While other investors obsess over maximizing returns, retirees have different goals: minimizing risk and optimizing for stability.
However, as a retiree, maximizing returns and minimizing risk need not be mutually exclusive.
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Instead of choosing any low-risk asset that comes your way, you can optimize your portfolio by selecting those with potential for relatively high returns. In other words, you can still optimize for high risk-adjusted returns without endangering income stability.
Here are seven relatively high-return, low-risk assets that can help you get the most from your nest egg without subjecting yourself to high market volatility:
— Dividend stocks.
— Corporate bonds.
— Municipal bonds.
— Fixed indexed annuities.
— High-yield savings accounts.
— Treasury inflation-protected securities (TIPS).
— Stable value funds.
Dividend Stocks
Companies that pay regular dividends are often associated with stable earnings and strong balance sheets. These are usually companies unaffected by the business cycle — demand for their products and services is constant throughout economic ups and downs.
When equities become volatile, investors pack their money into defensive stocks, which are often dividend stocks. The non-cyclical nature of these businesses means they can tend to offer a measure of stability in volatile markets.
Dividend stocks allow you to earn from both capital appreciation and dividend payments. Stocks, unlike bonds, can grow earnings and thus support meaningfully higher share prices over time, producing a level of price returns that low-risk investments like bonds or savings accounts will struggle to match.
Finally, if you prioritize dividend-growth companies (those that consistently increase their dividend payout), you will also get inflation protection since your dividend income will increase as inflation rises.
Corporate Bonds
Retirees and low-risk investors often favor bonds. Bonds pay consistent income, and are far less volatile than stocks as an asset class.
Treasury bonds occupy a special place in the investment landscape; they constitute a “risk-free investment” since they are backed by the full faith and credit of the U.S. federal government.
However, retirees seeking both low risk and high return might consider corporate bonds instead.
Corporate bonds, issued by corporations rather than governments (and their agencies), tend to pay higher interest rates, as they have a higher risk profile than Treasury bonds.
The best approach is to prioritize corporate bonds with high grades from the major credit rating agencies (Moody’s, Standard and Poor’s and Fitch). For example, you can ignore anything below an A- or A3, which are considered upper-medium grade credit bonds.
By prioritizing high-quality bonds, you can earn a higher rate of interest than what Treasury bonds offer while remaining reasonably confident that you will get your money back.
Municipal Bonds
Municipal bonds are issued by state governments, local governments or government agencies.
Though they are not risk-free like Treasurys, they are low-risk assets that you should consider in your portfolio.
The main advantage of municipal bonds is not in their gross but their net (or after-tax) yields.
These bonds are tax-free at the federal level and can be tax-free even at state and local levels.
Thus, depending on your tax bracket, a municipal bond with a similar yield as a Treasury bond can be more valuable when you factor in taxes.
For example, if you are in a 30% tax bracket, a 3% municipal bond will have a tax-equivalent yield of about 4.3%. If a Treasury bond with the same maturity has a 4% yield, the municipal bond is more valuable even though it has a lower stated yield.
If you are in a high tax bracket, municipal bonds can be a way to earn a higher yield in retirement.
Fixed Indexed Annuities
Fixed indexed annuities are annuities that help you profit from positive market movements while protecting you from negative market movements.
Returns on these annuities are tied to the performance of a market index (like the S&P 500). When the index produces positive returns, you are guaranteed a return in your portfolio.
On the other hand, your capital is protected when the index produces negative returns. That is, if the index falls by 5%, for example, your account balance won’t change.
However, this negative interest protection comes at a price (no free lunch, remember): a limit on your positive returns.
This can be in the form of a cap that sets a maximum return you can earn in a given period. If this cap is at 10%, for example, then your account balance will only increase by 10% even in a year when the index produces a 23% return.
The other approach is to use a participation rate. This is the percentage of the index’s gain you will receive. If this rate is 80%, then if the index produces 23%, only 19.4% will be applied to your account.
Fixed indexed annuities are lower-risk investments than stocks themselves since they can offer far more downside protection. But even with the cap and participation rate, you will earn more returns than many other low-risk assets.
[READ: 7 Best Long-Term ETFs to Buy and Hold]
High-Yield Savings Accounts
are considered low risk since they offer Federal Deposit Insurance Corp. insurance up to $250,000.
However, retirees can earn higher returns by choosing high-yield savings accounts. These accounts also provide FDIC protection and do not usually require a lock-up period or minimum balance, though they might limit the number of monthly withdrawals.
Importantly, high-yield savings accounts are a good option for keeping your emergency funds and money for some short-term financial goals.
Treasury Inflation-Protected Securities (TIPS)
Standard Treasury bonds often offer lower yields than corporate and municipal bonds due to their risk-free status.
However, you can earn a higher yield from Treasury bonds through TIPS. TIPS are U.S. government bonds that are specifically designed to protect investors from inflation risk. They do this by allowing the principal value of the loan to adjust upward when the consumer price index (CPI) rises.
Since the coupon payments are calculated on the principal, you can receive a higher income when the CPI rises. Also, at maturity, you will receive the higher of the initial principal (before any inflation adjustment) and the inflation-adjusted principal at maturity.
TIPS are low risk because they are backed by the creditworthiness of the federal government. Yet, they can provide higher returns in the form of higher income during inflationary periods.
Stable Value Funds
Stable value funds are low-risk investment options available in most employer-sponsored retirement plans, like 401(k) plans.
They usually invest in high-quality fixed-income securities while guaranteeing the principal with insurance contracts.
These funds are low risk because they offer principal protection. Yet, by investing in high-quality bonds, they provide returns higher than a typical savings account or even a money market fund.
Retirement investing doesn’t have to be a trade-off between safety and growth. With the right assets, you can build a portfolio that delivers steady income, inflation protection and peace of mind.
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7 High-Return, Low-Risk Investments for Retirees originally appeared on usnews.com
Update 07/17/26: This story was published at an earlier date and has been updated with new information.
