When looking for safe investments as a senior, you want to understand the best short-term financial savings options. No longer can you count on your money growing for decades or longer. Instead, you need to look at financial vehicles that allow you to save for one, five, or ten years.
Maybe you’ve already retired, but you want to ensure your money continues to work for you. However, after retirement, it’s time to change your investment and savings strategy. Since you’re no longer working, you may not want to take on the same risks you took on in the past.
There are a variety of short-term financial savings options to consider. But, first, let’s look at some of the best financial vehicles for 1, 5, and 10-year savings.
Safe Short-Term Financial Savings & Investment Options
1. High-Yield Savings Accounts
A high-yield savings account is one of the safest choices when looking for short-term financial savings and investment options. This type of savings vehicle offers an FDIC-insured choice to help grow your money over time. However, it comes with a higher interest than a traditional savings account.
There won’t be any monthly fees, which is one of the safest options for retirement savings. Plus, the interest will be compounded every day, which helps your money grow faster.
While a high-yield savings account is very safe, it won’t offer a ton of interest. It’s a higher amount of interest than a traditional savings account, but you’re not going to earn much from this investment vehicle.
2. Money Market Accounts
Another type of short-term financial savings account that works great for seniors is a money market account. This type of account is FDIC-insured up to $250K and provides many other benefits. In addition, the APY you can earn on a money market account will be higher than a traditional savings or checking account.
With a money market account, you can withdraw funds for emergencies without delay. It gives you excellent access to your money at a higher APY than other options.
3. Dividend-Paying Stocks
As a senior, you will want a stable income, whether it’s social security or another source. Dividend stocks work great as a short-term financial savings option that will pay you some money along the way. Dividend stocks typically pay out every quarter.
With this investment vehicle, you can grow your money as the stock rises and get paid a dividend along the way. This is one of the tried-and-true performers for short-term investing, and it’s an ideal option for seniors.
Dividend-paying stocks are considered a lower-risk option, but these stocks are not without risk. One of the main drawbacks to being paid a dividend is that you will effectively be taxed twice. Dividends come from the company’s net income, and then you have to pay an income tax on them, as well. However, this is likely a small price for the peace of mind you gain.
4. Certificate of Deposit
A certificate of deposit or a CD offers a very safe short-term financial savings option. It’s an excellent option for seniors because you can put money into a certificate of deposit for a very short amount of time. You can sometimes put money into a CD for just six months.
With this investment option, you choose a specific amount of money, and you will know the interest rate and term upfront. CDs can be purchased from credit unions, brokerage firms, and banks. CDs typically come with no risk and provide a higher interest rate than a savings account.
5. Real Estate Investment Trusts (REITs)
With REITs, you can still invest in real estate, even after you’re retired. This type of investment vehicle will allow you to invest in all types of properties without having to come up with all the money yourself. You will gain a share of the property’s income without having to purchase the real estate.
While you get to add real estate to your investment portfolio and you gain some diversity, REITs are not without risk. It’s important to know if your REIT is publicly traded or not. With a REIT that isn’t publicly traded, you won’t be able to sell it easily and raise money fast.
It’s also important to consider the taxes. Most REITs will pay out the taxable income to shareholders. You will need to pay the taxes on your dividends, and any capital gained you receive.
6. Fixed Annuities
Seniors looking for a very safe investment option might want to consider fixed annuities. This investment option is a contract that provides a guaranteed return over some time. It’s a safe option with a very low risk that gives you a guaranteed income stream.
The only drawback to fixed annuities is if you have to withdraw your funds too early, which could lead to a penalty. It’s also possible you will end up paying high fees with this option.
Fixed annuities can be rather complex. Therefore, it’s best to work with a financial advisor to figure out the details of the fixed annuity you want to invest in.
7. Municipal Bonds
You won’t get high yields from municipal bonds if you compare them to non-fixed-income investments, but you can gain plenty of benefits, including a tax-free income from municipal bonds. Any income you receive from this short-term financial savings option is tax-exempt at the federal level.
With municipal bonds, you can gain a tax-free income source for retirement. These bonds have lower default rates than corporate bonds, offering a lower-risk choice for retirees.
When you’re looking for the right short-term financial savings options for retirement, you want to make sure you know the best options. There are several good financial vehicles for 1, 5, and 10-year savings. Make sure to work with your financial advisor to get the right short-term savings and investment options you need.
