What Are the Safest Investments for Retirement in 2022?

Safe investments are the least likely to lose you money. The safest investments for retirement include U.S. Treasury Bonds, certificates of deposit, high-yield savings accounts, money market funds, dividend-paying stocks, Series I savings bonds, AAA-rated corporate bonds, real estate, and annuities.

Retirement planning is hard partly because it involves planning for an uncertain future. It’s not just your future that’s unpredictable, but the economic conditions are as well. What will the market be like next year? Or in five years?

Everyone plans for the future differently and has a different risk tolerance. Some people are comfortable with more risk because of the potential payoff of higher returns. Others prefer to play it safe, ensuring that they won’t lose any money, even if it means slightly lower returns.

This article lists investments for the latter group: those who prefer more certainty and less risk. You’ll learn which investments are the safest for retirement and what makes them safe.

What Makes a Safe Investment?

Investments come in all shapes, sizes, and risk profiles. There are several characteristics that affect risk, but three are particularly important: volatility, liquidity, and credibility.

Volatility refers to how the value of investment changes over time. More volatile investments have larger changes in value that happen quickly.

For example, penny stocks are notoriously volatile because they can lose or gain a ton of value over a very short period of time. In contrast, blue chip stocks are much less volatile because they tend to gain or lose only a little value, and the change happens over longer periods of time.

Liquidity has to do with how easily you can access the asset and convert it to cash. Assets are less liquid if it takes longer to convert them to cash or if the asset loses its value during conversion. Assets are more liquid if you can quickly convert them to cash, and you don’t lose value during conversion.

For example, real estate is relatively illiquid because it can take time to sell — sometimes months. Savings accounts are highly liquid because you can withdraw your money very quickly, and your money won’t lose any value when you do.

Credibility has to do with the reliability and trustworthiness of the institution you’re investing in. More credible institutions are more likely to pay you for your investment when you want it. They’re less likely to go bankrupt before cashing in.

Low-risk investments are those that have low volatility and high liquidity and come from credible institutions. In other words, they're investments that will retain their value, let you easily convert them to cash when you need to, and come from institutions that you can trust.

Given those criteria, what are the least risky investments for retirement? No investment is 100% safe, but below is a list of investments that are very low-risk. They may be appropriate for anyone trying to grow their retirement savings nest egg steadily and do not want to take a chance that they’ll lose money.

U.S. Treasury Bonds

U.S. Treasury bonds (sometimes called “treasury bills,” “treasury notes,” or simply “treasuries”) are debt instruments. They’re like a loan to the federal government. You buy the bond, and the U.S. government promises to pay you back the full value plus interest. Interest payments are usually paid every six months.

U.S. Treasury bonds are commonly known as the safest investments in the world because they are backed by the "full faith and credit" of the U.S. government.

You can buy government bonds directly from the Treasury Direct website. Or, you can buy them through a financial institution like an investment brokerage firm or a bank.

U.S. Treasury bonds are very low-risk, and they usually offer very low rates of return — the current 10-year treasury yield is about 2.8%. They’re best for investors who want to be able to choose the time span of the investment and who are comfortable with lower returns.

Certificates of Deposit

Certificates of deposit (CDs) are a type of deposit account offered by banks and credit unions. They offer a fixed interest rate that’s typically better than a savings account. The catch is that you have to keep your deposit in the account for the full term of the CD. Typical returns are between 1% and 3%. CDs with longer terms typically offer higher interest rates.

CDs are safe because if you keep your cash in the account for the entire term, you’re guaranteed to receive your return. Federally insured banks usually stay in business, and even if they go under, CDs are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000.

CD rates are usually lower than other safe investments like annuities. They’re better for people that are investing for shorter periods of time and who don’t want to take advantage of tax benefits or lifetime income. They’re not ideal for people that may need to withdraw their money during the CD term.

High-Yield Savings Accounts

High-yield savings accounts are another type of bank account offered by banks and credit unions. Unlike CDs, you don’t have to keep your cash in the account for a specified period of time, so they’re more flexible. But they offer lower interest rates — usually between 0.5% and 2%. They also typically have more rules than other types of savings accounts — for example, there may be a minimum deposit requirement.

Savings accounts are low-risk because they are immune to market fluctuations, and they are very liquid — you can withdraw your money at any time. Also, like CDs, savings accounts are FDIC-insured. That means you’ll get up to $250,000 back if your bank goes bankrupt.

Note that they also typically offer quite modest returns. In times of inflation, like now, your money may lose its purchasing power.

This type of investment is ideal for people that want the flexibility to withdraw their money whenever they want, even if that means not very high returns.

