Safest Investment for Retirement

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Contributor, Benzinga
July 3, 2023

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Planning for retirement involves more than just making 401(k) contributions and applying for Social Security benefits once you're eligible. 

Properly implemented, a well-designed retirement plan and investment portfolio can ensure a great quality of life during your golden years. 

Whereas young investors may prioritize growth and be comfortable with taking on risk, retirees often emphasize safety, looking to preserve their nest egg so it lasts for the rest of their life. To achieve this goal, they may turn towards a variety of safe investments.

But with the overwhelming range of options, which ones are the safest bets for your golden years? This comprehensive guide walks you through the safest investments for retirement, detailing the why and the how of these financial tools.

Why Safety is Important When Investing for Retirement

As you approach retirement, the focus of your investment strategy often shifts from wealth accumulation to wealth preservation. The primary reason for this shift is the reduced ability to recover from significant market downturns as you get older. 

Because of a shorter investment time horizon as you age, you no longer have the luxury of waiting out a bear market or recovering from a market crash. There's less time to bounce back from a potential loss, and given that you might be drawing on your investments for income, you may not have a regular paycheck to cushion the blow and allow your portfolio to recover. 

This is called sequence of return risk, which refers to the danger of receiving lower or negative returns early in a period when withdrawals are made. If your retirement coincides with a bad bear market and you start drawing down your assets, you could quickly deplete your portfolio.

Consider the hypothetical example of John, who held a risky 100% stock portfolio composed solely of an S&P 500 index fund. John retired in 2000 with a portfolio of $1 million dollars. Unfortunately, he chose quite a bad time to retire. As soon as he did, the dot-com bubble hit, leading to three years of bad market returns. Then, the 2008 financial crisis hit. 

To fund his living expenses, John withdrew $50,000 from his portfolio every year. However, because of the sequence of return risk, John's portfolio did not survive. He ran out of money by 2017.

On the other hand, you have Dave. Dave understood the importance of sequence of return risk and elected to keep some of his nest egg in safer investments. Putting this into play, Dave invested his $1 million dollar portfolio 50% in an S&P 500 index fund, 30% in a bond fund and 20% in cash. 

Despite also retiring in 2000 and suffering the same market catastrophes as John did, Dave's portfolio survived the ensuing years of $50,000 in annual withdrawals, with a final portfolio value of $421,618 by 2017.

As you approach retirement, a shift towards safer investments with lower volatility is generally advisable. By selecting safer investments, you can guard against dramatic swings in portfolio value and provide a steady income stream, contributing to financial stability in your golden years. Safe investments may not offer the high returns of riskier assets, but they provide the peace of mind that the money you need will be there when you need it.

8 Best and Safest Investment Options for Retirement

Now that you understand why safety is a critical factor when investing for retirement, let's dive into some of the best and safest investment options for your golden years. These assets can provide a solid foundation for your retirement portfolio, offering stability, dependable returns and lower risk.

1. Certificates of Deposit (CD)

A CD is a type of bank savings product that promises safety of principal and interest income. When you invest money in a CD, that money is locked up for a predetermined period, during which you receive interest payments. Upon maturity, your money is returned to you. CDs do not fluctuate in value and are backed by Federal Deposit Insurance Corporation (FDIC) protection, meaning that they are insured up to a certain limit. 

2. Treasury Bills 

Treasury bills are short-term bonds issued by the U.S. government that mature in under a year. As an investment, Treasury Bills have virtually no interest rate risk because of their short maturity and have virtually no default risk because of the high credit rating of U.S. government-issued debt. When you buy a Treasury bill, you get it at a discount to its face, or stated value. Upon maturity, you can redeem it for its face value. 

3. Money Market Funds

Money market funds are a type of mutual fund that invests primarily in short-term, high-quality and very liquid fixed-income securities, which can include Treasury bills, repurchase agreements and commercial paper. These funds are designed to maintain a stable net asset value per share of $1 to eliminate volatility and payout steady monthly interest. However, they are not entirely risk-free, as there have been rare cases in history where money market funds have lost value. Still, they are considered very safe compared to stocks and bonds. 

4. Ultra-Short-Term Bond ETF

Ultra-short-term bond exchange-traded funds (ETFs) work like money market funds do, by holding a portfolio of corporate, Treasury or municipal bonds with very short maturities and high credit qualities. They tend to have both low interest rates and credit risk. However, unlike money market funds, their share price is not fixed and can fluctuate more. Many of these ETFs will also pay out monthly interest

5. Annuities

Annuities are financial products designed to provide a steady income stream. You make an investment in the annuity, and in return, it makes payments to you, either immediately or in the future. Annuities are considered safe investments for retirement because they can provide a guaranteed income stream for a specified period or even for life, depending on the terms of the contract and the type of annuity. However, they can also be complex and have high fees, so make sure to read the fine print before investing. 

