Best Retirement Investments: A Senior's Guide to Secure Returns

Retirement planning is daunting when you look at the numbers. A couple earning $300,000 annually will need roughly $4.5 million to maintain their standard of living over a 30-year retirement. About 55% of Americans say they're behind on savings, so choosing investments carefully matters.

Retirement has two main problems: making your money last and protecting it from market swings. As you get closer to retirement, choosing safer investments becomes more critical. If you retire at 65, your savings might need to last 25 years or more. You need a strategy that balances growth with security over that long stretch.

This guide covers retirement investments that offer reasonable returns without excessive risk. A 65-year-old couple retiring in 2024 should budget around $395,000 just for healthcare costs throughout retirement. Whether you want steady income or need to protect what you've saved, this will help you make decisions with more confidence.

• Understanding the risks of retirement investing
  • Lifestyle creep and overspending
  • Market downturns and sequence risk
  • Longevity and outliving your savings
• Safe retirement investments to consider
  • Treasury bonds and TIPS
  • Certificates of deposit (CDs)
  • Fixed annuities
  • High-yield savings accounts
  • Money market funds
  • Dividend-paying stocks
  • Municipal bonds
  • Real estate investment trusts (REITs)
• Balancing growth and security in your portfolio
  • Why you still need stocks in retirement
  • Using a 60/40 or 50/50 allocation
  • Target-date and balanced funds
  • Rebalancing strategies for seniors
• Planning for healthcare and long-term costs
  • Estimating healthcare expenses
  • Long-term care insurance options
  • Using HSAs for medical costs
  • Medicare and supplemental coverage
• Bottom line
• Key takeaways
• FAQs

Understanding the risks of retirement investing

Before choosing retirement investments, you need to understand what could derail your financial security. These risks often overlap and can compound, affecting even well-planned portfolios.

Lifestyle creep and overspending

Lifestyle creep happens when your spending gradually increases as your income rises. As your paycheck grows, you might upgrade your car, home, or hobbies without increasing your savings to match.

This matters most in your 40s and 50s. If you lock in higher spending habits during peak earning years, you'll need much more money saved to sustain that lifestyle for decades in retirement.

Studies show that younger retirees, ages 55–64, tend to increase spending more than older or younger age groups. The fix: keep tabs on your spending and make sure your retirement income can actually support the lifestyle you want.

Market downturns and sequence risk

Sequence of returns risk is a major threat to retirement security. This happens when negative market returns occur late in your working years or early in retirement.

Consider two investors retiring with identical $1 million portfolios and withdrawing $45,000 annually (adjusted for inflation). The first experiences strong returns (25%, 10%, 5%) before a down year (–15%). The second faces an immediate drop (–15%) followed by gains. Despite identical overall returns, the first investor's money lasts 40 years, while the second runs out in 25 years. When you sell investments during downturns to fund retirement, you drain savings faster and leave fewer assets to grow during recoveries.

This timing problem can cut your retirement short, which is why building a cash buffer before you retire matters.

Longevity and outliving your savings

Many retirees underestimate how long they'll live. The Society of Actuaries estimates that for a couple both reaching age 65, there's a 50% chance one spouse will live to 93. That extended longevity amplifies every other retirement risk.

The fear of outliving savings often ranks higher in surveys than the fear of death itself. With retirements potentially lasting 20–30 years or longer, your investment strategy must balance safety with enough growth to keep pace with inflation.

The traditional rule is to withdraw 4% of your retirement savings annually, adjusted for inflation. But even this conservative approach requires careful planning to make sure your money lasts through an extended retirement.

Safe retirement investments to consider

Understanding retirement risks is the first step. The next is knowing where to put your money. Most secure retirement portfolios include a mix of these safer investments.

Treasury bonds and TIPS

U.S. Treasury bonds have virtually no default risk and are backed by the government. They pay fixed interest every six months with terms of 20–30 years. For inflation protection, Treasury Inflation-Protected Securities (TIPS) adjust in value based on the Consumer Price Index, which helps protect your purchasing power.

Certificates of deposit (CDs)

CDs guarantee your return and come with FDIC insurance up to $250,000. You lock up your money for a set period in exchange for a higher interest rate than regular savings. Senior-specific CDs often pay even higher rates, with minimums around $25,000.

