Discover the Best Fixed Income Investments for Retirees to Save Money

The best fixed income investments for retirees will come with less risk than other investments, making them a good choice for retirement


best fixed income investments for retirees

Stocks? Bonds? Hiding your money under the mattress? What are the best fixed income investments for retirees? Assuming, of course, that you don’t have a few Van Gogh originals hiding in your attic to sell, it’s likely that most of us will rely on our investments to pay for our retirement.

Traditionally, investment strategies as you age have been pretty straightforward. As you get closer to retirement, you move your investments from the more volatile nature of stocks and into the fixed return assets like bonds. The closer you are to retiring, the heavier your portfolio will be weighted towards bonds.

Bonds have long been considered a safer investment than stocks. They don’t come with the volatility, and their fixed income makes for predictable returns. Younger investors with a long investment period before retirement have reason to be more interested in the uncertain market of the future because they will be able to withstand some volatility. Retirees and others close to retiring age need to approach their investments with a different mindset. However, with the current nature of the economy and interest rates near all-time lows, the best fixed income investments for retirees may not be what they were “supposed” to be. 

Free Now!

Don’t ignore your 401(k)! Discover the best ways to make more from your 401(k), so your retirement isn’t dependent on Social Security alone—revealed in this FREE report, Retirement Calculator: 6 Important Tips from a Financial Advisor to Get the Most Out of Your 401(k).

The traditional options may not always be the best fixed income investments for retirees

With interest rates hovering around all-time lows, getting into long-term bonds is not a good strategy. Here’s why. When interest interest rates rise, the price of bonds with a low interest rate decreases. Their value drops because new bonds with higher rates are available and will provide a better return. Any bond investments you buy now should mature in five to ten years at the most or you risk making little to no return. 

Most retirees will have some bond funds in their account. With lower interest rates, it is more important than ever to find a fund with a minimal expense ratio. These are some of the best short-term bond funds:

  • Vanguard Short-Term Corporate Bond ETF (VCSH): This fund tracks the performance of the Bloomberg Barclay’s U.S. 1-5 year corporate bond index and has a tiny expense ratio of 0.05%.
  • DFA Five-Year Global Fixed Income Portfolio (DFGBX): Diversifies with global bonds and mostly invests in bonds with a maturity date before three years, often only three months. Great for current interest rates. Has an expense ratio of 0.26%
  • Vanguard Intermediate-Term Bond Fund ETF (BIV): Longer maturities between five to ten years. High quality fund with a 2.5% yield and 0.05% expense ratio.

Alternatively, now may be the time to look towards other investments for more dependable income. 

You can diversify your fixed income investments away from the bond market by adding these investments into your portfolio:

Real Estate– There are few investments more dependable than owning rental property in a high demand location. Even in weaker markets, a good rental property can be a great source of regular income for a retiree. The only drawback of this method is the need to manage the property. Problematic tenants and paying for regular repairs can make investors second guess their decision. If you get enough properties in your portfolio that will provide a good enough return, you can forego the management headaches by hiring a property management company.

Real Estate Investment Trusts (REITs) – Another way to get involved in real estate while avoiding the headache of managing property is to invest in real estate investment trusts, or REITs. You can invest in a REIT in much the same way you invest in a stock, but your returns are usually linked to the regular payments of the occupant on the trust’s property. You can invest in residential, retail, healthcare, office, and mortgage REITs. Each of these operates differently and has its own features that make for a dependable investment.

Liquid Assets– Things like gold, silver, and money market funds are more liquid and allow you to get your money in a hurry when market conditions change.

Changing circumstances alter investment strategies. Whichever option you and your advisor decide to go with, you will want to rethink your approach again once interest rates begin to rise. 

Are you investing for retirement? What do you consider to be the best fixed income investments for retirees?

Free Now!

Don’t ignore your 401(k)! Discover the best ways to make more from your 401(k), so your retirement isn’t dependent on Social Security alone—revealed in this FREE report, Retirement Calculator: 6 Important Tips from a Financial Advisor to Get the Most Out of Your 401(k).

Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

Enter Your Log In Credentials

This setting should only be used on your home or work computer.

Need Assistance?

Call Financial Freedom Federation Customer Service at
(800) 777-2658

Send this to a friend