With interest rates near all-time lows, it is difficult to find safe investments for retirees.
Bankers and brokers will tell you to invest in bonds or bond funds. Choosing to use these types of investments could cause your portfolio to take a hit when interest rates rise.
You could be asking: “So, what are some safe investments that I could make for retirement? “
In our opinion, here are the good, better, and best investments that you could make to help protect your retirement.
Good: Guaranteed Investment Contracts
A guaranteed investment contract (GIC) is distributed by some companies that guarantee repayment of the principal and a fixed or floating interest rate for a certain time period.
GICs are offered in some companies’ retirement plans and could yield around two percent per year.
The best part is you won’t lose money if interest rates go up. The one caveat is that these are not widely available and it is difficult to retire off of two percent per year.
Better: Bond Laddering
Bond laddering is investing in treasuries, municipal, and corporate bonds, so that if you have $100,000 to invest, you get maturities that go out in the agreed time frame. Some people may even use Certificate Deposits (CDs) in their laddering approach because they have similar characteristics to bonds.
You invest in such a way that every year one or more of your investments mature, giving you the income you expect.
Here’s the deal:
This gives you the opportunity to take the maturity every year, for as long as you would like to plan out. This is better than a GIC because the interest rates are typically higher.
Best: Equity Index Account
These accounts have historically captured around 60 percent of the S&P 500 growth. You can invest in a number of different time frames to fit your retirement needs. Equity index accounts have some of the highest returns of any principal guaranteed accounts.
The best part is:
When the markets go down, you lose nothing. You can’t afford to ride the market up and down like those who do in their 20’s, 30’s, and 40’s and then spend four years recovering from all their losses.
This gives you both an offensive and defensive stance on the money that you have spent a lifetime growing for retirement. Because equity index accounts are principal guaranteed, they can and should be considered your safe money. In our opinion, retirees should only draw income from principal guaranteed accounts like CDs, investment grade bonds, or equity indexed accounts.
These three investments could put you on the path to reducing your risk during retirement and finding peace of mind. Visit Decker Retirement Planning Inc. for more information on these types of investments and how we use them to protect your retirement.
