It’s never too early to start thinking about and planning for life after work.
You shouldn’t rely on social security benefits and pension plans to fund your senior years.
Investing your money can improve your financial security at any age, but it’s important to get your strategy right.
So, whether you’re just thinking about your investment portfolio for later in life or whether you are close to retirement age, this article contains all the information you need to decide on which low-risk investments to put your money into.
Reasons why seniors should invest their money
Secure a steady income: investment opportunities can be a good way to help relieve any financial restraints after you retire. This could either be a lump sum or a regular payment that can be used to top up your retirement funds.
Grow your money: most investment opportunities such as stocks and bonds will allow you to build your money over time, strengthening your financial situation and improving the quality of life you have.
Achieve financial goals: investing can help you reach your financial goals sooner than saving. Your return on investments can be used to travel, live a luxurious lifestyle or enable you to leave money or assets to children and grandchildren in your will.
Beat inflation: inflation will eat away at money that is sat in your savings account, decreasing the amount of profit you make. Instead, beat inflation by investing in areas that are doing well such as stocks and bonds.
Investments for old age
All of the investment options we describe below are low-risk, but you should never invest in anything that you don’t completely understand. Seek advice from a financial advisor if you’re unsure whether an investment is the right financial decision for you.
Real Estate Investment Trusts (REITS)
What is a REIT?
REITs are a great way for people of an older age to invest in real estate without the hassle of being a landlord. REITs buy, sell and manage malls, apartment buildings and other commercial properties.
How do I invest in a REIT?
There are different ways that you can invest, including purchasing REIT stocks, exchange-traded funds and mutual funds. The simplest way to invest is to purchase a REIT that is listed on a major stock exchange. REITs pay their shareholders through dividends that are made as cash payments from the rent that they collect on the real estate.
What are the risks involved in a REIT?
It can be difficult to sell a REIT if you need to. The other small risk is that publicly traded REITs could lose value if interest rates rise. Be mindful of any upfront fees that some REITs charge. This is typically between 9% and 10% but will affect the amount of money you make from this investment opportunity.
A high-yield savings account
What is a high-yield savings account?
A high-yield savings account works in the same way as a traditional bank account or savings account, however it offers higher interest rates which means you make more money on your savings. This type of savings account is insured by FDIC so your money is safe. Also consider a money market account, which is a type of account that offers a higher interest rate.
How do I invest in a high-yield savings account?
Simply find out which bank or credit union offer the best interest rate on a high-yield savings account and apply.
So, if you opened a high-yield savings account with an annual percentage yield of 0.40% and deposited $25,000 of your savings, you would earn $504 over five years. Whilst this may not sound much to seasoned investors, it is a safer option than other high-risk investments.
What are the risks involved in a high-yield savings account?
As investments go, depositing your money in a high-yield savings account is risk-free. However there are some caveats that you should be aware of before placing all your money in there. For example, there may be a monthly withdrawal limit on your account. This shouldn’t be a problem unless you need to access a large sum of your money at short notice. It’s also worth noting that with the rising costs of living and inflation prices, the interest that you earn could be minimal or non-existent.
Certificates of deposit
What are certificates of deposit?
Certificates of deposit (CD) are basically savings accounts provided by a bank that offers a fixed return on investment over a period of time. The rates are fixed, providing a guaranteed return on your investment. There are also no monthly fees to consider.
How do I invest in certificates of deposit?
Create a new account with a trusted bank or credit union. Some institutes offer different types of CDs and term lengths so always speak to a financial advisor to determine which route is the best for your circumstances. You may also be able to choose whether you receive your interest payments monthly or annually. Once you’re happy with the CD you want to invest in, you can either open the account in person or online and start transferring your funds.
What are the risks involved in certificates of deposit?
CDs are considered some of the safest investments for seniors because they are also insured by FDIC and offer a guaranteed return. Investors need to be aware of the fraud risk
There may be a penalty for withdrawing your funds early, which will affect how much money you make from this type of investment. Always check the official Certificate of Deposit database before opening an account and transferring your hard earned money.
