Safe Investments for the Elderly

The closer you get to your retirement years and claim your status as a senior citizen, the fewer risks you may want to take with your investments. You may be looking at a smaller fixed income during your senior years, and you want to explore the best investment options for senior citizens that put your hard-earned money to work for you. At the same time, you're also looking for safe investments that carry minimal risk.

Diversify Your Investment Portfolio

The best investment option for elderly investors may be to avoid putting all your eggs into one basket so you can better manage your risk. If you diversify your portfolio, you can spread your investments over numerous vehicles. By doing this, you won't lose everything if one investment takes a downturn. But even in your retirement years, you want to look at the growth potential of your investments to counter the economy’s rate of inflation as well as prepare for what may be many retirement years ahead of you.

Safe Investments for Seniors

While there’s a certain measure of risk associated with any investment, some options are safer than others. Although these safer choices will likely not offer the growth potential of a higher-risk option, you’ll at least walk away with your principal amount, if the investment goes south. Look for safety in an investment if it is insured – for example, by the Federal Deposit Insurance Corporation (FDIC).

Savings Account Investments

Technically, a savings account isn’t an investment. But if you put some of your money in an interest-bearing savings account, you’ll make money on the interest it earns. So in this regard, it works in a similar way as true investments. Because savings accounts are government-backed by FDIC-insured banks, you won’t lose your money if the financial institution goes belly-up. (FDIC insurance covers your deposit up to $250,000 per bank for each account ownership category.)

In this digital age, you can open a savings account with an online bank that likely pays a higher rate of interest than your local banking institution. High-yield online savings accounts pay 2 percent or more, because they’re dissociated from the overhead costs of a brick-and-mortar institution. Look for an online bank that’s FDIC-insured, and your funds are guaranteed just as they are from your local bank.

U.S. Savings Bonds

Like savings accounts, U.S. savings bonds aren’t investments in the strictest sense. They’re more correctly classified as “savings instruments,” but like savings accounts, they generate interest for a return on the principal amount of your purchase.

U.S. savings bonds pay full face value after 20 or 30 years, which doesn’t exactly make them a good addition to an investment portfolio for an 85-year-old. But for retirees who take retirement in their early 60s, U.S. savings bonds offer conservative investors a risk-free way to earn interest income plus the return of principal when they cash in their savings bonds for their full value in their early 80s. If you’re in a financial pinch, you can always cash your savings bonds before their maturity date, although you may incur an interest penalty.

U.S. savings bonds currently are offered in two categories:

1. The Series EE savings bond is an updated version of the original Series E “war bond,” with a term that spans 30 years and a fixed rate of interest that pays over the 30-year term. As of April 2019, the annual interest rate on EE bonds is 0.10 percent. You’ll purchase EE bonds at half their face value, with the guarantee that they’ll reach full face value at year 20.

1. The Series I savings bond also matures after 30 years. You’ll purchase these bonds at full face value, and they don’t carry the guarantee of reaching full face value at year 20. But the interest is a composite rate – one part of the interest rate is a fixed rate, and the other part is adjusted semiannually for inflation.

Certificates of Deposit Investments

FDIC-insured certificates of deposit (CDs) are risk-free. For your investment in a CD, your bank will return the money you invest with interest, which is generally higher than the interest on a bank savings account. Although you may have to pay a penalty if you withdraw your funds before the maturity date, you can cash them in if you need the money. You also have options for the term of a CD, which typically range from six weeks to six years, but you can stagger the due dates by investing in CDs with varying maturity dates.

Money Market Account Investments

Money market accounts are interest-bearing investments composed of low-risk pools of investments such as savings accounts, CDs and Treasury bonds. You’ll earn a higher rate of interest than a savings account, but you’ll probably have a higher minimum balance requirement than your savings account. You also have the option of withdrawing money and writing checks against your money market account, although you’re limited to six withdrawals each month or statement cycle.

Money market accounts are insured by the FDIC, up to $250,000 per investor per bank.

