Where Should a Retiree Put Their Money? 7 Smart Options for Your Golden Years

The Retirement Income Challenge: Making Your Money Last

Hey there! If you’re approaching retirement or already enjoying your golden years, you’ve probably asked yourself this crucial question: “Where should I put my money now?” It’s a question that keeps many of us up at night, and for good reason.

Today’s retirees face a unique challenge: our retirement savings might need to last for 30 years or more. That’s right – with today’s longer life expectancies, about one-third of 65-year-olds will live past 90, and about one in seven will reach 95. That’s amazing news for our longevity, but it puts serious pressure on our nest eggs!

I’ve been researching this topic extensively and I want to share what I’ve learned about creating reliable income streams that can support you throughout a long fulfilling retirement. Let’s dive into some smart options that balance growth potential with protecting what you’ve worked so hard to save.

Understanding the Retirement Income Gap

Before we look at specific investment options, let’s understand what we’re up against:

• Social Security typically replaces only about 40% of pre-retirement income for people earning less than $100,000
• Higher earners might receive just 33% of their pre-retirement income from Social Security
• Inflation means the $50,000 you withdraw in your first year of retirement would need to grow to nearly $118,000 after 30 years (assuming 3% annual inflation) to maintain the same purchasing power

This leaves a significant gap that needs to be filled with other income sources. While some retirees choose to work part-time in retirement (which can have both financial and mental benefits), having a solid investment strategy is essential.

7 Smart Places for Retirees to Put Their Money

Let’s explore seven investment options for retirement, roughly ordered from lower to higher risk:

1. High-Yield Savings Accounts

While traditional savings accounts offer minimal returns, high-yield savings accounts provide a safe place for your cash while earning higher interest rates.

Benefits:

• FDIC-insured up to $250,000
• Highly liquid – access your money anytime
• No risk to principal
• Currently offering competitive rates

Best for: Emergency funds and short-term savings that you might need soon. Think of this as your “sleep well at night” money that you can access immediately if needed.

Chad Gammon, a certified financial planner at Custom Fit Financial, notes that these accounts are “frequently offered by online banks instead of brick-and-mortar institutions. But they are still FDIC-insured up to $250,000. These accounts are ideal for emergency funds or short-term savings where you would need the money soon.”

2. Certificates of Deposit (CDs)

CDs are time deposits that provide a stated return in exchange for leaving money locked up for a set period.

Benefits:

• Predictable, guaranteed returns
• FDIC-insured up to $250,000
• Higher rates than regular savings accounts
• Various term lengths to choose from

Challenges:

• Limited liquidity – funds are locked until maturity
• Potential penalties for early withdrawal
• May not keep pace with inflation

Jake Falcon, founder of Falcon Wealth Advisors, advises that “retirees can choose the term length that best suits their needs, and the interest rates are typically higher than regular savings accounts.” However, he adds that “the downside is that funds are locked in until the maturity date, so it’s important to plan accordingly.”

Many retirees use “CD laddering” – buying CDs with different maturity dates – to provide periodic access to funds while maximizing interest rates.

3. U.S. Treasury Securities

Treasury bills, notes, and bonds are debt obligations issued by the U.S. government and are considered among the safest investments available.

Benefits:

• Backed by the “full faith and credit” of the U.S. government
• Various maturities available (from a few months to 30 years)
• Interest is exempt from state and local taxes
• Highly liquid secondary market

Challenges:

• Lower yields compared to corporate bonds
• Value fluctuates with interest rates if sold before maturity

Treasury securities come with varying maturities – from short-term Treasury bills to long-term Treasury bonds – allowing retirees to tailor their investment strategy to specific needs.

4. Treasury Inflation-Protected Securities (TIPS)

TIPS are a special type of Treasury security designed specifically to protect against inflation – a major concern for retirees.

Benefits:

• Principal value adjusts with the Consumer Price Index
• Provides protection against inflation
• Backed by the U.S. government

Challenges:

• Complex tax structure – adjustments for inflation are taxed annually, even if bonds aren’t sold
• May underperform in low-inflation environments
• Can create “phantom income” for tax purposes

Falcon explains that TIPS “make them an excellent choice for retirees looking to preserve their purchasing power over time,” but cautions that their tax structure is “more complex than a traditional bond.”

5. Dividend-Paying Stocks

Dividend-paying stocks offer potential for both income and growth, which can help your portfolio keep pace with inflation.

Benefits:

• Regular income through dividend payments
• Potential for dividend growth over time
• Possibility of capital appreciation
• More tax-efficient than some other income sources

Challenges:

• Greater price volatility than bonds
• Dividends can be reduced or eliminated
• Higher tax rates on dividend income than long-term capital gains

William Connor, partner at Sax Wealth Advisors, notes that “dividend stocks tend to be less volatile than non-dividend-paying stocks,” and adds that “dividend growth is one of the few ways to generate a stream of income that will increase over time.”