Fixed annuities

Issued by insurance companies, fixed annuities work like CDs but offer guaranteed returns during an accumulation phase followed by steady income payments. These tax-advantaged contracts create income streams for life, and many include death benefits for surviving spouses.

High-yield savings accounts

Currently earning around 4% APY (compared to 0.01% at traditional banks), these accounts offer both safety and liquidity. They're FDIC-insured up to $250,000 and reduce portfolio volatility without locking up your money.

Money market funds

These invest in short-term, high-quality debt securities and aim to keep a stable $1.00 share price. They pay better yields than savings accounts and are highly liquid, making them useful for short-term needs.

Dividend-paying stocks

About 80% of S&P 500 companies pay dividends. These stocks provide both income and potential growth, and companies with consistent dividend histories tend to be less volatile than growth stocks.

Municipal bonds

These bonds are issued by states and local governments. Their interest is exempt from federal taxes and often from state taxes if you live in the issuing state. Investment-grade municipal bonds have very low default rates (roughly one per 1,000).

Real estate investment trusts (REITs)

REITs let you invest in large, income-producing real estate without owning or managing properties. They're often publicly traded and include different property types: residential, commercial, healthcare, and industrial. Most pay high dividends, often monthly or quarterly, from rent payments. Property values and rents tend to track inflation, which protects your purchasing power over time. Adding a 10% REIT allocation to a standard portfolio has historically improved returns without significantly increasing volatility. That said, REITs are sensitive to interest rate changes and market conditions, so do your homework before investing.

Balancing growth and security in your portfolio

Building a retirement portfolio requires more than picking the safest investments. Finding the right balance between protection and growth is essential for long-term financial health, even as retirement approaches.

Why you still need stocks in retirement

Longevity risk—the danger of running out of money—requires continued growth in your portfolio. With many retirees living into their late 80s or 90s, eliminating stocks entirely could backfire on your financial security. Most retirees need stocks to combat inflation and make sure they don't run out of money during a retirement that might last decades.

One rule of thumb: subtract your age from 110 or 120 to find your stock allocation percentage. A 65-year-old might aim for around 50% in stocks. This approach targets growth while managing risk.

Using a 60/40 or 50/50 allocation

The classic 60/40 portfolio (60% stocks, 40% bonds) has returned an average of 6.9% annually over the past decade, close to its long-term average. This mix captures stock market gains during rallies while offering bond income stability during downturns.

A 50/50 allocation often maximizes safe withdrawal rates for portfolios that need to last 25–40 years. This balanced approach protects against both bear markets and inflation.

Target-date and balanced funds

Target-date funds automatically adjust your mix as you approach retirement, gradually shifting from growth-focused to more conservative investments. These professionally managed funds follow a "glide path" that reduces risk over time.

Balanced funds maintain a stable mix (typically 60% stocks, 40% bonds) and rebalance automatically. Historically they've delivered better returns than fixed income alone while reducing the volatility of an all-stock portfolio.

Rebalancing strategies for seniors

Regular rebalancing helps manage risk and potentially improves long-term returns. Three common approaches:

• Calendar-based: Reset allocations quarterly or yearly
• Threshold-based: Rebalance when allocations drift beyond predetermined percentages
• Combined: Check on a calendar schedule but only rebalance when thresholds are breached

Monitor your portfolio frequently, but rebalance only when it drifts around 5% or more from your targets.

Planning for healthcare and long-term costs

Healthcare costs are often the largest expense in retirement and usually exceed what people expect. Planning for them is just as important as choosing the right investments.

Estimating healthcare expenses

Fidelity estimates a 65-year-old individual will need about $165,000 in after-tax savings for healthcare in retirement. Milliman's 2024 Retiree Health Cost Index projects that a healthy 65-year-old couple might need around $395,000 in today's dollars for healthcare throughout retirement.

First-year healthcare costs alone can run $12,800 for the average 65-year-old couple. Set aside a portion of your retirement savings specifically for healthcare from the start.

Long-term care insurance options

Long-term care insurance protects your retirement portfolio from being drained by extended care needs. About one in five adults age 65 and older will need long-term care. The best time to buy is between ages 50–65, as premiums climb sharply with age.

