The Best and Safest Investments for Seniors in 2023

If you have retirement money stashed away and want to put it to work, there are a few safe places that offer significant returns. These include annuities, CDs, bonds, dividend-paying stocks, and treasury securities.

Why put your nest egg to work?

Twenty years.

That’s the average length of retirement if you retire at 65. It’s also the length of time you need to be able to support yourself without an income from work.

The challenge with retirement planning is making sure you can afford to pay your bills when your work income stops. Sure, retirement savings are important, but ultimately you need a steady stream of retirement income so that you can avoid drawing down on your savings for as long as possible.

If you’re in retirement or about to retire, you’re probably looking for a safe place to invest your money and build a retirement income plan.

Here are the safest and best investment vehicles and financial products if your goal is to grow your money without the risk of losing it.

Safety is the Cornerstone of Seniors Retirement Planning

First, why target safe options?

To minimize the risk of losing your retirement savings.

When you’re young, you can afford a bit more risk with your investment options. If you lose your money, you still have time to save it back up again.

When retirement is just around the corner, you don’t have the luxury of time. If you lose your money, that’s it — you’ll be without it in retirement. That’s why the closer you get to retirement, the more careful you want to be with how you manage your money.

The 100 Minus Your Age Rule

As a rule of thumb, financial experts recommend the 100 minus your age rule.

[100 - Age = % of your portfolio made up of more risky investments]

With this rule, you subtract your age from 100. The resulting number becomes the percentage of your portfolio to invest in riskier investments like stocks. The remainder should be safe investments.

For example, if you’re 60 years old, 40% (100 minus 60) of your portfolio would be invested in stocks and other riskier equities. The remaining 60% would be put into safe products.

Annuities

Fixed annuities are one of the safest places that you can put your money. They aren’t technically investments because they aren’t an asset that you buy that appreciates. Instead, they’re an insurance product that protects you against outliving your retirement savings.

Still, fixed annuities grow your money safely.

This is how annuities work. You pay premiums to an insurance company. That money accumulates and grows over the annuity term. Later, you annuitize it and choose your payout option. For example, you could choose to receive monthly payouts for the rest of your life.

There are many different types of annuities, but the safest type are fixed annuities because they grow at a fixed minimum interest crediting rate. That means that you know your money will grow over time (as long as you don’t make early withdrawals).

In contrast, variable annuities and fixed-indexed annuities are riskier because their interest rates are tied to stock market performance. That means they incorporate market risk.

Here are the benefits of fixed annuities for retirees.

• Lifetime retirement income. Annuities are the only financial product that offers a guaranteed lifetime income — you continue to receive regular income payments until you die.
• Guaranteed growth. The money in your annuity account will grow at a guaranteed minimum interest rate.
• Tax deferral. The money in your annuity grows tax-deferred. That means that earnings aren’t taxed in the year they’re earned; instead, they’re taxed in the year you receive them.
• Flexible funding. You can buy an annuity with savings, by rolling over a retirement account, like an IRA or 401(k), or through a lump sum pension payment. You can also usually choose to fund your annuity in one payment (single premium) or in several smaller payments over time (flexible premium).
• Safe legacy planning. You can add death benefits to your annuity to pass on any money in your annuity account to a designated beneficiary when you die. Annuity benefits usually avoid the probate process, making them a convenient legacy planning tool.

Like any financial product, there are also some disadvantages of annuities to consider.

• Illiquid. Annuities are not designed for short-term savings. They’re not very liquid — it can be difficult to take your money out of an annuity early without paying fees.
• Fees and expenses. Some annuity companies charge hefty account management fees for annuities. It’s also common to face surrender charges if you make a withdrawal before the surrender charge period is over.
• Tax penalty for early withdrawals. If you make a withdrawal before you’re 59½, you could face a tax penalty from the internal revenue agency (IRS).

Canvas Annuity offers straightforward fixed annuity products for real people. You can buy our annuities online.

Certificates of Deposit (CDs)

A certificate of deposit (CD) is a deposit account that earns interest on a deposit amount for a fixed period of time. It typically has higher interest rates than savings accounts because you commit to keeping your money in the account for a certain period of time.

CDs are useful for two main reasons.

• Fixed interest rate. CDs offer a fixed, guaranteed rate, so you know exactly how much you will earn over the term (as long as you do not withdraw your money early).
• Insured deposits. If you buy a CD from a Federal Deposit Insurance Corporation (FDIC) backed bank, it is protected up to $250,000. That means that if the bank defaults, you’ll get your money back.

