Safe Investing for Seniors: Takeaways
- According to the Federal Reserve, the average American age 65-74 has a retirement savings of $164,000; however, experts recommend having far more saved.
- Several safe investment options for seniors, like high-yield savings accounts, can help older adults earn 4% yearly returns.
- Software like Retirable can help people independently manage their investments. To learn more, read our review of Retirable.
FYI: Did you know that you can create an estate plan online for under $200? To learn how to get started, read our review of LegalZoom estate planning.
Why Should Seniors Invest Their Money?
While seniors should reduce the risk in their investment portfolios––as they no longer have the rising incomes of a full-time job––investing money safely can help prolong one’s retirement funds.
However, with safer investment options and a diverse investment portfolio, seniors can have peace of mind and earn money with minimal risk. For example, safe investing can be a good option for seniors looking to pass down money to family members or pay for long-term care.
FYI: Investments should play a part in your overall estate plan. Read my guide, What Is Estate Planning, to learn about other important factors.
What Seniors Should Look for When Investing
When determining the safest ways to invest, you should consider the following:
- FDIC-insured accounts: Get peace of mind knowing that your deposits are federally protected. The insurance amount is currently $250,000 for certain investment options.
- Low-risk, low-return investing: If you’re not a risk-taker, that’s okay. Safe investment options may offer low risk and low returns, but it’s helpful if you’re looking for a way to generate passive income long-term without rolling the dice.
- Diversification: For low risk, focus on the future of your long-term investments. Consider diversifying your investment portfolio with multiple safe investment options like high-yield savings accounts and bonds instead of relying on Social Security or retirement savings. It’s always better to have more options when it comes to retirement income.
- Safe investing apps and resources: Educate yourself by downloading safe investing apps and resources or speaking with a financial advisor.
Did You Know: Diversify your investment portfolio. If you’re not into stocks, low-risk investments such as high-yield savings accounts and CDs can be great alternatives.
Six Safe Investments for Seniors
High-yield savings accounts
High-yield savings accounts offer higher interest than traditional ones, helping to grow your money passively. This safer investment option is FDIC-insured so you won’t have to worry about major financial risks involved or monthly fees. Additionally, the interest is compounded every day, which may give you an incentive to save your money and watch it grow faster than you could with a traditional savings account.
For example, if you were to deposit $25,000 of your savings into an AMEX high-yield savings account at 0.40% annual percentage yield (APY) for five years with zero monthly deposit, you’d earn $504 in interest. For some people, this might be a safer investment option compared to investing in stocks or other high-risk investments like dividend-paying stocks, which rely on the company to pay dividends. That said, with rising inflation and costs of living, the interest earned on these accounts may prove to be negligible.
Why invest: When you choose an FDIC-insured institution with a higher APY, you’ll enjoy the benefits of a safer return on your money. Currently, traditional savings accounts offer lower average APY than most high-yield savings accounts.
Potential risks: Interest rates may differ depending on the bank you choose. While this money is still accessible when you need it, you may be subject to penalties for withdrawing it or making several transactions. Check with your institution for its policies and restrictions. If you withdraw or transfer funds often, you might want to reconsider another option such as a certificate of deposit.
Benefits: A high-yield savings account is an option that almost guarantees you won’t lose money.
Tip: Did you know that Medicare will cover the cost of many home modifications? Read my guide to Medicare Home Modifications to learn more.
Certificates of deposit
Certificates of deposit (CDs) are one of the safest investment options for seniors because a fixed amount of money can be put away for a fixed amount of time to generate a guaranteed return. These can be purchased at banks, brokerage firms, and credit unions, with the bank paying higher fixed interest on the fixed amount. It’s a savings account with a fixed money rate over a period of time.
Similar to an FDIC-insured high-yield savings account, CDs are insured up to $250,000. You’ll receive the money you invested, plus the interest when you redeem the CD.
Why invest: When you invest in a CD, you won’t have to worry about changing interest rates. You can enjoy higher interest rates on your deposit and no monthly fees.
Potential risks: Some seniors might be vulnerable to fraud from people claiming to be deposit brokers. It’s important to research and review the official online database to check the individual’s affiliation. There’s also usually a penalty if you need to withdraw the funds before the fixed term is over. CDs are not intended for people who want to have access to their funds. Essentially, you can withdraw the money you put in and the interest it earned only after the CD has matured.
Benefits: In general, CDs tend to have zero risk and higher interest rates than traditional savings accounts. The rates are fixed, unlike APYs for other accounts. Plus, if you’re not looking to take risks, CDs provide a guaranteed return on your investment.
FYI: To learn about how these investment options can play into an inheritance, read my guide to living wills.
