Where Should Retirees Invest Now?

There are several options for retired people looking to invest their money. These include high-yield savings accounts, low-risk investments such as Treasury Inflation-Protected Securities (TIPS), and fixed annuities. Other options include dividend-paying stocks, money market accounts, and certificates of deposit (CDs). For those looking for a more hands-on approach, investing in rental properties or taking on part-time employment can also be a good way to generate income during retirement.

High-yield savings accounts

Marcus by Goldman Sachs High-Yield Online Savings Account

Marcus by Goldman Sachs offers an above-average APY with no fees and easy mobile access. It is one of the most straightforward savings accounts, allowing you to grow your money without any complex conditions. There is no limit to the number of withdrawals or transfers, and your money is FDIC-insured for up to $250,000.

American Express High Yield Savings Account

The American Express High Yield Savings Account offers a higher-than-average APY with no fees and no minimum balance requirements. It also allows up to nine free withdrawals or transfers per month, higher than the traditional six. American Express National Bank is FDIC-insured, so your money is secure.

Synchrony Bank High Yield Savings

The Synchrony Bank High Yield Savings account stands out for its convenient withdrawal options. It offers unlimited transactions at an ATM and up to three free wire transfers per statement cycle. Synchrony Bank also refunds ATM fees in the US up to $5 per statement cycle. There are no monthly fees or minimum deposits required.

UFB Secure Savings

UFB Secure Savings offers a competitive APY with no maintenance or service fees and no minimum deposit or balance requirements. It also provides an ATM card with unlimited withdrawals, which is not common among online banks. Your deposits are FDIC-insured for up to $250,000.

LendingClub High-Yield Savings

LendingClub offers an attractive APY, zero monthly fees, and no minimum balance requirement after the initial $100 deposit. It also provides a free ATM card and never charges any ATM fees, making it easy to access your savings.

Low-risk investments

As a retired person, you may want to consider low-risk investments to preserve your capital and generate a steady income. Here are some options to explore:

High-Yield Savings Accounts

High-yield savings accounts can provide a modest return on your money while keeping your funds easily accessible. These accounts typically offer higher interest rates than traditional savings accounts, and your money is insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per account. This option ensures the safety of your capital and provides a small but consistent return.

Money Market Funds

Money market funds are pools of certificates of deposit (CDs), short-term bonds, and other low-risk investments. They are known for their liquidity, allowing you to withdraw your funds at any time without penalties. Money market funds usually carry relatively low risk and provide a stable option for your investments.

Short-Term Certificates of Deposit (CDs)

Bank CDs are considered loss-proof as long as you keep your funds in an FDIC-backed account and don't withdraw them early. With interest rates on the rise, short-term CDs can be a good option, allowing you to reinvest at higher rates when they mature. No-penalty CDs are also available, which don't incur early withdrawal penalties.

Series I Savings Bonds

Series I savings bonds are a type of low-risk bond that adjusts for inflation. When inflation rises, the bond's interest rate increases accordingly. These bonds are purchased from TreasuryDirect.gov and are backed by the US government, making them a safe investment choice.

Treasury Bills, Notes, Bonds, and TIPS

Treasury bills, notes, and bonds are highly liquid securities issued by the US Treasury. Treasury bills mature within a year, notes mature in up to 10 years, and bonds mature in up to 30 years. TIPS (Treasury Inflation-Protected Securities) are particularly attractive as they protect your investment against inflation by adjusting their principal value based on inflation levels.

Dividend-Paying Stocks

While stocks are generally riskier than other investments, dividend-paying stocks are considered safer than high-growth stocks. These stocks pay out dividends regularly and tend to be from more stable, mature companies. Dividend-paying stocks can provide a regular income stream and potentially appreciate in value over time.

Fixed Annuities

A fixed annuity provides a guaranteed income stream and return, offering financial security during retirement. Annuities can be structured in various ways, such as paying out over a fixed period or until the annuitant's death. They also offer tax-deferred growth and can include additional benefits like death benefits or minimum guaranteed payouts. However, annuities are complex financial products, and it's essential to carefully review the contract's fine print.

