Best Investments for Retirees

Benzinga Money is a reader-supported publication. We may earn a commission when you click on links in this article. Learn more.

You’ve done it—you’re getting ready to enter your golden years, hang up your hat, and retire.

However, retirement can introduce cash flow management challenges. Luckily, there are plenty of places for you to invest without risking your life savings to the whims of the stock market. If you’re getting ready to retire, consider investing in one of these reliable assets for retirees.

What retirees should look for in an investment

If you’re about to retired and looking to invest, your ideal investments will look drastically different than those of a 20, 30, or 40-year-old. Here’s what to look for in the best investments (and why!)

Low risk

If you’re already in retirement, you don’t have time to wait for compounding interest to produce profits for you, and you don’t have time to wade through market cycles.

Volatile investments have the potential to totally wipe out retirees’ savings and should only be undertaken by the most knowledgeable and careful investors. Securities that have low levels of risk and a guaranteed return are the best choices for those entering retirement.

Moderate returns

With risk comes reward. However, when you’re approaching retirement, you should be more conservative with your investments than if you were 20 years old.

However, this does not mean giving up on profits and investing entirely. Instead of investing in assets that have a high potential for return (and thus higher levels of risk) look for assets that have a proven track record of providing returns to their investors while managing risks.

High liquidity

Most people spend at least a decade in retirement—that means that you’ll need to plan on covering over 10 years’ worth of housing, medical and living expenses.

Assets with a high liquidity (those that can be bought and sold easily because there are a large number of interested buyers) are better for retirees because they can be quickly cashed out if a sudden, urgent expense presents itself.

The best investments for retirees

Here are the best investments for retired people. As stated above, they’ll be liquid, have moderate returns, and low risk.

1. U.S. Treasury bonds

U.S. Treasury bonds are a form of long-term security that pays semi-annual interest increments twice a year.

Though the interest you will see on your bonds is exempt from state and local taxes, you will still have to set aside a portion of your interest for federal taxes. Treasury bonds come in 30-year increments and earn interest until they reach maturity. Once the bond has matured, you will also receive the principal amount paid in back.

There are a number of ways that you can purchase U.S. Treasury bonds. Most brokerage firms offer the purchase of Treasury securities, and you can add them directly to your IRA or 401(k) by making a buy and specifying that you would like your money to go towards Treasury securities.

The simplest and most direct way to buy if you do not have a broker or retirement account open is to visit TreasuryDirect and purchase the bonds through non-competitive bidding—this means that you are guaranteed to receive the number of bonds that you agree to purchase at the close of the auction.

Growth of $1 invested in stocks vs bonds over a 49 year period. Source: RussellIinvestments.com
Growth of $1 invested in stocks vs bonds over a 49 year period. Source: RussellIinvestments.com

2. U.S. Treasury Inflation-Protected Securities

Treasury inflation-protected securities (TIPS) are a government-sponsored treasury security used as a vehicle for treasury debt—much like treasury bonds.

Unlike Treasury bonds, however, these securities pay both interest and additional principal to compensate for the current rate of economic inflation.

TIPS come in denominations as low as $100 and it can be 5, 10, or 30 years before they mature. Thanks to the interest-adjusted return rate, TIPS are one of the safest investments that retirees can make, an ideal choice for anyone close to retiring.

This low rate of risk unfortunately also means that TIPS generally have much lower interest rates when compared with other securities and stock options.

3. Target retirement mutual funds

Target retirement funds are a subset of mutual funds that place your money into a diversified set of assets that have been specifically chosen to help you retire by a date you’ve chosen.

Target retirement funds are a great choice for investors who still have a few years until retirement and are looking for a managed and less-risky way to protect their savings and retire on time.

When choosing a target retirement fund, look for one that matches the year you’re aiming to retire—for example, making a buy into Vanguard’s Target Retirement 2020 Fund will place your money into a very conservative set of assets as to not jeopardize your 2020 retirement date.

