Where Is the Safest Place to Put Your Retirement Money?

The safest place to put your retirement funds is in low-risk investments and savings options with guaranteed growth. Low-risk investments and savings options include fixed annuities, savings accounts, CDs, treasury securities, and money market accounts. Of these, fixed annuities usually provide the best interest rates.

Retirement can feel scary because the future is uncertain. While you’re working, you know how much money is coming in each month. That provides some financial certainty. Having a regular income allows you to plan and know you can cover your basic expenses.

But when you stop working, what will happen? How much money will you need to pay for your retirement lifestyle? And how can you save it?

You could simply stow away some money each month into a bank account. But with inflation, that money will most likely lose some of its purchasing power since most savings accounts don’t typically credit much, if any, interest. Another option is to invest your retirement savings. But that comes with some risk. What if your investments don’t pan out? What if you end up losing your money?

In this article, we identify some of the safest places to put your money. These are products that will help build your nest egg without the risk that you’ll lose it in the volatility of the stock market.

What Does "Safe" Mean?

First, what even is a safe savings option?

All retirement savings options face a fundamental tradeoff between risk and potential earnings. High-risk investments usually offer the potential for high earnings. But you could lose your money, too. On the other side of the coin, low-risk options usually offer lower earning potential. But, you're also unlikely to lose all of your savings.

When we use the word safe, we are referring to products that help you save without much risk of losing your savings. These options typically have lower interest rates, but they are likely to retain their value over the long term, and they’re easy to convert into cash.

Risk Tolerance Factors

Every retirement plan begins by determining your risk tolerance. Each person may be different. You may be more comfortable with higher-risk asset classes, or you may feel more secure focusing your portfolio on safer alternatives.

Age matters, too. Typically, you can afford a little more risk when you're younger and further away from retirement. If you make some bad choices and lose money, you have time to recover it. When you’re closer to retirement, you usually need to focus on safer savings alternatives because you don’t have as much time to recover lost value.

Diversification Helps Manage Risk

Depending on your preferences and age, you may prefer to focus your asset allocation on higher- or lower-risk options.

Or, you may choose both. Many financial professionals suggest a diversified strategy. This means including both higher-risk and lower-risk asset classes in your portfolio. The balance would shift as you age. The younger you are, the higher percentage you would have in riskier assets. The older you are, the more you would shift into a safer strategy. This helps you get a bit of the best of both worlds.

What savings options are there that can help you fill out the more conservative side of your portfolio? Good question. Here are the lowest-risk places you can put your money for retirement.

Fixed Annuities

Fixed annuities are one of the safest products you can have in your portfolio. The main reason to buy an annuity is that they provide something no other financial product can: a guaranteed income. That means that they provide certainty that you’ll have some money coming in to supplement your Social Security check.

Annuities work a bit like a private pension. First, you pay premiums to an insurance company to fund your annuity. Fixed annuities offer a fixed minimum crediting rate over the term of the contract, so, as long as you leave your money alone, the value of your annuity won’t ever drop below the original amount you contributed. And many annuities have guarantees that are much higher than the minimum, meaning you can count on growth every year.

When you retire, you can choose to annuitize your contract, which will start your regular payouts. Depending on the payout schedule you choose, these payouts can last you for the rest of your life.

Fixed annuities are considered low-risk because they have a guaranteed minimum crediting rate for the term you select. That means that, as long as you keep your money in the account for the entire term, you know exactly what your return will be — you won’t lose money.

For being so low-risk, fixed annuities can also pay quite high rates — sometimes 100 to 1,000 times the rate you would get in a high yield savings account. Check out current fixed annuity rates here.

Another huge benefit of fixed annuities is their tax treatment. Annuities are tax-deferred, meaning you won’t pay taxes on your earnings until you make a withdrawal from your annuity. None of the other safe savings options offer that benefit unless they are held within an IRA or 401(k). To find out more about this, check out or guides to annuities vs. 401(k)s and annuities vs. IRAs.

The income guarantee you receive with your annuity is backed by the financial strength of your insurance company, so always buy your annuity from a reputable company. Ideally, the company will have a long history and a good rating from an independent third-party rating agency. (Canvas Annuity is backed by Puritan Life, a company with a long history of stability and an AM Best rating of B++)

Bank Savings Accounts

Savings accounts at your bank are also very low-risk. If you put your money in a bank account, you can be very confident that you’ll be able to access it again in the future. And, deposits in savings accounts from most banks are FDIC insured. That means that even if your bank becomes insolvent, the federal government covers your savings. (See details about FDIC deposit insurance here).

The downside of savings accounts is that they often pay very low interest rates. In the context of inflation, that can mean that your money actually loses value. Even high yield savings accounts often have quite low rates. At the time of writing, the best rates are about 0.75%. To get those rates, you'll have to have a lot of money in the bank.

Savings accounts might be the safest place to put your money, but you almost certainly will not make any significant earnings.

Certificates of Deposit (CDs)

Certificates of deposit (CDs) are another kind of account. They offer slightly higher rates than savings accounts do, but there’s a catch: You have to leave your money in the account for the full term you select.

For example, imagine you buy a CD with a two-year term. To earn the full interest rate, you have to leave your money in the account for the full two years.

So the pros of CDs are that they are very safe and have better rates than savings accounts. The cons are that they tie up your money. CD interest rates are usually not as good as they are for fixed annuities.

Treasury Securities

Treasury securities are a family of investment options. They include treasury bills, notes, and bonds. Each is a debt obligation. When you buy it, you are essentially lending money to the US Treasury. The Treasury promises to pay you back later, with interest.

Treasuries are safe investments because they are backed by the “full faith and credit” of the US federal government. The US government has never defaulted on a debt obligation.