Treasury Securities Investments

Backed by the full faith and credit of the U.S. government, Treasury securities are safe investments that guarantee you won’t lose the principal amount you invest. Four types of Treasury securities are:

1. Treasury bills (T-bills). Although T-bills do not pay interest, you’ll buy them at less than face value and receive the full value when they mature, which is typically in a year.
2. Treasury bonds (T-bonds). T-bonds have terms of 30 years, but they pay interest once every six months. Their 30-year term doesn’t exactly make this an investment opportunity for senior citizens who want to receive the principal sum they invested. But it does provide interest income and an inheritance for their heirs.
3. Treasury notes (T-notes). T-notes have terms between two and 10 years. They provide interest income, which is paid every six months, and investors receive their face value when they mature.
4. Treasury inflation-protected securities (TIPS). TIPS are securities whose values offer a hedge against inflation. In other words, when inflation increases, so does the value of TIPS.

Corporate Bond Investments

Corporate bonds can be purchased individually, or you can invest in corporate bond funds that represent a pool of corporate bonds. Short-term corporate bond funds not only spread the risk over multiple corporate bonds in the pool, but they also mature in one to five years to minimize the interest-rate risk (as compared to long-term bonds that are more susceptible to market interest fluctuations). Corporate bonds are not FDIC-insured, so investors may want to work with an asset-management professional to find a high-quality corporate bond fund with a track record of reliable performance.

Dividend-Paying Stock Investments

Compared to other types of stock, such as growth stocks that offer higher returns, dividend-paying stocks generally carry less risk. Although “less” risk doesn’t mean “no” risk, they do pay quarterly dividends, and they’re relatively liquid. Invest in companies that have a track record of paying dividend increases over time instead of companies that are offering the highest yield.

Preferred Stock Investments

Preferred stock carries more risk than a bond but less risk than common stock. Dividends are paid to preferred stockholders before they’re paid to common stockholders but after they’re paid to bondholders. So this middle-of-the-road risk may be attractive to senior citizens whose risk comfort level is a bit higher than risk-free. If you invest in preferred stock, the company that issued it may be able to suspend dividend payments, but they’ll typically have to make up your missed payments.

Municipal Bond Fund Investments

Municipal bonds (commonly known as muni bonds) differ from U.S. savings bonds because of the issuing source. Both types of bonds represent loans that an investor makes when he purchases a bond from an issuer, but a muni bond is issued by a non-federal government entity such as a city, county, municipality or even a school district. Muni bond funds represent a collective investment in numerous municipal bonds, with a typical perk of earning tax-free interest, especially if you invest in bonds in the state where you live. Purchase muni bond funds from a mutual fund or exchange-traded fund (ETF).

You can also purchase individual municipal bonds, but these may carry a higher measure of risk than municipal bond funds. If a city, for example, declares bankruptcy, it won’t be able to repay your bond.

Immediate Annuity Investments

If the sound of “guaranteed” and “predictable income” is music to your financial ears, you may want to consider an immediate fixed annuity. The “immediate” part of its designation means that you’ll generally begin to receive payments of a guaranteed income stream the month after you invest and each month thereafter, and the “fixed” part of its designation means that the amount you receive stays the same each month, depending on the current interest rate when you invest in your annuity.

An annuity is an insurance product, so you’ll make your investment with an insurance company. The interest you earn on an immediate fixed annuity is higher than what you’ll earn from CDs, bonds or money market investments.

Home Equity Investments

Although your comfort level with investments during your senior years may not steer you toward using the equity in your home for fear of losing it, you could view it as a contingency plan. If you have a fair amount of equity in your home, or if your mortgage is completely paid, you can harness this equity by using a home equity loan or a reverse mortgage. Although you’ll make payments on a home equity loan, you won’t have to make payments on a reverse mortgage. The terms of these vary from lender to lender, so a consultation with your financial advisor may be in order before making this decision.

Rental Income Investments

Although owning rental property isn’t a desirable investment for many senior citizens because of the associated maintenance and upkeep responsibilities, it can be a lucrative source of income in many situations. And if you don’t want to oversee the day-to-day responsibilities, which also include dealing with the tenants, hiring a property management company may be worth the money you pay, depending on the amount of rental income you receive each month.