If you are looking to buy into a hands-off investing course aimed solely at retiring in the near future, target retirement funds are a simple investing option suitable for most retirees.

Still have more than a few years to go before retirement? Target retirement funds can also be useful for the younger investor, as they are actively rebalanced and become progressively more conservative as you approach your date of retirement.

However, keep in mind that these funds are actively managed and typically carry higher expense ratios than index funds—so if you are an investor in his or her 20’s or 30’s and you have a large number of years until you retire, investing in an index fund or another type of successful mutual fund can help you reinvest more of your interest and save money over time.  

4. Municipal bonds

Municipal bonds are debt securities issued by local and state governments that are used to fund various everyday projects, such as building roads, funding schools and maintaining water treatment facilities.

There are two types of municipal bonds: general obligation bonds (which are not secured by an asset but by the “full faith and credit” of the issuing body) and revenue bonds (which are backed by the revenues stemming from a specific project, like highway tolls).

Municipalities may also occasionally issue bonds backed by private venues, including non-public universities and hospitals. Municipal bonds may be short term in length, lasting only a few years, or they may take a decade to reach maturity.

Municipal bonds are a smart investment for retirees because, unlike other types of investments, you do not have to pay income tax on the interest these bonds earn. Bonds are generally considered to be a less-risky form of equity, and the interest rates of municipal bonds are generally about 0.2% higher than longer-term Treasury bonds.

Looking to learn more about municipal bonds? You can research a number of bonds for free at the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access (EMMA) website, and learn more about price history and the mission statements behind currently-available bonds on the market.

5. Real estate investment trusts

Real estate investment trusts (REITs) are a special type of company that invests solely in income-producing real estate related ventures, including the purchase and maintenance of apartment complexes, warehouses, commercial real estate, hotels, and other types of real estate.

Occasionally, a REIT will also fund outside real estate investments in the form of mortgages. In order to avoid liability for U.S. income tax, REITs are legally required to pay out at least 90% of their taxable income to investors, though many aim for a full 100% payout.

This makes REITs a particularly profitable investment, high payouts and dividends can typically be expected. A number of mutual funds (like the Vanguard Real Estate Investors Share or the Schwab U.S. REIT ETF) invest in a large number of REITs—you can think of investing in one of these funds as investing in the American real estate market as a whole.

With a moderate level of diversification and high returns, REIT-focused mutual funds can be an ideal investment for retirees. Purchasing direct REIT stocks is less recommended for those looking forward to an approaching retirement, as they do not come along with the level of asset diversification that mutual funds do, making them a riskier investment.

6. High-dividend stocks

Individual stocks are usually not a recommended investment for retirees because they can fluctuate wildly in value in a short amount of time, meaning that there is the potential that investors can lose all of the money that they put in.

However, investing in a stock that pays high annual dividends can provide a retiree with short term income in the form of profit sharing, and savvy retirees can sell their stocks if their income stream dries up.

What qualifies as a “high dividend” is subjective and will depend heavily upon the industry in which you are investing. As a general rule, annual dividends of over 4% are worth your time.

Business development companies, utilities, and telecommunications corporations and closed-end funds are all great subsets of the stock market that typically see more dividends. However, as is the case with all stocks, there is the possibility of a market downturn and lost value.

Final thoughts

Reaching retirement doesn’t have to mean the end of your investing career. No matter if you’re already enjoying your retirement or you’ve still got a few more years to make the most of your money, it’s never too late to learn more about making smart movements with your assets.

Looking to invest in yourself first? A free or low-cost investment course is a great place to start—no matter where you are in your retirement planning process. Check out Benzinga’s list of the best online trading courses you can sign up for right now.

Compare Online Brokers
Broker Commission Account Min Get Started

$0 $0 Learn More

$0 $6.95 for OTC Stocks $0 Learn More

$0 $0 Learn More

FREE $0 Learn More

$0 $0 Learn More

Free $0 Learn More