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Finding the right balance between your need for income and your desire to continue growing your portfolio is one of the major challenges of retirement investing. The best retirement income funds provide reasonable capital growth along with a steady stream of income after retirement.
Balanced funds, which own portfolios of stocks and fixed income with a strong emphasis on dividends and interest income, are among the best options for retirement income. However, retirees also choose fixed income funds, which only make bond investments.
Forbes Advisor created this list of some of the top retirement income funds on the market right now by analyzing dozens of mutual funds. We offer bond funds that exclusively invest in fixed income securities as well as balanced funds that own both stocks and bonds.
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Securing a safe and reliable income stream is paramount for retirees, as their financial needs and risk tolerance shift. While the pursuit of high returns can be tempting, prioritizing safety becomes crucial during retirement. Fortunately, a variety of safe investment options cater to the needs of retirees, offering stability and peace of mind.
Top Safe Investments for Retirees:
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Series I Savings Bonds: Issued by the U.S. Treasury these bonds offer a unique combination of safety and inflation protection. Their interest rate adjusts every six months based on inflation ensuring your purchasing power remains intact. Series I bonds are exempt from state and local taxes, further enhancing their appeal.
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Certificates of Deposit (CDs): CDs provide a guaranteed rate of return for a specific term, typically ranging from a few months to several years. This predictability makes them ideal for retirees seeking stability and income planning. While CDs offer lower returns compared to stocks, their safety and liquidity make them a valuable asset in a retirement portfolio.
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Money Market Accounts: Similar to savings accounts, money market accounts offer FDIC insurance and liquidity, allowing easy access to funds when needed. While their returns are typically lower than CDs, they often exceed those of traditional savings accounts, making them a suitable option for short-term investments or emergency funds.
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Treasury Bills and Notes: Backed by the full faith and credit of the U.S. government, Treasury bills and notes offer unparalleled safety. These short-term debt instruments mature within a year (bills) or up to 10 years (notes), providing predictable returns and low risk.
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High-Quality Corporate Bonds: Bonds issued by financially sound corporations offer a balance between safety and potential for higher returns compared to government bonds. Diversifying across different industries and maturities can further mitigate risk.
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Dividend-Paying Stocks: Carefully selected stocks of established companies with a history of consistent dividend payments can provide a reliable income stream. However, it’s crucial to research and choose companies with strong financial fundamentals and a track record of dividend growth.
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Real Estate: While requiring more active management real estate can be a valuable source of passive income through rental properties. Owning rental properties can generate steady cash flow and long-term appreciation potential.
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Annuities: Annuities offer guaranteed income for a set period or lifetime, providing retirees with a sense of financial security. However, it’s essential to carefully consider the terms and fees associated with annuities before investing.
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Precious Metals: Gold and silver are considered safe-haven assets, often sought during economic uncertainty. While not generating income, they can provide a hedge against inflation and market volatility.
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Cash: While not an investment, maintaining a
PGIM High Yield Fund (PHYZX)
10-Year Avg. Ann. Return
High-yield debt is frequently maligned by the label junk bonds. However, for investors who are more aggressive, high-yield debt may make sense as an addition to a diversified retirement income portfolio. The PGIM High Yield Fund owns low-rated debt in an effort to optimize income.
The managers of PHYZX are assisted by a group of about fifty skilled analysts that specialize in leveraged finance. They seek out strong companies with moderate financial health. Just around 2015% of the portfolio’s approximately 700 bonds are rated investment grade, according to E2%80%99. The rest are below investment grade, not rated or cash. The average effective duration of the entire portfolio is shorter than four years.
Typically, a bond fund will increase or decrease by the same amount as its duration number for each percentage point change in interest rates. For example, the cost of a bond fund with a four-year duration typically decreases by 4% when interest rates rise by 1%.
PHYZX offers an exceptional dividend yield, a reasonable yearly fee, and no minimum investment requirements. It has performed better than its Morningstar peer group during the previous five, ten, fifteen, and one-year periods. PHYZX is an option for fixed income investors who are comfortable with risk and want to maximize their returns.
Schwab International Index Fund (SWISX)
10-Year Avg. Ann. Return
Every investment portfolio that is well-diversified ought to include an international stock fund. The tendency of multinational corporations to pay large dividends is one of their advantages. The MSCI EAFE Index, which measures the performance of large- and mid-cap stocks across 21 developed markets in Europe and Asia, is tracked by the Schwab International Index Fund.
SWISX owns roughly 800 equities. SWISX provides investors with a conservative allocation to the most significant international dividend stocks by eschewing small-cap and developing companies.
Why This Investment System Can Help Retirees Worry Less About Their Retirement Plan
FAQ
What is the safest place to put your retirement money?
What are the best investments for retirement income?
Among the best choices for retirement income are balanced funds that own portfolios of stocks and fixed income, with a strong focus on dividends and interest income. But retirees also opt for fixed income funds that invest exclusively on bonds.
Are certificates of deposit a safe investment for retirees?
Certificates of Deposit (CDs) are time-bound deposits held with banks that offer a fixed interest rate. CDs can also be a safe investment choice for retirees, primarily for the following reasons. First, CDs offer income stability through fixed interest rates and predictable maturity dates.
Are CDs a safe investment for retirees?
CDs can also be a safe investment choice for retirees, primarily for the following reasons. First, CDs offer income stability through fixed interest rates and predictable maturity dates. Retirees can rely on regular interest payments, which can help cover living expenses and maintain financial stability.
What is the safest investment with the highest return?
The safest investment with the highest return is Treasury bills, owing to their risk-free nature thanks to a combination of virtually no interest rate or credit risk. As of June 30, 2023, the three-month Treasury bill rate is 5.18%.