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5 Low-Risk, High-Return Investments for Retirees

5 Low-Risk, High-Return Investments for Retirees

The Centers for Disease Control and Prevention reports that life expectancy at age 65 for the US population in 2019 was 19.6 years. It fell to 18.8 in 2020 when the pandemic began, but that still means those retiring at the traditional age must be prepared to fund at least two more decades of living expenses.

Investing wisely can help supplement Social Security benefits. Given the low starting points of traditional bond yields, (retirees should) consider improving their overall portfolio performance by looking outside the bond market. Any deterioration in the economic outlook, for example, due to the conflict between Russia and Ukraine, could affect riskier assets such as oil and, in such a scenario, traditional fixed income securities, in particular Treasury and investments rated on debt performance.


Here are five investments that can help retirees make a decent profit without taking too much risk in today's environment:

1. Treasury bills, treasury bills, and treasury bills

If you want to earn a little more interest than a savings account without too much additional risk, the first and best option is government bonds, which offer interest rates ranging from 1.6% to one month at 2.5% for 30 years (as of April 2022).

Bonds issued by the US Treasury are backed by the full weight and confidence of the US government. Historically, the United States has always paid its debts. This makes government debt reliable and easier to buy and sell in secondary markets if you need access to your money before the debt expires.

This stability, however, means that the bonds may have lower yields than you would get from bonds that are less likely to be redeemed, such as corporate bonds.


2. Company Bonds

High-quality corporate debt might be a good option if you're willing to take a little more risk for higher returns. Issued by established high-yield companies, these bonds often offer higher yields than treasury bills or money market accounts.

Although high-end corporate bonds are relatively safe, you can still lose money investing in them if:

  • Interest rates rise: Since interest rates on bonds are usually fixed for a certain period, your money will not earn the highest rate. If you have to sell your bonds, you may have to sell them for less than you paid if general interest rates have risen. If you hold your bonds until maturity, you will receive their face value plus interest.

  • The issuer goes bankrupt: Although investment-grade bonds are generally considered relatively safe investments, they are still not as safe as money held in bank accounts. That's why it's important to focus on the debt of well-rated companies that are more likely to be repaid. Companies with lower rates may offer higher interest rates but are more likely to lose money.


3. Money Market Mutual Funds

Money market mutual funds invest in overnight commercial paper and other short-term securities. Even the best money market funds often offer returns close to zero. However, unlike Treasuries and corporate bonds, money market funds offer investors absolute liquidity - they have virtually no volatility, and you can withdraw your money.

It is also important to note that many banks also offer mutual funds. If you don't have or don't want to open a brokerage account, you can always invest money in the money market through your bank.


4. Fixed annuities

Fixed annuities are annuity contracts that allow investors to pay a fixed amount in exchange for a series of payments over time. Functionally, fixed annuities work like certificates of deposit - you agree to block access to your money for a certain period, and in return, you receive an above-average interest rate.

As of April 2022, fixed annuity interest rates range from 3.3% to 3.4%, according to Blueprint Income, a fixed annuity marketplace. However, keep in mind that higher interest rates often come from lesser-known insurers, meaning they're more likely to be in default.

Also, keep in mind that, as with CDs, you may face penalties if you need to access all of your money before the fixed annuity expires. However, you will usually receive penalty-free access to a percentage of your money each month.


5. Preferred Stocks

Preferred stocks work like a hybrid of stocks and bonds: they offer some of the growth potentials that common stocks give you while providing reliable payments of bond income. Preferred stocks generally offer higher dividends than corporate bonds because, unlike bonds, payment is not fully guaranteed.

Since 1900, preferred stocks have offered average annual returns of more than 7%, most from dividend payments.

In addition to dividends, you can watch your investment grow through redemption. Recently, many companies have repurchased preferred shares, often at a slightly higher price than they were sold because preferred shares pay higher dividends and cost companies more than corporate debt.


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