Popular Low-Risk Investments for Retirees

Many retirees seek to preserve their savings while generating steady income, which leads them to consider the safest investments for retirement. Options such as certificates of deposit (CDs), Treasury securities, annuities and certain bond funds can provide predictable returns with relatively low exposure to market swings. However, slightly riskier assets like dividend stocks and preferred stocks may also have a place in a retiree’s portfolio. While no investment is entirely free of risk, these choices are often favored by those looking to balance income needs with capital preservation during their retirement years.

A financial advisor can guide you in selecting investments for your specific retirement needs.

1. Bonds

Bonds are fixed-income securities that pay interest to the bondholder at regular intervals. Issued by governments and corporations, they are often considered a safe investment. Bonds can offer income stability through regular interest payments and therefore provide a predictable income stream to cover living expenses. Bonds also come with a lower risk of principal loss when compared with stocks.

U.S. Treasury securities, including Treasury bills, notes and bonds, are widely viewed as among the safest fixed-income investments available, backed by the full faith and credit of the U.S. government.

Diversification strategies for retirement portfolios often include bonds as a stabilizing asset that aims to reduce overall risk. With their fixed interest rates and maturity dates, bonds provide predictability and ease of financial planning, and they can help preserve capital. Retirees may also choose bond funds, which offer diversification across many bond issuers and maturities, providing steady income and simplifying portfolio management.

Bonds are generally less volatile than stocks, which can be particularly appealing to retirees seeking stability in their investments. Additionally, bonds offer liquidity, allowing retirees to access their funds when needed.

It’s important to consider that the safety of bonds can vary based on the issuer’s creditworthiness. Government bonds, particularly from financially stable countries, are often considered the safest. Corporate bonds may carry more risk, depending on the financial health of the issuing company. Retirees should assess their risk tolerance, investment goals and time horizon before investing.

2. Certificates of Deposit (CDs)

Certificates of deposit (CDs) are time-bound deposits held with banks that offer a fixed interest rate. CDs offer income stability through fixed interest rates and predictable maturity dates. Retirees can rely on regular interest payments, which can help cover living expenses and maintain financial stability.

Second, they come with a high degree of principal protection. The initial investment in a CD is typically insured up to a certain limit by the Federal Deposit Insurance Corporation (FDIC) in the United States, providing a strong safety net for retirees against potential losses.

Like bonds, CDs offer capital preservation and are generally less volatile than stocks, making them a suitable option for risk-averse retirees looking to safeguard their savings. However, CDs are less liquid than investments like bonds, which can be traded on a secondary market.

However, the drawback is that the returns on CDs are usually lower when compared with other investment options, like stocks or bonds. Retirees should carefully consider their financial goals and risk tolerance when incorporating CDs into their retirement strategy, keeping in mind that they may trade higher returns for increased security and stability in their investment portfolio.

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3. Dividend-Paying Stocks

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Dividend-paying stocks are shares in established companies that distribute part of their profits to shareholders. These stocks can be a valuable component of a retiree’s investment portfolio for several reasons. They offer a consistent income stream through regular dividend payments, helping retirees cover their living expenses while potentially enjoying income growth over time. These stocks also have the potential for capital appreciation, which can help retirees keep pace with inflation and potentially grow their wealth.

Including dividend-paying stocks in a retirement portfolio could also add diversification, spread risk and enhance overall returns. And some tax advantages may be available for qualified dividend income, further benefiting retirees.

However, it’s important to recognize that dividend-paying stocks come with greater volatility and risk when compared with bonds and certificates of deposit. Their value can fluctuate with the stock market and there is no guarantee of continued dividend payments. Therefore, you should carefully consider the financial health and track record of a company before investing.

4. Preferred Stock

Preferred stocks can be a distinctive addition to a retiree’s investment portfolio. Known for fixed dividend payments that provide a reliable income stream, these assets also typically offer higher yields when compared with traditional bonds and common stocks, making them an appealing choice for retirees seeking income.

Additionally, preferred stockholders enjoy priority in asset claims over common stockholders in cases of a company’s financial distress or liquidation, offering an additional layer of security to these investments. Including preferred stocks in a portfolio can also contribute to diversification, helping to spread risk and potentially improve overall returns.

However, it’s essential to recognize that preferred stocks generally do not offer significant capital appreciation potential like common stocks. While their dividend payments are more predictable than common stock dividends, they may be less secure than bond interest payments. They can be subject to suspension or reduction if a company faces financial difficulties.

5. Annuities

Annuities are insurance contracts that can provide a guaranteed income stream, which could make them an attractive option for some retirees. These financial products provide tax-deferred growth, which can help retirees maximize their savings and potentially reduce their tax burden, contributing to long-term financial security.

Additionally, some annuities offer guaranteed income options and flexible payout choices, allowing retirees to tailor their investments to their specific needs and preferences. Nevertheless, annuities come with certain drawbacks, including fees and expenses that can reduce overall returns and potential surrender charges for early withdrawals.

Furthermore, annuities may limit liquidity and flexibility, as they often tie up a significant portion of assets. Retirees should thoroughly evaluate their financial goals, risk tolerance and the terms of the annuity contract before making a commitment.

6. Money Market Funds and Accounts

For retirees who want safety without giving up quick access to their money, money market funds and money market deposit accounts fill a specific role that neither bonds nor CDs quite cover. Rather than locking money away, a money market fund spreads investor deposits across a mix of very short-maturity government and corporate debt instruments, the kind that mature in days or weeks rather than years, which keeps the fund’s value stable while still generating modest income. A money market deposit account, offered directly through a bank, works more like a souped-up savings account and typically carries the same FDIC coverage limits as a CD.

The defining feature here is flexibility. There’s no fixed term to wait out and no penalty for pulling money out early, which makes these accounts a practical home for cash a retiree might need on short notice, separate from money earmarked for longer-term income generation.

That flexibility comes at a cost, though: yields on money market products tend to sit lower than what a CD of similar safety would pay, and those yields move up and down with prevailing interest rates rather than staying fixed. For most retirees, the better use case isn’t as a core income source, but as a place to park an emergency cushion or short-term spending money while the rest of a portfolio does the heavier lifting.

7. Treasury Inflation-Protected Securities (TIPS)

Every fixed-income option discussed so far shares one blind spot: none of them account for inflation. A bond or CD that locks in a rate today offers no built-in defense if prices climb faster than that rate over the years ahead, a real concern for a retirement that might stretch two or three decades.

TIPS were built specifically to close that gap. Issued by the U.S. Treasury, these bonds tie their underlying value to the Consumer Price Index rather than holding it flat. When prices climb, the bond’s underlying value climbs with them. Because interest is calculated off that adjusted amount rather than the original purchase price, the actual dollar payments a holder receives also grow during inflationary stretches, not just at maturity.

Credit risk is essentially a non-issue here, since these are backed by the same government guarantee as any other Treasury security. What holders give up in exchange is yield: TIPS typically start out paying less than a comparable nominal Treasury bond, because part of the eventual return comes from the inflation adjustment rather than the stated rate. They can also lose value if sold on the secondary market before maturity, particularly when interest rates climb, so they work best as a hold-to-maturity piece of a portfolio rather than a trading vehicle.

Bottom Line

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Having a clear understanding of these investment options can help you craft a secure, balanced retirement plan. However, as there is no one-size-fits-all solution, the right balance will depend on your unique circumstances and goals.

Tips for Retirement Planning

A financial advisor can help you make a retirement plan, from determining how much you need to live the retirement you want and then help you choose the right investments to get you there. Once you hit retirement, a financial advisor can help you maintain the amount you need in your retirement fund. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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