annuities provide a guaranteed income stream for a certain period or for life. They can be structured to continue payments to beneficiaries after the retiree's death. However, annuities are complex and subject to the risk of inflation.

- Bonds: With interest rates on the rise, bonds have become a more attractive investment option for retirees. They offer a stream of income with potentially competitive yields and provide effective diversification to a portfolio.

- Total return investment approach: This strategy involves investing in a diverse mix of stock and bond funds, adjusted for the investor's risk tolerance. It aims to provide both immediate cash flow and savings for future expenses.

- Income-producing equities: Some stocks pay dividends, providing a regular stream of income. While dividend yields may not be as competitive as bond yields, they offer the potential for capital appreciation.

- Retirement accounts: Many retirees take advantage of tax-advantaged retirement accounts, such as 401(k)s, 403(b)s, and IRAs, which allow their savings to grow tax-free.

- Part-time employment: Some retirees choose to work part-time or take on short-term gigs to stay active and supplement their retirement income.

High-yield savings accounts

When choosing a high-yield savings account, it is important to consider the annual percentage yield (APY), minimum opening deposit and balance requirements, monthly maintenance fees, and access to your money. Some accounts may also offer additional features such as ATM access or mobile banking. It is also essential to ensure that your money is insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).

• BrioDirect High Yield Savings Account: 5.30% APY, $5,000 minimum opening deposit
• Ivy Bank High-Yield Savings Account: 5.30% APY, $2,500 minimum balance to earn highest APY
• TAB Bank High Yield Savings: 5.27% APY, no minimum opening deposit
• UFB Secure Savings: Up to 5.25% APY, no minimum opening deposit or balance requirements
• EverBank Performance Savings: 5.05% APY, no minimum opening deposit or balance requirements
• LendingClub High-Yield Savings Account: 5.00% APY, $100 minimum opening deposit, ATM card included
• CIT Bank Platinum Savings: 5.00% APY on balances of $5,000 or more, $100 minimum opening deposit
• American Express High Yield Savings Account: 4.25% APY, no fees, up to nine free withdrawals per month
• Marcus by Goldman Sachs High Yield Online Savings: Above-average APY, no fees, easy mobile access

By choosing one of these high-yield savings accounts, retirees can maximize their savings and earn a competitive interest rate while maintaining easy access to their funds.

Low-risk investments

As you approach retirement, it's crucial to make sure you have a clear plan for how you can afford to live on a fixed income. Here are some low-risk investment options to consider:

High-Yield Savings Accounts

High-yield savings accounts are a great option for retirees as they offer a modest return on your money while being easily accessible. It is recommended to have three to six months' worth of expenses in accessible reserves, with one to two months' worth in your checking account and the rest in your savings. Some high-yield savings accounts include CIT Bank's Platinum Savings account and the American Express® High Yield Savings Account.

Money Market Funds

Money market funds are pools of CDs, short-term bonds, and other low-risk investments that provide diversification and are typically liquid, allowing you to withdraw funds without being penalized. The Fidelity Money Market Fund (SPRXX) and the Vanguard Federal Money Market Fund (VMFXX) are examples of money market funds with competitive yields and low expense ratios.

Short-Term Certificates of Deposit (CDs)

Bank CDs are loss-proof in FDIC-backed accounts, and with interest rates rising, short-term CDs can be a good option. No-penalty CDs are also available, which allow you to withdraw your money without the usual early withdrawal penalty. EverBank and Marcus by Goldman Sachs offer competitive rates on their CDs.

Series I Savings Bonds

Series I savings bonds are a type of low-risk bond that adjusts for inflation, helping protect your investment. These bonds are issued by the U.S. Department of the Treasury and can be purchased through TreasuryDirect.gov. They adjust their payment semi-annually based on the inflation rate, providing a safeguard against rising prices.

Treasury Bills, Notes, Bonds, and TIPS

Treasury bills, notes, and bonds are highly liquid securities issued by the U.S. Treasury. Treasury bills mature in one year or less, notes mature in up to 10 years, and bonds mature in up to 30 years. TIPS (Treasury Inflation-Protected Securities) are securities whose principal value adjusts with inflation. These options provide a relatively safe investment with the potential for growth.

Dividend-Paying Stocks

While stocks are generally riskier than other investments, dividend-paying stocks are considered safer than high-growth stocks as they pay cash dividends and tend to be from more stable and mature companies. Examples of dividend-paying stocks include United Parcel Service Inc. (UPS) and CubeSmart (CUBE).

Fixed Annuities

A fixed annuity provides a guaranteed income stream and return, offering financial security, especially during retirement. Annuities can be structured in various ways and often include additional benefits such as death benefits or minimum guaranteed payouts. However, they can be complex and illiquid, so careful consideration and understanding of the contract are essential.