Money Market Funds

Money market funds are a type of mutual fund that invests in short-term debt instruments that mature in less than a year. The types of debt they invest in include U.S. treasuries, cash equivalents, CDs, and bankers equivalents, among others. You can buy them from mutual fund providers, like investment companies and brokerage firms.

Money market funds are at lower risk because the instruments they invest in — like CDs and treasuries — are low-risk themselves. In other words, the underlying debtors are considered very reliable and likely to pay back their debts.

Like other low-risk investments, they offer only very modest returns — usually between 1% and 2%.

Money market funds are a good option for short-term investors looking for a safe place to stash some cash.

Dividend-Paying Stocks

Stocks represent a share of ownership of a company. Some companies pay dividends to their owners, which is anyone who owns their stocks. The dividends are basically the company’s way of sharing some of its profits. Companies vary widely in how they pay dividends: some reliably pay dividends every month, while others only pay dividends occasionally.

Dividend stocks can be very low-risk when the stocks you buy are from very large, established companies that have reliable profits and a long history of consistent dividends. Note, though, that not all stocks that pay dividends are low-risk —doing some research to find the lowest-risk stocks is necessary.

Dividend-paying stocks are best for people that want to earn a consistent investment income but are also comfortable with some market risk.

Series I Savings Bonds

Series I savings bonds are another product offered by the U.S. Treasury. When you buy them, you earn two types of interest. The first type is fixed for the life of the bond, offering steady earnings. The second type is adjusted twice a year based on the inflation rate. This makes them a good option for protecting against inflation.

Series I bonds are low-risk because they are backed by the U.S. government and offer a combination of fixed interest and inflation protection. They are also immune from market risk. Note, though, that you may lose money if you withdraw your money early. Also, you can only invest $10,000 per year per Social Security number.

This product is ideal for long-term investors who want some protection against inflation and who don’t mind less access to their money over the term of the bond.

AAA-Rated Corporate Bonds

Corporate bonds are a kind of debt security used by companies to raise money from investors to reinvest in the company — sometimes for a particular project. It’s like an IOU. You lend money to the company, and they pay you back later, with interest. Corporate bonds can have either a fixed or variable rate.

Corporate bonds can be very low-risk if the company is well-established and credible. Credit rating agencies help you find reliable companies by providing credit ratings. Companies with a rating of AAA are the most reliable and the lowest risk. Higher-rated companies also typically offer lower interest rates. Note that you cannot take back your money until the bond matures, which makes them less liquid than some options.

Corporate bonds can be purchased through an investment broker. They are best for individuals that want investment options with more flexibility with respect to the maturity date and who will not need the money before the bonds mature.

Real Estate

Depending on where you live, real estate can also be a safe investment. In some regions of the country, the prices of property have risen steadily for decades. Also, property prices tend to rise with inflation, making real estate a good protector against inflation risk.

Note that some real estate options are higher risk. As mentioned earlier, investments in real estate are also typically illiquid because it may take some time for you to get back your investment and because if you need your money back immediately, you may have to sell in a poor market.

Real estate investments are ideal for people who have significant capital that they will not need in the near future and who are willing to invest for many years.

Fixed Annuities

Fixed annuities are investment products that you buy from a life insurance company. You can fund your annuity with premiums in a single lump sum or in several payments over a period of time. Your premiums earn a fixed minimum interest rate, and your annuity account value grows.

When you’re ready, you can annuitize and convert your account into a steady stream of income. Most annuity companies give you several payout options. That means you can choose to receive your annuity payments for a fixed period of time (period certain). Or, you can choose to receive a lifetime income — payments for the rest of your life.

Fixed annuities are retirement products, so they also offer a number of tax benefits, like tax-deferred growth. They are low-risk for several reasons:

• They offer guaranteed growth over the term of the annuity
• They offer guaranteed lifetime income — a feature no other product offers

Fixed annuities are a very safe place to put your retirement money. They don’t depend on the stock market, which means that they’re good even during a recession. Compared to other safe investments, they also typically offer among the highest interest rates.

Fixed annuities are less liquid than some of the other options. While you can withdraw your money before the term of the annuity is over, you may have to pay surrender charges on early withdrawals. There also may be tax penalties for withdrawals made before you turn 59½.

Fixed annuities are ideal for people that want long-term investments and seek to guarantee themselves a lifetime income.

Final Thoughts

The benefit of safe investments is that you can feel confident that you won’t lose money — your investment will usually retain its value. On the other hand, safe investments typically offer less robust returns.

Among safe investments, fixed annuities offer the best returns. They also offer something no other investment can offer: guaranteed income payments in retirement.

If you think fixed annuities could be right for you, have a look at the fixed annuity products offered at Canvas Annuity. If you’re ready to set yourself up for retirement, apply online here.