The S&P 500 is down 3.3% year to date. That’s pretty tame, as far as pullbacks go, despite all the attention focused on recent market action.
Still, investors are nervous about the potential for a bigger drop as the effects of tariffs and other Trump administration actions, such as aggressive and chaotic government layoffs, are still unknown.
If a more serious downturn materializes, that could have serious consequences for retirees: There’s a risk of outliving one’s money if withdrawals are made in the early years of retirement.
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It may be a good opportunity for investors to review their portfolios to see if they have the right risk-and-return balance, and whether they’re allocated too aggressively.
“It is important to understand that managing risk is essentially a trade-off between the short-term risk of market declines and the longer-term risk of maintaining purchasing power, which is reduced over time due to the impact of inflation,” says William Connor, a partner at Sax Wealth Advisors in New York.
Here are some ways that investors might dial down the risk in a portion of their portfolios:
— High-yield savings accounts.
— Certificates of deposit (CDs).
— U.S. Treasury securities.
— Dividend-paying stocks.
— Treasury inflation-protected securities (TIPS).
— Fixed annuities.
— Stable value funds.
High-Yield Savings Accounts
For investors looking to earn a better interest rate than they’ll find in traditional bank accounts, a high-yield savings account is worth considering.
“High-yield savings accounts offer a safe place for cash while earning a higher interest rate than traditional savings accounts,” says Chad Gammon, a certified financial planner at Custom Fit Financial in Cedar Rapids, Iowa.
Gammon notes that these accounts are frequently offered by online banks instead of brick-and-mortar institutions.
“But they are still FDIC-insured up to $250,000,” he says. “These accounts are ideal for emergency funds or short-term savings where you would need the money soon.”
Certificates of Deposit (CDs)
CDs are low-risk investments that provide a stated return in exchange for leaving money locked up for a set period of time, which can range from a few months to a few years. They are available through banks or brokerages. Credit unions offer an essentially identical product called a share certificate.
“Retirees can choose the term length that best suits their needs, and the interest rates are typically higher than regular savings accounts,” says Jake Falcon, founder of Falcon Wealth Advisors in Mission Woods, Kansas.
“The downside is that funds are locked in until the maturity date, so it’s important to plan accordingly,” Falcon adds. “There also may be penalties to access funds earlier than the maturity day. So there is liquidity risk.”
U.S. Treasury Securities
Treasury bills, notes and bonds are considered safer than traditional stock investments, as they are backed by the U.S. government. They can provide a reliable source of income for retirees, although the return is lower than corporate bonds, which also carry more risk.
Treasurys’ lower return is the trade-off for receiving an extra measure of safety.
“These securities come in various maturities, allowing retirees to tailor their investment strategy to their specific needs,” Falcon says. “There is risk, as the underlying value may fluctuate up or down based on interest rates and other factors.”
Dividend-Paying Stocks
A dividend stock strategy offers retirees income generation along with potential for growth. While most equities tend to fall in a broad market downturn, income from dividends can help offset those declines.
“Dividend stocks tend to be less volatile than non-dividend-paying stocks,” Connor says.
The consistent stream of income from dividends can cushion the impact of a bear market.
“Dividend growth is one of the few ways to generate a stream of income that will increase over time,” Connor says.
[Read: 7 Dividend Stocks to Buy and Hold Forever]
Treasury Inflation-Protected Securities (TIPS)
TIPS are designed to protect against inflation by adjusting their principal value along with the consumer price index.
“This makes them an excellent choice for retirees looking to preserve their purchasing power over time,” Falcon says. “I would use caution in buying TIPS in a brokerage account, as their tax structure is more complex than a traditional bond.”
TIPS’ principal adjustments for inflation are taxed annually, even if the bonds are not sold, creating what’s called phantom income.
Fixed Annuities
Annuities can be controversial, as they can be complex and expensive, and require careful shopping before a purchase. However, for many people who are nervous about protecting their capital in retirement, a fixed annuity can make sense.
“Fixed annuities are insurance contracts that provide income for a specified period or for life,” Gammon says. “They are popular if you want predictable income.”
Gammon recommends checking an annuity’s fees and understanding that you’ll have limited access to your principal.
“But they can be a helpful tool covering basic living expenses in addition to Social Security or a pension,” he says.
Stable Value Funds
A stable value fund is a low-risk investment you’ll typically find in an employer-sponsored retirement plan like a 401(k).
It’s designed to preserve capital and provide steady returns by investing in high-quality fixed-income securities and insurance contracts. In other words, the risk of losing principal is low.
“These don’t get nearly enough attention,” says Neal Gordon, founder and CEO at Gordon Wealth Planning in Rockaway, New Jersey.
“They can be a great fit for someone who’s looking for safety but wants better returns than your standard savings account,” Gordon adds. “They’re designed to protect principal and deliver steady returns, which can be really reassuring.”
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7 High-Return, Low-Risk Investments for Retirees originally appeared on usnews.com
Update 05/05/25: This story was previously published at an earlier date and has been updated with new information.