Stocks

• Enbridge (TSX:ENB): Enbridge has paid dividends for 69 years and increased them for 29 consecutive years. It offers a lucrative yield of 7.3%, based on the market price as of July 23, 2024. Enbridge's resilient business model and ability to grow earnings and distributable cash flows in all market conditions support its stellar dividend payouts.
• BCE (TSX:BCE): BCE has raised its dividends for 16 consecutive years. It offers an attractive yield of 8.9% based on the current closing price. The company's focus on improving efficiency and growing its customer base positions it well to grow earnings in all market conditions.
• SmartCentres Real Estate Investment Trust (TSX:SRU.UN): SmartCentres offers a monthly dividend reflecting a high yield of about 7.6%. Its payouts are supported by its higher concentration of retail-focused properties, which generate robust same-property net operating income and add stability to its cash flows.
• Telus (TSX:T): Telus has increased its dividend annually for more than 20 consecutive years. Investors can get a 7.2% dividend yield at the current stock price. Telus is targeting adjusted EBITDA growth of 5.5% or better in 2024.
• TC Energy (TSX:TRP): TC Energy has increased its distribution for 24 consecutive years, and investors should see annual dividend growth in the 3-5% range. It offers a yield of nearly 7% at the current stock price. TC Energy has made good progress in shoring up its balance sheet and has a number of projects lined up to drive cash flow growth.

While stocks can provide a great opportunity for retirees to generate passive income, it is important to note that investing in the stock market carries risk. The price of stocks can fluctuate, and there is always the possibility of losing money when investing in the stock market. As such, it is important for retirees to carefully consider their investment options and seek professional financial advice before making any investment decisions.

Bonds

Types of Bonds

Retirees should generally avoid junk bonds, which are issued by entities at a higher risk of defaulting, and instead focus on investment-grade bonds with high credit quality. Here are some types of bonds suitable for retirees:

• Treasury Bonds: These bonds offer diversification benefits and are not influenced by stock market movements, making them a good choice for retirees.
• Corporate Bonds: Issued by corporations, these bonds are a good choice for retirees looking for a broader basket of high-quality bonds.
• Mortgage-Backed Securities: Backed by a pool of mortgages, these bonds can provide stable returns for retirees.
• Municipal Bonds: These bonds offer tax advantages, especially for high-income retirees with taxable brokerage accounts.
• Foreign Bond Funds: While more complicated, foreign bond funds can provide modest diversification benefits for retirees.
• Treasury Inflation-Protected Securities (TIPS): TIPS offer inflation protection and are a good choice for retirees concerned about potential inflationary shocks.

Bond Funds

When investing in bonds, retirees can choose individual bonds or opt for bond funds, which provide exposure to a diversified portfolio of bonds. Here are some bond funds suitable for retirees:

• Vanguard Total Bond Market Index Fund (VBTLX or BND): This fund offers exposure to a broad, diversified index of high-quality bonds.
• IShares Core U.S. Aggregate Bond ETF (AGG): With over 70% of its holdings in AAA-rated securities, this fund provides broad exposure to the U.S. investment-grade bond market.
• Vanguard Total Bond Market ETF (BND): This ETF tracks the performance of a broad, market-weighted bond index, providing exposure to U.S. government bonds.
• Fidelity U.S. Bond Index Fund (FXNAX): This fund tracks the Bloomberg Barclays U.S. Aggregate Bond Index, investing primarily in investment-grade debt securities.
• Vanguard Short-Term Corporate Bond ETF (VCSH): Focusing on high-quality, short-term corporate bonds, this ETF offers current income with modest volatility.
• IShares Floating Rate Bond ETF (FLOT): By investing in floating-rate bonds, this ETF benefits from adjustable interest rates, making it attractive during periods of rising interest rates.

Considerations for Retirees

When investing in bonds, retirees should consider the following:

• Duration and Maturity: Given high inflation, short-term (0-3 years) or intermediate-term (3-7 years) bond funds are generally more suitable for retirees.
• Credit Quality: High-quality bonds from entities with high credit ratings, such as AAA or AA, are preferred to avoid default risk.
• Diversification: A balanced approach is best, allocating a portion of the portfolio to each of the recommended bond types to reduce overall risk.
• Risk Tolerance: Retirees should be aware of their risk tolerance and not take on excessive risk. A financial advisor can help determine the appropriate level of risk.

Annuities

There are four basic types of annuities:

• Fixed Annuities: These offer a guaranteed rate of return on your investment and will pay out over a specified period. The rate of return is fixed for a predetermined number of years, or for life.
• Variable Annuities: The return on these annuities is based on the performance of a basket of stock and bond products, called subaccounts, that you select. There is more opportunity for growth but also more risk during recessions.
• Immediate Annuities: With these, you pay the insurer a lump sum and start collecting regular payments right away.
• Deferred Annuities: These are more of a long-term tool. After paying in, you don’t collect until a specified date. Before that date, your money has the opportunity to either accrue interest (fixed annuities) or benefit from market gains (variable annuities).

Frequently asked questions