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4 of the Safest Financial Solutions for Pre-Retirees

woman holding a glass jar with coins and a savings label

When it comes to growing your money, the best solutions usually present some degree of risk. At the mildest, you risk the opportunity cost of choosing a less profitable option over another, while the more severe risks include losing your principal with no chance of returns. If you’re approaching retirement and striving to protect your future, you may want to center your strategy on safe financial solutions — methods for growing your wealth that minimize risk and increase your chances of returns. To that end, here are four of the safest financial solutions for pre-retirees.

High-Yield Savings Accounts

High-yield savings accounts are one of those rare financial solutions that present no risk at all. As with many other types of savings accounts, all you have to do is deposit money into the account and maintain a minimum balance. In addition, there may be a minimum initial deposit and potentially some fees. In return, you get a much higher annual percentage yield (APY). According to Bankrate, the national average APY as of mid-October 2023 is just 0.57%. In contrast, a high-yield savings account might offer an APY that ranges up to 5%, if not higher.

To illustrate the difference, imagine you have $10,000 to deposit into a savings account. If you placed it in an ordinary savings account at 0.57% APY, it would earn just $57 interest over the year. But a high-yield account at 5% APY would earn $500 in the same time frame. The high-yield account allows you to generate more money simply by having money. 

If you’re thinking of opening a high-yield savings account, bear in mind that the interest rate is variable, so some years may offer higher APYs than others. Also, savings accounts in general are more of an incentive to use a certain bank than a reliable way to maximize returns over time.

United States Treasury Securities

A United States Treasury security — such as a bill, note, or bond — is a debt instrument issued by the U.S. Department of the Treasury, the function of which is to finance government projects and operations. Buying a Treasury security means you’re lending money to the government. In return, the government pays you interest on predetermined dates and returns your principal on your security’s maturity date.

According to the U.S. Securities and Exchange Commission, Treasury securities are among the safest investment vehicles because they’re government-backed. Though they often offer less-than-stellar returns, they can be terrific for diversifying and minimizing the overall risk of your investment portfolio.

Fixed Annuities

A fixed annuity is both a retirement vehicle and a type of insurance contract. When you purchase a fixed annuity, the provider offers you a fixed rate of return that applies to every year of the contract term. You then fund your annuity account with either a lump-sum payment or a series of contributions, and the money grows, tax-deferred, at the rate discussed. 

When the contract ends, you have the option either to roll over your account into another annuity or to convert it into a series of regular payments. The payments themselves can last the rest of your life, providing you with guaranteed income in retirement.

Fixed annuities are not only low-risk but also practical because their predictability can help you better plan your retirement. Indeed, by knowing precisely how much interest your account will gain every year, you can calculate how much your annuity will ultimately pay out. With that knowledge, you can set fairly accurate budgets based on the amount of money you’ll get from your annuity every month.

Dividend Stocks

Like other types of stocks, dividend stocks have the potential to appreciate in value over time, so you stand to make a profit when you sell them off. What distinguishes them, however, is that they pay out dividends — portions of the company’s profits. The more shares of stock you own in a company, the higher your dividends will probably be. Dividend-paying companies ordinarily distribute dividends on a quarterly basis.

Dividend stocks are the riskiest financial solution on this list, but they’re considered much safer than other types of stocks. That’s not only because the dividends themselves help to limit volatility but also because dividend-paying companies are often more stable than other entities. Moreover, dividend stocks provide you with a source of income in addition to the profit potential when you sell them off.

Remember, when you’re choosing a financial solution to support your retirement goals, you must balance the risk with the reward. If you’re striving to grow your money more quickly, you’ll likely have to take on a higher degree of risk, and vice versa. For expert guidance on the matter, we recommend speaking with a financial adviser. With their knowledge and expertise, they can devise a growth strategy well-tailored to your financial goals and retirement expectations.