Treasury bills, notes, bonds, and TIPS
If you’re interested in short-term investment options, look into Treasury bills, notes, bonds, and Treasury inflation-protected securities (TIPS). For example, Treasury bills are good short-term investment options that range from a few days to several weeks, according to Treasury Direct. Also, TIPS pay interest every six months over the span of five or 10 to 30 years. If you go with Treasury bonds, the maturity rate is longer — up to 30 years, with interest paid every six months.
Why invest: Do you need an alternative source of steady income? This might be a good investment for retirement if you’re not into high-risk investments. For example, as an investor, you use the principal, or initial investment, to purchase bonds or other-short term investments that will mature over time. You’ll eventually get a guaranteed payment from the government or a corporation.
Potential risks: Unfortunately, unlike high-yield savings accounts, which are FDIC-insured, individual bonds are not FDIC-insured. However, since you’re investing with the government, getting your money back is a guarantee. Also, with Treasury bonds, keep in mind that you might get a lower rate of return compared to other options.
Benefits: Consider Treasury bills, notes, bonds, and TIPS if you’re looking for consistent income and the safety and security of guaranteed, risk-free interest income from corporations/banks after the investment matures.
Dividend-paying stocks
Well-established companies will usually pay dividends to shareholders. People who would like to see a more consistent or steady income source should consider dividend-paying stocks as a safer investment option.
Why invest: For those who enjoy having a security blanket over their investments, dividend-paying stocks might be an option. Companies will pay a decent amount of dividends that lead to a more consistent flow of income for seniors.
Potential risks: There’s no guarantee for a risk-free return because a company could decide to make changes and stop paying dividends.
Benefits: According to Fidelity, dividend-paying stocks provide an opportunity for shareholders to receive income even when the stock market isn’t doing well. In general, dividend-paying stocks are less risky because shareholders will still receive dividends. Well-established companies that pay dividends offer stability and a reliable and constant flow of income for shareholders.
Did You Know: To protect your assets, you should guard your personal information. Read my guide to senior citizen identity theft to learn more.
Money market accounts
Money market accounts essentially operate as a type of savings account, except they may offer higher interest rates and incentives the more money you deposit. Plus, they’re FDIC-insured up to $250,000 and a good short-term investment option for those new to investing or hesitant about investing.
Why invest: If you’re receiving a very small APY, or none at all, on your traditional checking account, a money market account likely offers a higher rate. You can also easily withdraw funds immediately for emergencies. Accessibility is the main reason why many retirees might consider money market accounts in tandem with savings accounts.
Potential risks: While opening a money market account might be enticing, you should consider the fact that the APY might be similar to the rate offered by a traditional savings account. Additionally, there will usually be a minimum balance that must be maintained. Keep in mind that there may also be monthly fees or restrictions on how much you can withdraw, depending on the institution.
Benefits: With money market accounts, you can easily access your money and have the reassurance of it being FDIC-insured.
Fixed annuities
Fixed annuities fall under the safe investments category for seniors. They are contracts, or financial products, that offer guaranteed returns for a period of time.
Why invest: You’re likely to benefit from this safe investment option if you’re looking for a guaranteed income stream with minimal risk.
Potential risks: Unfortunately, if you withdraw funds too early, you may be penalized. Also, there is something called a variable annuity, in contrast to a fixed annuity, which involves taking greater risks with your investment. Other drawbacks include high fees and a lack of liquidity.
Benefits: Annuities are complex, so be sure to speak with a financial advisor to learn more about them. In terms of gains, this safe investment choice provides guaranteed returns and retirement income for peace of mind.
Pro Tip: For more tips about fixed annuities, visit A Guide to Annuities for Seniors at The Senior List.
Bottom Line
There are plenty of safe investment options for those nearing retirement or who have already retired. If you’re not sure about the fine print behind each of these options, be sure to consult with a financial advisor or certified financial institution for more advice and help.
Seniors and Investments Frequently Asked Questions
- What is the safest investment for seniors?
Treasury bills, notes, bonds, and TIPS are some of the safest options. While the typical interest rate for these funds will be lower than those of other investments, they come with very little risk.
- What should a 70-year-old invest in?
The average 70-year-old would most likely benefit from investing in Treasury securities, dividend-paying stocks, and annuities. All of these options offer relatively low risk.
- What is the safest investment with the highest return?
A high-yield savings account will always be the safest investment, as there is virtually no risk of losing any money; however, the interest rate will be pretty low.
- What is the best investment for a retired person?
REITs are likely the best investment option for a retired person, as they generally offer higher returns of 2% to 3%, and the risk is relatively low.
- Where is the safest place to put your retirement money?
While no investment is ever entirely safe, savings accounts and Treasury securities are the most secure places to invest, though their returns will be relatively low.