6. Buffer ETFs

Buffer ETFs, also known as defined outcome ETFs are a special type of investment fund that uses derivatives like options to cap losses. For example, a buffer ETF may protect against a fixed percentage of losses over a specific period, usually one year. While not entirely risk-free, buffer ETFs can help retirees lower risk by replacing a portion of their portfolio's equity allocation. However, these products are complex and may come with higher fees. 

7. Money Market Accounts

Not to be confused with money market funds, which are investment products, money market accounts are bank savings products. These accounts work like regular savings accounts but usually pay out higher interest rates. Sometimes, they offer linked debit cards or cheques. Like CDs, money market accounts benefit from FDIC protection, which makes them very safe. 

8. High-Yield Savings Account (HYSA)

Another safe bank savings product is the HYSA. These accounts function similarly to regular savings accounts but can pay a higher interest rate. However, they usually have limits with respect to how many transactions you can make and may require a minimum account balance. As a bank savings product, HYSAs benefit from FDIC protection. 

How to Determine the Best Investment Option for You

These eight options for safer investments are just suggestions. At the end of the day, the choice of which best suit your retirement needs will depend on two main factors.

  • Risk tolerance: How much volatility and unrealized losses can you stomach in your portfolio without panic selling or impacting your quality of life?
  • Time horizon: How long do you expect your retirement portfolio to last? This will be dependent on your expected post-retirement lifespan. 

For example, a 55-year-old early retiree with a very large portfolio and a long, healthy expected lifespan may opt to keep 60% in stocks, 30% in bonds and 10% in cash, to ensure a balance between growth, capital preservation and income. Their goal may be to not outlive their portfolio.

On the other hand, a 65-year-old retiree with a more modest portfolio and health issues may opt to keep 40% in stocks, 40% in bonds and 20% in cash to ensure that they're able to fund income needs and healthcare costs even during a prolonged market downturn.

Keep in mind that these examples are hypothetical, and it's a good idea to consult a certified financial planner with your specific circumstances. 

Invest for Retirement with These Top Brokerages

Not quite ready to retire yet? Consider optimizing your portfolio instead by investing in stocks and funds. To access these assets, you'll need a broker. To help you make the best choice, Benzinga has ranked some of the best brokerages nationwide so you can get the best bang for your pick. Check out this curated list of top brokerages below to get started.

Safety is a Mindset, Not an Investment

At the end of the day, finding the safest investment is less important compared to developing a safety-oriented investment mindset. It means being aware of your financial circumstances, planning for a wide range of emergencies and understanding all your investment options. 

The eight types of safer investments presented earlier can help you reach your retirement goals, but they aren't sufficient on their own. Good investment behaviors and solid planning will play a much larger role in setting you up for success. 

Frequently Asked Questions 


What is the safest investment with the highest return?


The safest investment with the highest return is Treasury bills, owing to their risk-free nature thanks to a combination of virtually no interest rate or credit risk. As of June 30, 2023, the three-month Treasury bill rate is 5.18%.


What is safer than a 401(k)?


The 401(k) is a type of retirement account, and its safety depends on the type of investment held within it. A 401(k) invested in equity mutual funds can be risky, whereas one invested in money market funds is safer.


What investments are guaranteed to not lose money?


The only investments guaranteed to not lose money are insured bank savings products, such as CDs, money market accounts and HYSAs. These investments benefit from FDIC protection, which guarantees their value even if the bank becomes insolvent. However, there are limits on how much can be insured, so be sure to not exceed this limit.

Tony Dong

About Tony Dong

Tony Dong, MSc, CETF®, is a seasoned investment writer and financial analyst with a wealth of expertise in ETF and mutual fund analysis. With a background in risk management, Tony graduated from Columbia University in 2023, showcasing his commitment to continuous learning and professional development. His insightful contributions have been featured in reputable publications such as U.S. News & World Report, USA Today, Benzinga, The Motley Fool, and TheStreet. Tony’s dedication to providing valuable insights into the world of investing has earned him recognition as a trusted source in the finance industry. Through his writing, he aims to empower investors with the knowledge and tools needed to make informed financial decisions.