Saving for retirement can be daunting, especially if you’re unsure where to start.
Thankfully with careful research, you can find the safest place to put your retirement money where it will work for you.
The Safest Place To Put Your Retirement Money?
The safest place to put your money is in low-risk investment options such as fixed annuities, savings accounts, CDs, and Treasury Securities.
These are safe places to invest because they guarantee a return over a set period of time. If you want to invest in something else, consider putting it into a money market account.
A money market fund tracks the performance of short-term government debt instruments like bills and bonds.
You won’t earn any income, but you’ll still receive the full value of your investment. Another option is to use a personal pension plan.
Personal pensions are similar to IRAs, except that there is no tax advantage. Instead, you pay fees for managing the plan. Let’s look at what defines a safe investment.
What Defines “Safe”?
The most basic definition of a safe savings account is one where you don’t lose all of your money. In fact, you might actually make money while saving.
However, the safest savings accounts don’t always offer the highest interest rates. Let’s look at the options in a bit more detail.
Fixed Annuities
A fixed annuity is one of the most popular retirement savings vehicles because it provides a guarantee that your principal investment will never lose value.
In fact, it guarantees that your principal investment will increase in value every month.
A fixed annuity works just like a traditional IRA — except that it offers a guaranteed return rather than tax benefits.
You contribute money to the annuity, and the insurer promises to pay out a certain number of dollars each month for the rest of your life.
The main difference between a fixed annuity and a regular IRA is how much risk you take on.
With a fixed annuity, you’re taking on less risk because the company guarantees that your principal investment won’t fall below what you originally invested.
If the stock market does well, your account might grow faster than you’d otherwise see under a traditional IRA.
So all being well you could end up with a bigger nest egg than if you had put your money into stocks.
Savings Accounts (Banks)
Savings accounts at your local bank are safe and secure. They’re easy to open, simple to use, and offer many benefits.
And while they won’t increase your investment by a lot, you can rest assured that your money is unlikely to decrease.
Properties
Renting out your home or apartment can help supplement your retirement income and is a safe option as properties will always increase in value.
Many retirees like the idea of renting out their second homes because it allows them to keep their primary residence while earning extra money.
If you choose to manage your rental properties yourself, there are plenty of resources online to help you learn how to do it effectively.
You can find information about managing rentals on sites such as Zillow, Trulia, Realtor.com, HomeAway, Craigslist, and others.
There are also books and courses available that teach you how to run a successful rental property business.
Short Term Bonds
The best way to safeguard your savings is to put it into something called short-term bonds. They’re like CDs, but you don’t pay interest every month.
Instead, you make one big payment each year, usually around tax time. You’ll earn less interest but won’t lose out on any potential gains if the stock market goes up.
Another thing to know about bonds: Unlike most investments, they don’t fluctuate based on what’s happening in the economy.
This makes them great for preserving capital since you’re not losing any money if the markets go down, but you will gain if it goes up.
To protect yourself against a default, you can invest in “inflation-protected securities,” or TIPS. These are bonds that promise to keep pace with inflation.
These bonds are a little tricky to understand, but once you grasp them, you’ll see why they’re such a smart choice.
Treasury Bonds/Security
There are three types of fixed-income investments:
- Treasuries
- Mortgage-backed securities
- Corporate debt
Because all three of these are backed by the government, they are considered safe investments, and they are only taxed at the federal level. They are called “treasury securities.”
The term “treasury bond” refers to a type of security whose issuer is the United States Government.
This includes US Treasury Notes, Bonds, Bills, and Inflation Protected Securities (TIPS).
A “US Treasury Note,” or simply “Note,” is a short-term unsecured promissory note of the United States Federal Government.
A Treasury Bond is a longer-term obligation of the United States Government; it is either fully secured by cash value held within the Treasury or partially guaranteed by the full faith and credit of the United States.
Final Thoughts
As retirement creeps closer and closer every day, one of the best things you can do with some extra money is to invest it somewhere safe and accessible — preferably something like high-yield savings accounts or short-term bond fund.
These investments give you access to interest rates that are typically much better than what you’d find in a bank checking account, plus they provide a way to diversify your portfolio without putting too much risk into a single asset class.
And while there’s no guarantee that stocks won’t go down, there’s also little chance of losing a lot of money in a short period of time.
According to Vanguard, a good rule of thumb is to keep about 70% of your total assets invested in stocks, 20% in bonds, and 10% in cash.
You’ll want to adjust accordingly if you don’t have enough money to cover those percentages.
But even if you’re maxing out your contributions to 401(k)s and IRAs, you still might not have enough to retire comfortably. So, if you haven’t already done so, start investing now.
As a current Mortgage Underwriter with 15 years of experience, I have seen my fair share of money-related issues. Whether that be high levels of debt, not enough credit, or simply a lack of funds - I’ve had clients who fit into these categories.
Here I will share tips, tricks, and experiences on how you can get yourself back in control of your finances.
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