Did you know that the average life expectancy in the United States is approximately 78 years? It means a significant number of Americans live beyond 78 years. In fact, research shows that at least 33% of the current 65-year-olds will live past 90, and about 2% of them will live past 95.
Therefore, if you plan to retire in your 60s, as most people do, you have to think about your post-retirement life and how you will survive for 30 years. Generally, that is a lot of pressure to place on your traditional retirement savings account.
You need an elaborate plan to ensure you don’t exhaust your retirement savings with many years of life still ahead of you. Keep in mind that Social Security retirement benefits will only replace about 40% of your pre-retirement earnings.
You need to supplement the benefits with your savings, pension, and, most importantly, benefits. That is why it is not surprising to come across a sizeable number of retirees seeking part-time employment.
Fortunately, you can avoid all the hassle and lead a stress-free retirement life if you know where to put your money. Read on to find out the five best retirement investment options for seniors.
1. Fixed Deposits and Recurring Deposits
Fixed deposits (FDs) and recurring deposits (RDs) are among the most common types of investments for retirees. Banks generally offer a comparatively higher interest rate on fixed deposits and recurring deposits for retired individuals.
This investment vehicle is also popular among people who don’t have much time to monitor where their money is going. With a fixed deposit investment, you enjoy a fixed rate of return, defined tenure, good liquidity, online start/stop renewal, high safety, and defined term.
With flexible tenure, you can always spread your investment amount across different maturities through a process known as “laddering.” Through laddering, you not only enjoy liquidity to your funds but also a relatively low re-investment risk.
When your shortest fixed deposit matures, you can always renew it for the longest duration and continue the process as and when your different fixed deposits mature.
2. Senior Citizens Saving Scheme
The first investment option for most retirees is probably the Senior Citizens’ Saving Scheme (SCSS). As its name suggests, the investment plan is only available to early retirees and seniors. The plan can be availed from a bank or post office by people who are at least 60 years old.
If you are an early retiree, you can still invest in SCSS, provided you do so within the months of receiving your retirement funds. Typically, your SCSS plan will have a five-year tenure which can be extended with a further three years once the initial plan matures.
The interest rate in SCSS can range between 8% and 12% per annum, with interest earned payable quarterly and taxable. The rates are automatically set to each quarter and linked to your account.
Once you have invested a certain amount of money, your initial rates will remain the same for your entire tenure. Currently, SCSS offers the highest post-tax returns among all other fixed income taxable investments. One may open more than one SCSS account and watch their money grow.
3. Annuities
An annuity can be defined as a contract between you and an insurance company where you are expected to pay a sum of money which will be dispersed back to you through regular payments. This is the best way to set up a guaranteed income stream for a specific period or even for the rest of your life.
Typically, you remit a specific amount of money to your insurance company with an understanding that the funds will be dispersed back to you at a later date. While the money is with the insurance company, it can accrue on a tax-deferred basis.
When you start receiving disbursements, you can either choose a constant income stream or account for rises in living costs to cushion you against inflation. You can also choose to have the amount of money paid throughout your lifespan or the lifespan of you and someone else you choose, such as your spouse.
Many annuity policies in the country have flexible liquidity features that state you or your heir will automatically receive the full amount of the initial retirement investment back.
Generally, annuities provide you with tax-deferred growth, great flexibility in how you save and receive funds in retirement, and a steady, predictable source of income in your retirement regardless of the market fluctuations.
4. Certificates of Deposit
Certificates of Deposit, also known as CDs, offer seniors a relatively strong and low-risk retirement investment option. Basically, you give a specific amount of money to a bank. While you can choose the amount of money you want to invest, some banks have minimum requirements.
Once you have put the money in, you will choose a term between one month and ten years. You cannot withdraw the funds until your preferred term is over. You will get the entire amount of money you invested back and accrued interest when the term expires.
The interest rate is usually predetermined, but it grows gradually if you choose a longer term. So, the longer the term, the higher the interest rate.
CDs are an excellent option for retirees because they force you to save a defined amount of money for a specified period, guaranteeing a defined interest.
The most important thing you need to do before investing in CDs is to ensure you go for the chosen period without the money because you may incur hefty penalties if you decide to withdraw the money early.
5. Non-traded Real Estate Investment Trusts (REITs)
Lastly, you can also invest in non-traded real estate investment trusts (REITs), which are a form of real estate investment that allows you to purchase real estate portfolios.
Typically, a REIT portfolio may include apartment buildings, healthcare facilities, vacation properties, self-storage units, timberland, and warehouses. It can also features infrastructure such as energy pipelines, fiber cables, and cell towers.
REITs are usually managed by professionals who charge a fee for services offered. A REIT manager will appoint a property manager to manage the real estate on your behalf. The manager collects rent from the properties and ensures proper maintenance is observed.
The money collected is then distributed as dividends to investors. REITs provide retirees with a practical way of investing in relatively large-scale and income-generating companies that own commercial real estate.
Final Thoughts
The truth is that there are many ways retirees can invest and earn decent income even after their working days are over. It is essential to invest in a relatively risk-free venture because you want your income to last for as many years as possible.
With many people living longer than they expected, you must find a way of stretching your retirement savings to cover you for as long as you are alive. From REITs to CDs and annuities, there are many options that can help you achieve your goal.
Don’t hesitate to contact us in case you need professional help with your retirement investment planning.