Dividend paying stocks
What are dividend paying stocks?
A dividend is a portion of a company’s revenue. Dividend stocks are distributed to shareholders from a well-established company. Stocks are either paid in cash or more company stock on a fixed basis, typically quarterly but sometimes monthly.
Dividends work on a share basis, so if a company pays out a $1 dividend, you will receive £1 for every share that you own in that business.
How do I invest in dividend paying stocks?
You can either buy dividend shocks directly from a company that sells them or through an Exchange-Traded Fund (EFT). Every time the dividend is paid, the cash will automatically be deposited into your account. This can be a great source of regular income for people of retirement age.
Generally, companies that pay dividends are financially stable organizations with a track record of success, however you should always research a company’s financial history before investing in it. It’s also a good idea to keep an eye on how well your stocks are performing so you can react accordingly. It could be a financially savvy move to buy more dividend stocks in companies that are performing well or experiencing a growth period.
What are the risks involved in dividend paying stocks?
Stocks are not just for young people. They have a greater earning potential than bonds and can provide financial security for retirement.
As with all stock investments, the risk is that a company could stop paying or cut dividends if any changes are made. Dividend payments can also be subject to double tax rates, meaning you will earn less from your investment once tax has been deducted. This is because the company will pay a tax on its earnings and you will then pay income taxes on your share annually (subject to your tax threshold and rate).
What are fixed annuities?
A fixed annuity is a type of contract, financial or insurance product that gives the investor a return on the amount that they contribute to the account. Fixed annuities are less risker than variable annuities because those types of investments will not provide a guaranteed return.
Fixed annuities are popular with senior investors because you can tailor the product to suit your needs and won’t be tied into a contract for the rest of your life. They are also a great way to receive a guaranteed income over a set period of time.
How do I invest in fixed annuities?
Shop around to find the best rate for your fixed annuity. Different providers will offer different rates, which can make the difference in you earnings hundreds of thousands of dollars over the term. Once you’ve found the right product for you, you can either apply directly with the provider or hire a financial advisor to apply for it on your behalf.
Annuity rates can improve over time, which means the sum of your maturity could increase. At the end of your term you can then decide whether to withdraw your funds or take out a new product at a better rate.
What are the risks involved in fixed annuities?
Some fixed annuities have high fees, so always check the contract before signing up. If you need to withdraw your funds early, you may face some fees which will affect how much money you have made from this type of investment.
Fixed annuities can have complicated terms and conditions so it’s a good idea to speak to a financial advisor before investing.
Treasury bills, notes and bonds
What are Treasury bills, notes and bonds?
The federal government issues Treasury securities such as bonds, bills and notes to help them finance their operations. The difference between these options is the length of maturity. Treasury bills have terms for less than 12 months, notes are issued on two, three, five, seven and 10 year terms. Treasury bonds are issued on 30 year terms.
How do I invest in Treasury bills, notes and bonds?
Typically, bills, notes and bonds are sold at auction with a fixed interest rate. Investors can also buy directly from Treasury owners that want to sell their securities before they mature.
Investors will receive a payment from the Treasury Department every six months until the security matures. After this time the Treasury will pay the par value of your investment.
What are the risks involved in Treasury bills, notes and bonds?
TIPS, treasury bills, notes and bonds are not FDIC-insured, but because you’re investing in the government the risk of this investment type is considered low.
When buying Treasury bills, notes and bonds at auction, make sure you don’t pay too much when demand is high. When demand is low, you will pay less. If sold before maturity, there may be a difference between the purchase price and what you sell it for which could be the difference between a profit and loss.
Investing later in life
There are so many safe, low-risk investment opportunities for seniors to consider. The options described in this article are a good way to secure a reliable income or lump sum after retirement. It’s often wise to spread your money between different low-risk investments to reduce the impact that an underperforming investment would have on your financial situation.
For more ways to manage your money effectively later in life, visit our personal finance blog.