One special category of treasury securities is Treasury Inflation-Protected Securities (TIPS). TIPS interest rates are indexed to inflation. In periods of inflation, the rates will go up. This helps ensure the value of your investment does not lose purchasing power. But remember, in periods of deflation, the interest rates will drop.

The advantages and disadvantages of treasury bills are similar to CDs. They are safe and can offer decent interest rates. But they also lock up your money and may not offer rates as high as fixed annuities typically do.

Money Market Accounts and Funds

Money market funds and money market accounts are two other low-risk investment options. They have similar names but are different things.

Money market accounts are deposit accounts. You open them in a bank or credit union. Then, you put your money in and earn interest. The interest rate you earn varies depending on how money markets investments do — these are things like bonds, US Treasuries, CDs, etc.

Money market funds are essentially a type of mutual fund. You buy them from brokerages, financial services firms, or investment companies. The fund invests in short-term debt securities in the money market — again, things like bonds, treasuries, and CDs. You earn a variable rate of interest depending on how those investments perform.

These are both very safe options because they are tied to safe investments, but they won’t make you rich. A typical return from money market accounts and funds is between 0.5% and 2%.

How Much Retirement Savings Should You Keep in Low-Risk Options?

It depends on your financial goals and risk tolerance.

Financial advisors typically recommend a diversified portfolio. That means a mix of safe and more risky options. Some risk is good because it gives you more earning potential. But some money should always be in something safer and lower risk.

Here are some common guidelines for choosing how much you should hold in riskier compared to safer savings options:

• Financial planners usually recommend keeping an emergency fund of three to six months of living expenses. These funds should be kept very liquid, so you can access them at any time for any reason, like in a savings account.
• The rest of your retirement savings can be allocated between a mix of lower-risk and higher-risk assets.
• The mix can change over time. If you’re further away from retirement, you can be a little less conservative and invest more for growth. If you’re closer to retirement, more should be kept in safer assets.

A common rule of thumb for asset allocation is that individuals should hold a percentage of stocks, index funds, and other higher-risk assets equal to 100 minus their age. For example, a typical 55-year-old could have 45% of their portfolio in higher-risk assets. The rest should be in safer options, like annuities.

The above are general guidelines. Everyone’s situation is different. Before making investment decisions, it’s a good idea to talk to a financial advisor who can provide you with personalized advice.

Consider the Rate of Return on these Investments

As we’ve explained above, not all low-risk savings options are created equal. Some, like annuities, offer high rates of return and tax deferral but may be less liquid. Others, like savings accounts, are very liquid but offer very little interest. In other words, the rate of return on these choices varies greatly.

To find and evaluate safe products with good potential, consider the interest rates they offer and the restrictions they place on you. If you don’t need your savings in the short term, it may be best to put them in something that can guarantee a higher fixed interest rate, like a fixed annuity, so it grows faster.

Of course, as always, consult an investment advisor for specific investment advice for your case.

Other Low-Risk Retirement Income Sources

The above are some of the safest places to put your money. And each of them can offer some earnings. However, in addition to investments, you may want to take advantage of other ways to generate retirement income. Here are some common ones.

Dividend-Paying Stocks

Some companies pay dividends to shareholders. Dividends can provide retirees with income. Companies that pay dividends usually do so regularly, although they are not obligated to. Usually, the best dividend-paying stocks are large companies with massive market capitalization. Since dividends aren’t guaranteed, you may want to consider additional ways to create retirement income.

Income Properties

Rental income makes up a portion of retirement income for many retirees. They rent out their property and enjoy regular payments from their tenants. Some even use a property management company to take care of all the administration. If you own property, this may be a great income option for you.

Real Estate Investment Trusts (REITs)

REITs are companies that own and operate income-producing real estate. You invest in the company, and in return, they pay you a share of the income that they produce. Because rental income is typically regular, these can provide fairly consistent income.

Part-Time Employment

Sure, you’re probably looking forward to resting when you retire, but you might find that you miss work. A part-time job can help supplement your other sources of income as well as provide a rewarding — maybe even fun — way to spend your time.

Systematic Withdrawals

A systematic withdrawal is a strategy to turn your investments and savings into a regular income. This strategy lets you schedule regular withdrawals from your annuity, IRA, retirement account, or investment account. This is an easy way to plan income from your investments and help you optimize your tax obligations.

Avoiding Bad Investments

Not all investments pay off. Some people even use investments as a way to scam you. Hallmarks of bad investments include the following:

• Steep fees
• Confusing terms and conditions
• Promises of overnight returns
• Promises of very high earnings with no risk

Remember that all investments involve a tradeoff between risk and reward. If an investment promises high payouts, there will also be some risk that you’ll lose your money. You won’t find an investment with sky-high earnings that’s also very low-risk.

If a product sounds too good to be true, it probably is. If you’re ever unsure, talk to a financial advisor for advice.

Final Thoughts

Retirement planning is one of the most difficult aspects of personal finance and it can be overwhelming. The goal is not only to save enough to live on but also to put that money to work for you. Ideally, you’d find a place to put it where it’s safe but also earns you money.

Fixed annuities can be a great addition to a diversified retirement portfolio. They’re low-risk because your contract comes with a minimum guaranteed crediting rate, meaning you can’t lose money as long as you keep your money in the annuity for the specified time.

And some fixed annuities, like those offered by Canvas, not only have a fixed contract minimum for the lifetime of your annuity, but they offer great crediting rates for the specified term you select! And all of that interest grows tax-deferred and can turn into guaranteed retirement income when you’re ready.

To learn more about how fixed annuities from Canvas Annuity can be part of your portfolio, talk to one of our licensed representatives or apply today.