Stocks and bonds

The traditional rule of thumb for retirees' portfolios is the "100 minus your age" rule, which suggests that retirees should subtract their age from 100 to determine the percentage of their portfolio that should be kept in stocks. For example, a 70-year-old retiree would keep 30% of their portfolio in stocks. However, with people living longer, some financial planners now recommend using 110 or 120 minus your age to determine stock allocation. This higher allocation to stocks is to ensure that retirees' portfolios continue to grow and last throughout their retirement.

Some experts suggest that retirees should invest heavily in equities, arguing that stock-heavy portfolios allow retirees to safely withdraw more money each year and result in more capital appreciation. Historical data shows that portfolios with higher allocations to equities resulted in higher safe withdrawal rates and significant surpluses even after 30 years of retirement spending.

However, it is important to consider your risk tolerance when deciding on your stock allocation. As you get closer to retirement, your risk tolerance decreases, and you may not be able to afford any wild swings in the stock market. Therefore, it is generally recommended that retirees take a more conservative approach to their portfolios, with a lower allocation to stocks and a higher allocation to bonds.

A common approach is to have a 60/40 portfolio, with 60% in stocks and 40% in bonds. This allows retirees to balance potential capital appreciation and income generation while mitigating risk. The stock portion can include a mix of value, growth, and dividend-paying stocks, while the bond portion can include fixed-income securities, cash equivalents, and other investments.

It is important to note that there is no one-size-fits-all approach to stocks and bonds allocation in retirement portfolios. The right mix will depend on individual circumstances, risk tolerance, and financial goals. Working with a financial advisor can help retirees determine the appropriate allocation and stress-test their portfolios to understand how they would fare in different market scenarios.

Real estate

Own Your Home

Your home is likely your most valuable asset, so it can be a significant part of your retirement planning. You can utilise your home equity in various ways, such as downsizing or leveraging equity to fund long-term care.

REITs are investments in a collection of properties or other real estate assets, similar to a mutual fund. They offer high dividends, easy entry, diversification, liquidity, and no management hassle. However, they may have burdensome taxes and low principal growth.

Buy, Improve, and Flip

This strategy involves purchasing a property with the intention of selling it for a profit after making improvements. It can be profitable but also carries risks, especially if you lack the necessary real estate knowledge, home improvement skills, access to cash, and financial expertise.

Purchase Residential Property and Rent it Out

This traditional form of real estate investing requires consistently finding tenants who pay enough rent to cover the mortgage, insurance, taxes, and maintenance. It offers the potential for above-average returns, cash flow from rent, and tax benefits. However, it can be time-consuming, stressful, and requires significant upfront capital.

Purchase Commercial Property and Rent it Out

Experts suggest that owning commercial property can be more profitable than residential real estate, but it may also have more risk, complexity, and require a larger initial investment.

Purchase Commercial Property and Run Your Own Business

Owning the property where you run your business can increase your long-term wealth and monthly income by reducing expenses.

Buy a Vacation Home and Rent it Out Part-Time

This strategy involves renting out a vacation property to tenants for shorter periods. It may offer more predictable rentals in highly desirable locations and the opportunity to enjoy the home yourself. However, it can be expensive, seasonal, and may require hiring someone for maintenance and management.

Crowdfunding

Crowdfunding is a newer way to invest in real estate with smaller amounts of money. It allows you to select specific projects and have a voice in the investment process. However, it requires industry knowledge, and there is less liquidity compared to REITs.

Annuities

There are several types of annuities available, including fixed, variable, indexed, deferred, and immediate. A fixed annuity offers a guaranteed rate of return on the investment, whereas a variable annuity allows for potential growth by investing in mutual funds or other assets, but comes with higher investment expenses. Indexed annuities track the rate of return on an index, such as the S&P 500, offering the benefit of locked-in gains without the risk of losing the principal amount. Deferred annuities allow the annuitant to start payouts at a future date, while immediate annuities begin payouts within a year of depositing a lump sum.

Frequently asked questions