Dividend aristocrats – companies that have increased their dividends for at least 25 consecutive years – are particularly popular among retirees seeking reliable income growth.

6. Fixed Annuities

An annuity is a contract between you and an insurance company where you pay a sum of money in exchange for regular income payments.

Benefits:

• Guaranteed income stream for life or a specified period
• Protection against outliving your savings
• Tax-deferred growth until withdrawals begin
• Various payout options (fixed amount, inflation-adjusted, etc.)

Challenges:

• Limited liquidity
• Fees can be high
• Returns often lower than other investments
• 10% tax penalty on withdrawals before age 59½

Rob Haworth, senior investment strategy director with U.S. Bank Asset Management, suggests that “annuities should be evaluated based on your specific circumstances. You must determine if it can sustainably generate sufficient income to meet your needs over time.”

Many retirees use annuities to supplement other guaranteed income sources (like Social Security) to cover essential expenses.

7. Stable Value Funds

Stable value funds are low-risk investment options typically found in employer-sponsored retirement plans like 401(k)s.

Benefits:

• Designed to preserve capital while providing steady returns
• Higher yields than money market funds
• Less volatility than bond funds
• Protection against interest rate fluctuations

Challenges:

• Generally only available in employer-sponsored retirement plans
• Limited growth potential
• May have restrictions on withdrawals

Neal Gordon, founder and CEO at Gordon Wealth Planning, believes these “don’t get nearly enough attention. They can be a great fit for someone who’s looking for safety but wants better returns than your standard savings account. They’re designed to protect principal and deliver steady returns, which can be really reassuring.”

Creating a Balanced Retirement Income Strategy

Now, I wouldn’t recommend putting all your retirement money into just one of these options. Instead, I’ve found that most successful retirees use a combination approach that balances:

1. Guaranteed income for essential expenses (Social Security, pensions, annuities)
2. Stable, liquid investments for near-term needs (high-yield savings, CDs, Treasuries)
3. Growth investments to combat inflation over the long term (dividend stocks, diversified stock portfolio)

Let me show you how this might look in practice with a sample allocation for a hypothetical retiree:

The Total Return Approach: A Modern Strategy

While traditional retirement income strategies focused solely on preserving principal and living off interest and dividends, many financial advisors now recommend a “total return” approach.

This strategy involves:

• Building a diversified portfolio of stocks and bonds
• Withdrawing a sustainable percentage (typically 3-5%) of your total portfolio value each year
• Focusing on the total return (interest, dividends, AND capital appreciation) rather than just income

The advantages of this approach include:

• Potential for better overall returns
• More flexibility in investment selection
• Better tax efficiency
• Greater inflation protection

Rob Haworth explains that this approach is “a way to grow a retirement portfolio to assure that it continues to meet the needs of people preparing for a retirement that could last 20 to 30 years or longer. It may offer a way to generate a superior total return compared with other investment approaches traditionally pursued in retirement.”

The classic 4% rule (withdrawing 4% of your initial portfolio value in the first year of retirement, then adjusting that amount for inflation in subsequent years) is one application of the total return approach.

Additional Considerations for Retirees

Beyond choosing where to put your money, several other factors should influence your retirement investment strategy:

Tax Efficiency

Different accounts have different tax treatments:

• Tax-deferred accounts (Traditional IRAs, 401(k)s): Withdrawals taxed as ordinary income
• Tax-free accounts (Roth IRAs): Qualified withdrawals are tax-free
• Taxable accounts: Various tax treatments depending on the investment

Strategic withdrawals across different account types can minimize your overall tax burden in retirement.

Required Minimum Distributions (RMDs)

Don’t forget that traditional retirement accounts require minimum withdrawals beginning at age 73 (as of 2025). Failure to take these RMDs results in hefty penalties.

Estate Planning

Your investment strategy should align with your estate planning goals. Some investments, like annuities, may offer less flexibility for leaving a legacy.

My Final Thoughts

So where should you put your retirement money? The answer is: it depends on your unique situation. But I believe most retirees benefit from a diversified approach that includes:

1. A cash cushion for emergencies and short-term needs
2. Some guaranteed income for essential expenses
3. A diversified portfolio with both conservative and growth-oriented investments

The exact mix will depend on your:

• Total savings
• Other income sources
• Risk tolerance
• Time horizon
• Legacy goals

Remember, retirement planning isn’t a “set it and forget it” affair. As your circumstances and market conditions change, your strategy may need adjustments too.

I always recommend working with a qualified financial advisor who understands retirement income planning. They can help you develop a personalized strategy that balances your need for current income, future growth, and protection against the various risks retirees face.

What retirement income strategies have worked for you? Have you found certain investments more suitable for retirement than others? I’d love to hear your experiences in the comments below!

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The “$1,000 a month rule” for retirement suggests that for every $1,000 of desired monthly income, you should have $240,000 saved. This rule is a simple guideline that assumes a 5% annual withdrawal rate and is used to estimate the total savings needed to supplement other income sources, such as Social Security.