Many hardworking adults look forward to the day when they can leave the rat race behind and retire. While retirement offers several perks, it also leads to new challenges. What you gain in free time, for instance, you often lose in income, and this can take a toll on your personal finances.
When the paychecks stop coming in, it’s beneficial to have an investment or two you can lean on for financial stability. Here are a few investments that can help you pad out your retirement savings without taking on undue risk.
Annuities are investment contracts between you and your insurance company. They work by transferring the risk from the owner—in this case, the retiree—to the insurer. On the surface, many annuities seem like a safe bet, however, not all contracts are created equal. Many charge additional fees and commissions, which can add up quickly. Because annuities are often more complex than meets the eye, it’s crucial to do your research before buying and always get a second opinion.
Deferred-income annuities tend to be safer than other varieties, making them a decent option for those about to retire. Think of it as a pension of sorts: By paying a lump sum to your insurer, you’ll receive guaranteed lifetime income that begins at a future date. It’s worth noting that the rise and fall of the stock market won’t affect this future income, making deferred-income annuities less risky than other investment options.
Peer-to-peer lending, known simply as P2P or crowdlending, is a fairly new type of investment that’s seen strong growth over the past decade. The P2P lending model connects borrowers directly to investors, bypassing banks altogether. Because most P2P activity occurs solely online, companies operate under lower overhead and provide their services at a lower rate than traditional financial institutions. In the end, investors earn higher returns and borrowers can borrow at lower interest rates.
Treasury securities—particularly inflation-protected securities or TIPS—are a great option for risk-averse retirees. Backed by the U.S. government, TIPS differ from other treasury securities in that they pay the interest and additional principal to compensate for inflation. The fixed interest rate is then applied to the adjusted principal amount, which means the dollar amount investors receive in interest payments will increase along with inflation. TIPS pay lower interest rates than other U.S. securities, but the inflation adjustment often leads to better results.
There is no silver bullet or single investment that will transform your financial situation. When in doubt, seek the expert guidance of a financial advisor who can help you create an informed, post-retirement investment strategy.