Retirement often comes with worries about earning enough income from investments, while also preserving hard-earned money.
Today’s retirees are in an especially tricky spot. Interest rates are still relatively high, inflation has started to edge back up and stocks have been volatile.
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In addition, the old-fashioned bond portfolio won’t generate enough growth to sustain a retirement lasting 30 years or more, given current longevity rates.
That makes playing it safe more complicated than it sounds.
“Retirees often confuse ‘low risk’ with avoiding losses, when in fact it’s equally about matching the right tool to the right time horizon,” says Shanon Davis, CEO of American Alternative Assets in Los Angeles.
Rethinking Low Risk in Retirement
That’s where a more deliberate approach comes in.
“Retirement investors need a clear-headed strategy that utilizes a diversity of stable wealth preservation tools so that their money can last longer and, ideally, continue to grow over time,” he adds, noting that there’s no single investment vehicle or asset class that can guarantee this.
“So diversification should be top of mind for retired folks and those planning for retirement,” Davis says.
Here are eight low-risk investments that shouldn’t be viewed as a portfolio, but instead as discrete assets that could add capital preservation and income generation into a broader allocation:
— U.S. Treasurys
— Treasury inflation-protected securities (TIPS)
— High-yield savings accounts
— Money market funds
— Investment-grade bonds
— Certificates of deposit (CDs)
— Municipal bonds
— Fixed annuities
U.S. Treasurys
U.S. Treasurys have long been considered ultra-safe fixed-income investments, but with deficits rising and borrowing needs increasing, do longer-term bonds still hold up?
“Despite rising fiscal deficits, we still believe Treasurys deserve a place across the maturity spectrum,” says Brian Therien, a chartered financial analyst and senior analyst of investment strategy at Edward Jones in St. Louis.
Therien says Washington has tools to deal with growing debt, including spending cuts, passing costs to states or raising taxes.
“In addition, higher productivity, perhaps driven in part by technology and artificial intelligence, could accelerate economic growth, potentially boosting tax revenues and helping narrow deficits over time,” he adds.
Treasury Inflation-Protected Securities (TIPS)
With inflation still very much in the picture, and with oil prices rising, retirees may want to take a look at these fixed-income instruments. TIPS are U.S. government bonds whose principal adjusts with inflation, helping preserve purchasing power over time.
“TIPS may be overlooked in part because of their smaller market size. At about $2 trillion outstanding, TIPS represent a relatively small portion of the roughly $50 trillion U.S. bond market,” Therien says.
He adds that the most appropriate use of TIPS is to protect income from an upside surprise in inflation, rather than to serve as a general inflation hedge. Bond markets already build in expectations for inflation, so TIPS tend to do better when inflation turns out higher than investors expected.
“The opposite is also true: TIPS may underperform if inflation turns out to be cooler than expected,” Therien says.
High-Yield Savings Accounts
Want better rates than you’ll find in a typical savings account, while also getting easy access to your money? A high-yield savings account may be the place to stash funds you’ll need within the next year or so.
“Even though rates have come down, top-paying accounts are currently offering 4.3% to 4.6% with full FDIC insurance and daily liquidity,” says Mike McCracken, president and founder of Wealth Guide Financial in Maple Grove, Minnesota.
“For emergency funds or near-term expenses, this is often the smartest, lowest-stress place to keep cash right now,” he adds.
Money Market Funds
Retirement investors frequently turn to money market funds for easy access, minimal risk and decent yields. However, be aware: Yields will drop if the Federal Reserve continues slashing rates.
“They’re still useful for very short-term cash, but I generally recommend moving money you won’t need for at least six to 12 months into slightly longer-term options, such as short CDs or fixed annuities, before yields fall further,” McCracken says.
Short-term rates still look pretty good, with cash and money market funds yielding around 3% to 4%. That’s solid for now, but if rate cuts continue, those yields likely won’t stick around.
[Read: What Is the Safest Investment With the Highest Return?]
Investment-Grade Bonds
The yield on investment-grade bonds is higher than Treasurys, but investors should understand that investment grade doesn’t mean risk-free. In fact, their additional yield above what Treasurys pay is intended to compensate investors for taking on the risk of corporate default, Therien says.
In other words, corporations can fail, while the federal government has more flexibility to meet its obligations. “As with any investments, holding these bonds directly can give investors maximum visibility into what they own,” Therien says.
Bond mutual funds and exchange-traded funds are often easier to use, giving investors diversification along with a clear look into holdings, credit quality and yield.
Therien suggests diversifying bond holdings across issuers, sectors and the maturity spectrum to help manage risk.
Certificates of Deposit (CDs)
With more rate cuts expected, should investors lock in higher rates now? Certificates of deposit, or CDs, are instruments that require investors to leave their money alone for a set period, so liquidity is limited.
“If you believe rates are heading lower, CDs offer an excellent opportunity to lock in today’s yields at zero market risk,” says Davis. “The trade-off, of course, is liquidity, since these assets are locked in until maturity.”
That’s why some risk-conscious investors ladder their CDs, buying several with different maturities to balance access and yield.
But the success of that strategy now depends on where rates go next. If they fall, locking in today’s yields could pay off. But if inflation forces rates higher, investors could be stuck with below-market returns.
Municipal Bonds
If you’re in a higher tax bracket, tax-free income is a pretty good deal. So why do relatively few retirees use these bonds, issued by cities, states or other municipalities?
Municipal bonds are issued by state and local governments to fund projects like schools, roads and hospitals, and they typically pay interest that’s exempt from federal taxes.
But many retirees are in low tax brackets, which reduces the benefit of municipal bonds.
“I also caution clients to look at credit quality and diversification,” McCracken says. “Not all munis are created equal, and some carry more risk than people realize.”
Fixed Annuities
Annuities can be controversial, in part because of complex features and high costs. But with markets this unpredictable, is a guaranteed income stream worth a serious look?
“When markets are volatile, retirees often shift their focus from returns to reliability,” says Tom Buckingham, chief growth officer at Nassau Financial Group in Hartford, Connecticut.
“The question becomes whether essential expenses will be covered regardless of what the market does next,” he adds. “Fixed annuities, including fixed indexed annuities that offer guaranteed income features, are designed to provide predictable income and help protect against market volatility and the possibility of outliving savings.”
He cautions that guaranteed income plays a different role than how people often think about traditional investments, in that the goal is not to outperform the market. Instead, the aim is to create a stable income base in retirement.
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8 High-Return, Low-Risk Investments for Retirement originally appeared on usnews.com
Update 04/09/26: This story was published at an earlier date and has been updated with new information.