Editor’s note: This is part four of a five-part series on supplemental income streams in retirement. Part one, Could Supplemental Income Strategies Work for Your Retirement?, is an introduction to the series. Part two is A Managed Account Offers Optimization and Tax Efficiency. Part three is Annuities Provide Peace of Mind and Lifetime Income. Part five is That Cash in Your Emergency Fund Doesn't Have to Be Idle.
As you near the end of your prime earning years, it can be harder to confidently weather fluctuations in the markets. Still, you may be unwilling to give up your retirement assets’ power to grow. Shifting assets to safer classes of investments may be an effective strategy for supplementing your retirement income without sacrificing the safety of your principal investment.
When looking for the most reliable way to grow investable assets, most people turn to the stock market. With an average annual return over the last 50 years of 10%, investing in the market is a great way to help grow your principal retirement assets — when you have time on your side. But as you near retirement, your investments become more susceptible to short-term market dips and may leave you with little time to recover losses. There are less-risky investment classes and financial products that can still put your money to work while hedging against swings in the market. Here are some of them:
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Government-backed Treasuries
One of the safest investments during periods of market volatility or high inflation are government-backed Treasuries such as savings bonds and Treasury bills. Treasuries are backed by the U.S. government and can be purchased to mature at varying intervals from as little as a few months to several decades. While you shouldn’t expect a rate of return comparable to most stocks, government Treasuries — in most cases — will at minimum keep pace with inflation and can even be smarter investments as interest rates rise to bring inflation down.
The barrier for entry in Treasury securities is also low, with bonds available in a variety of denominations at or above $1,000. In the event you have a need for immediate cash, government bonds may be sold for at least the value you purchased them for — but you’ll miss out on the bond’s maturity value and any future interest payments.
Despite their low risk, bonds are not always a perfect solution — particularly when the markets are stable. Because of their lower rate of return, investors should expect only modest gains, which means lost opportunity for more rewarding returns from other investments in good economic times. Also, while Treasury-backed bonds are typically non-callable — meaning the issuer cannot pay off the bond before it matures — other short-term bonds can be called, closing the investor off from additional interest payments.
Brokered CDs
Another potential consideration for investors looking for more predictable or lower-risk returns on investment is a brokered certificate of deposit (CD). A brokered CD differs from a traditional bank CD in that the investor purchases a portion of a larger bank CD from a brokerage firm. The brokered CD earns interest and has a maturity date just like a traditional CD, but also typically has higher yields for investors due to the larger underlying investment from the brokerage firm.
Brokered CDs can be advantageous options for investors who need flexibility with their investable assets. In the event that an investor needs access to their capital before the maturity date of the CD, brokered CDs often can be sold on the secondary market without the high penalty fee you’d pay to withdraw money from a bank CD.
While brokered CDs offer more flexibility and higher yields, they can be problematic for investors in a shifting interest rate environment. As rates rise, investors in a brokered CD may have difficulty selling their lower-interest investment on the secondary market. Conversely, if interest rates drop over the life of the CD, investors run the risk of their CD being called — recouping their principal investment but missing out on future interest earnings.
Short-duration fixed income
Another option for investors to consider: short-duration, fixed-income solutions. These products are offered as either short or ultra-short bonds. Common solutions in this category would be short-term corporate bonds, bond mutual funds or bond ETFs.
Short-duration fixed-income solutions offer investors a capital preservation strategy with strong liquidity, which generally provides a greater yield than the assets in your emergency fund, like money market or bank deposit sweep vehicles.
Fixed annuities
While not fully liquid, fixed annuities can also be a great option when looking to provide a fixed rate of return for a set period that can allow you to plan for sustained growth with certainty. Annuity products will also provide for tax deferral on earnings while the contract is in force, allowing for a more efficient means to accumulate and protect assets.
Often, fixed annuities also can include a return-of-premium feature, which allows the investor to surrender the policy while maintaining the invested principal. While some annuities may offer a return of premium, most contracts may be assessed a surrender penalty (or contingent deferred sales charge, or CDSC) if the policy is surrendered before the end of the required term, generally three to seven years.
Approaching retirement can mean it’s time to re-evaluate how you’re investing your money, but it doesn’t mean you have to pull your funds out of appreciating assets altogether. Working with your financial adviser to ladder these strategies can help provide liquidity at various intervals so you don’t need to surrender or sell before maturity.
Exploring investment opportunities that pay a fixed yield and may be quickly liquidated — such as bonds, brokered CDs and fixed annuities — may provide a worthwhile return on assets without the risk of a significant loss.
Next week, look for the last part of this five-part series, about low-risk, low-yield investment vehicles for your emergency fund.
The other articles in this series:
Part one: Could Supplemental Income Strategies Work for Your Retirement?
Part two: A Managed Account Offers Optimization and Tax Efficiency
Part three: Annuities Provide Peace of Mind and Lifetime Income
Part five: That Cash in Your Emergency Fund Doesn't Have to Be Idle
related content
- Why Treasury Bills Are a Good Bet
- What Are Fixed Index Annuities, and How Do They Work?
- How Can I Prepare for an Unexpected Financial Emergency?
- Best Bond ETFs to Buy Now
-
Why is My First Medicare Bill So High?Your first Medicare bill may be higher than expected for several reasons. If your premiums aren't taken out of your Social Security benefit, the bill can be huge.
-
11 Unforgettable Road Trips to Take in RetirementMore than a travel trend, the road trip is a quintessential American tradition, with millions of us taking them each year. Here's a guide to helping you choose your next adventure.
-
I'm a Financial Professional: Here Are Four Ways You Can Use Debt to Build WealthUsing debt strategically, such as for homeownership, education and more, can lead to greater financial stability and growth.
-
Five Key Wake-Up Calls for Ambitious Business Owners, From a Biz SpecialistYour personal financial plan needs to include a formal exit strategy for your business, or you could be in trouble.
-
I'm a Retirement Psychologist: Here's Why Doing What You 'Ought' in Retirement Beats Doing Whatever You WantTrue retirement freedom isn't about simply doing whatever you want, but about finding purpose and direction through commitments that align with your deepest values and allow you to contribute meaningfully.
-
Tactical Roth Conversions: Why 2025-2028 Is a Critical Window for RetireesThe One Big Beautiful Bill (OBBB) extended today's low tax brackets, but they may not last. Here's how smart planning now can prevent costly tax surprises later.
-
Ready to Retire? It's Not Too Late to Convert to a Roth IRAMillions of Americans are turning 65 this year. If you're retiring soon, don't dismiss the idea of a Roth conversion — it could still be a smart move even now.
-
I'm a Financial Adviser: Three Things You Will Wish You Did Before the Fed Cuts Interest RatesWith potential interest rate cuts on the horizon, you might want to lock in today's higher yields and consider adjusting your asset allocation.
-
Simple Ways to Save on Back-to-School Shopping This YearSet a budget and stick to it, scour the house for what you already have, decorate backpacks and lunch boxes with your kids and consider buying some items during holiday sales.
-
The Seven-Day Financial Reset: A Simple Plan to Get Control of Your Money, From an ExpertSometimes, getting unstuck requires a reset. These practical steps can help you tackle your money issues and feel less overwhelmed by it all.