On the other hand, there are some disadvantages of CDs.

• Illiquid. You typically have to leave your money in the CD for the full term to earn the rate it offers. If you take your money out before the term is up, you may forfeit any earnings.
• Low earnings. Earnings from CDs are typically quite modest (see the current CD rates here). They are usually much lower than annuity rates.
• Inflation risk. During periods of inflation, as the prices of goods rise and the buying power of money falls, most CD rates are not adjusted. That means that your money tends to lose its value (purchasing power) over time.

Treasury Securities

Treasury Securities are debt securities issued by the US government to raise funds. You essentially loan the US government money, and in return, they pay you back your money later with periodic interest.

The pros of treasury securities are:

• Safety. They are backed by the US government so they are as low-risk as investments get.
• Tax-advantaged. Interest earned is exempt from state and federal income tax.
• Liquid. You can usually sell them quickly.

Some cons of treasury securities are:

• Low earnings. Treasury securities do not offer high-interest rates.
• Inflation risk. The interest rates often do not beat inflation rates.
• Restrictions and penalties. There may be some penalties for redeeming US treasuries before they mature.

Bonds

Bonds are debt instruments sold by governments and corporations. They can be very low-risk investments as long as the organization you buy them from is unlikely to default (i.e., it has a good credit rating and strong financial history). Advantages of bonds include:

• Predictable returns. You can usually feel confident that you’ll earn money.
• Tax advantages. Municipal bonds may be exempt from income taxes.

Some disadvantages include:

• Low returns. Historically, bonds have provided lower returns than stocks.
• Set schedule. Income payments only last until the bond matures.
• Fluctuations. Bond prices and yields vary with interest rates, making income less predictable.

Dividend-Paying Stocks

Stocks represent an ownership share of a company. Some companies pay a portion of their profits to their shareholders (a dividend). The stocks of companies that reliably pay dividends are called “dividend-paying stocks.” These can make a good addition to a retiree's portfolio because they provide income.

The benefits of dividend-paying stocks are:

• Liquidity. You can usually sell them easily to convert them to cash.
• Retirement income. While you own them, they can generate regular income.
• Growth potential. They can potentially generate higher returns than other investment options.

Again, though, there are some drawbacks:

• Risk. Stocks can be riskier than other options. The level of risk depends on which company’s stock you buy.
• Income isn’t guaranteed. While many companies have reliably paid dividends for years, they’re not required to do this. There’s no income guarantee.
• Taxes. Income from dividends typically isn’t tax-advantaged unless it’s held in a retirement account.

Factors to Consider When Choosing Where to Place Your Money

Which are the best options for you? It really depends on your circumstances and preferences. Consider the following factors when buying a financial product or investing.

• Liquidity. Products differ with respect to how easily you can convert them into cash. Most experts suggest having some of your portfolio in very liquid assets like cash and CDs in case you have an emergency and have to pay a large sum unexpectedly.
• Inflation. The cost of goods tends to rise over time, which eats away at your money’s buying power. To beat inflation, try to put your resources into products where they earn rates better than the inflation rate.

• Taxes. Taxes can take a big chunk out of your earnings, but some products are better with respect to taxes than others. For example, retirement accounts and annuities have special tax deferral rules that can help save you money. It’s a good idea to consider how much tax you would pay on earnings from different types of investments so that you can choose the most advantageous option for you.

Choosing between retirement products and investment options can be overwhelming. If you’re not sure, consider getting the advice of a certified financial planner or tax professional.

Safe Investments to Thrive in Retirement

Finding the right mix of financial products and investments as you head into retirement can provide you with financial security and peace of mind. Setting yourself up with a guaranteed retirement income may help you live your best retirement life.

Bonds, treasury securities, and CDs are all relatively safe investment options that can help you grow your money, but they also typically offer relatively low yields. Dividend-paying stocks can offer income in retirement, but it’s not necessarily guaranteed.

Fixed annuities are the only option that can provide a guaranteed retirement income for life. If you are looking for a stable place to put some of your money in retirement, a fixed annuity may be right for you. And the annuities we offer at Canvas Annuity have some of the best rates in the industry — see current rates here.

Thinking about buying an annuity?

Get in touch with our licensed reps to learn more about Canvas annuities, or start your online application now.