Options include:

• Traditional policies with monthly premiums
• Hybrid policies combining life insurance with long-term care benefits
• Partnership programs that coordinate with Medicaid

For a healthy 55-year-old, expect to pay roughly $900–$1,500 annually for a $165,000 policy.

Using HSAs for medical costs

Health Savings Accounts offer a triple tax advantage: deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. You can use HSAs for Medicare premiums, certain long-term care insurance premiums, and other healthcare costs in retirement.

For 2024, contribution limits are $4,150 for individuals and $8,300 for families, plus an additional $1,000 catch-up contribution if you're 55 or older.

Medicare and supplemental coverage

Medicare becomes your primary insurance at 65, but it doesn't cover everything. You'll pay premiums, deductibles, and coinsurance.

Supplemental options include:

• Medigap policies to cover what Medicare doesn't
• Medicare Advantage plans, which often include prescription coverage
• Retiree insurance from former employers, which typically pays secondary to Medicare

Note: Medicare Part B carries a 10% premium penalty for each 12-month period you delay without creditable coverage.

Bottom line

Retirement planning needs both foresight and flexibility. Building financial security means balancing growth with protection. Your portfolio should mix safer investments like Treasury bonds, CDs, and fixed annuities with growth vehicles like dividend stocks and REITs.

Retirement investing means managing risk, not eliminating it. Because of sequence risk and longevity concerns, keep some money in stocks even after you retire. A balanced 60/40 or 50/50 split typically works well for most seniors.

Healthcare costs will be one of your biggest retirement expenses. A 65-year-old couple should plan for around $395,000 for medical costs throughout retirement. HSAs, Medicare supplements, and long-term care insurance can help address these costs.

Regular rebalancing keeps your investments aligned with your risk tolerance as markets change. The sooner you start, the more financially secure your retirement will be.

This guide provides a framework for making retirement investment decisions. The goal is for your savings to provide the retirement you've earned.

Key takeaways

Smart retirement investing requires balancing safety with growth to protect against longevity risk and market volatility, ensuring your money lasts 25–30+ years.

Diversify across safe investments: Treasury bonds, CDs, fixed annuities, and dividend-paying stocks offer security and growth potential throughout retirement.

Maintain 50–60% in stocks: Even in retirement, stocks combat inflation and longevity risk. Subtract your age from 110–120 to find your target percentage.

Plan for $395,000 in healthcare costs: A 65-year-old couple needs substantial savings for medical expenses. HSAs and long-term care insurance are key planning tools.

Rebalance regularly but strategically: Monitor your portfolio frequently but only rebalance when allocations drift 5% or more from targets.

Start early to avoid sequence risk: Market downturns during early retirement years can devastate portfolios. Begin implementing these strategies well before retirement to build adequate reserves.

Retirement success means managing risk, not eliminating it. This involves careful diversification, appropriate asset allocation, and dedicated healthcare planning. With good preparation, your retirement investments can provide the financial security and peace of mind you deserve.

FAQs

Q1. What are some safe investment options for retirees?
Safe options include Treasury bonds, certificates of deposit, fixed annuities, high-yield savings accounts, and dividend-paying stocks. These balance security with reasonable returns, preserving capital while generating income.

Q2. How much should I allocate to stocks in my retirement portfolio?
Subtract your age from 110 or 120 to find your target stock allocation. A 65-year-old might aim for around 50% in stocks. This balances growth potential and risk management.

Q3. How much should I budget for healthcare costs in retirement?
A 65-year-old couple retiring today should budget around $395,000 for healthcare throughout retirement. Consider Health Savings Accounts and long-term care insurance to manage these expenses.

Q4. What is the importance of rebalancing my retirement portfolio?
Rebalancing helps manage risk and potentially improves long-term returns. Monitor your portfolio frequently but only rebalance when allocations drift 5% or more from your targets. This keeps your asset mix aligned with your goals as markets change.

Q5. Should I still invest in stocks during retirement?
Yes. Stocks protect you against inflation and the risk of outliving your savings. They provide growth that can help your money last through a retirement spanning many decades. A balanced approach, such as 60/40 or 50/50 stocks-to-bonds, offers both growth and stability.