8 Investments Financial Advisors Say May Not Be as Safe for Retirees as They Seem

Many retirees look for investments they believe are safer as they build or preserve their nest egg. That instinct makes sense, since risk tolerance often declines with age. But several financial advisors say some products commonly viewed as “safe” may not be as secure for retirees as they appear.

If you want a clearer picture of your financial position, it helps to make sure your portfolio’s risk level matches your comfort zone.

Keeping too much cash in the bank

“A lot of retirees, including my clients, sleep better knowing they have a substantial amount sitting in a savings account or money market fund,” says Steve Sexton, CEO of Sexton Advisory Group.

Sexton says there is nothing wrong with maintaining some cash reserves. The problem comes when too much of a portfolio is left in cash.

“I've met retirees with hundreds of thousands of dollars parked in cash because they're afraid of the market,” says Sexton. “A decade later, the account balance looks about the same, but everything around them costs significantly more.”

Because inflation slowly reduces buying power, holding excessive cash can weaken finances over time.

Long-term CDs

Certificates of deposit pay interest in exchange for locking up money for a fixed period. They can play a useful role, but Sexton says loading up on long-term CDs is usually not ideal.

“If rates rise, inflation spikes, or your circumstances change, you may find yourself stuck earning yesterday's rate,” says Sexton. “For some retirees, that's a reasonable compromise. For others, it can become a frustrating limitation.”

Annuities

Some retirees buy annuities to create a predictable income stream. Even so, these products are not always the best fit.

“They promise stability, but often come with high fees, limited liquidity, and complicated structures that are difficult to unwind,” says Nadeem Kassam, chief investment strategist at Marnoa Private Wealth Counsel.

For retirees trying to make their savings last, the fees attached to many annuities can take a meaningful bite out of assets.

Long-term bonds

“Many retirees view bonds as inherently safe, but long-duration bonds can experience significant losses when interest rates rise,” says Scott Schuebel, CFS, AIF, and CEO at Statera Advisors.

Long-term bonds may still have a place in a portfolio, but investors should understand the risks before relying on them.

Paying down low-interest debt

Some retirees focus heavily on paying off low-interest debt, often in an effort to cut expenses. For instance, eliminating a mortgage with a low rate can reduce monthly costs.

But that strategy is not always the best use of retirement money.

“Retirees should evaluate these decisions through the lens of their overall financial strategy rather than focusing on a single goal, such as eliminating debt or avoiding market volatility,” says Stewart Willis, president at Asset Preservation Wealth & Tax.

Willis adds, “The objective isn't simply to preserve assets; it's to create sustainable income, maintain flexibility, and protect purchasing power throughout what could be a 20- to 30-year retirement.”

Bond ETFs

Some retirees buy investment-grade bond ETFs instead of individual bonds. However, these funds do not carry the same characteristics as a single bond held to maturity.

“When an investor owns an individual bond and holds it until maturity, temporary price declines generally matter less because the investor continues receiving coupon payments and, assuming no default, receives principal back at maturity,” says Sanjeev Pati, CFA and founder of Scatterplot Analytics.

Bond ETFs, by contrast, do not mature. “While they may offer attractive yields, they do not provide the same certainty of principal recovery tied to a maturity date,” says Pati.

Private equity

“Those saving for retirement may soon have access to private equity through their 401k investments,” says Daniel Strachman, managing director of A&C Advisors LLC. He notes that although legislation has been introduced to allow alternative assets in retirement accounts, no legislation had been passed at the time referenced in the article.

Strachman says the change is more likely to help private equity firms than retirees seeking dependable returns. If private equity is offered inside a 401(k), he says it likely is not a safe choice.

“Retirees would get complex fee structures, added risk, and make them hold onto a long-term asset they may not understand,” says Strachman.

Dividend stocks

Dividend-paying stocks can seem relatively safe because they generate income, but they still carry stock-market risk.

“They feel like income instruments, but they're still equities,” says Kassam. “Prices can fall, and dividends aren't guaranteed.”

In a bad scenario, a dividend stock can lose value and stop paying dividends at the same time.

Target date funds

“Many people assume target date funds become fully conservative at or near retirement, but most still contain a large exposure to stock,” says Jason Fannon, CFP® and senior partner of Cornerstone Financial Services.

Fannon says that while this growth exposure can help offset inflation, it can also lead to steep losses during market downturns, and those losses become permanent when retirees withdraw money for everyday spending.

Takeaway

Putting money into the wrong asset is one of the most common financial mistakes. The encouraging part is that portfolios can be adjusted. If you are unhappy with your current mix, it may be time to make changes.

If you are unsure what those changes should be, speaking with a financial advisor may help you assess your financial standing.

This article is for informational purposes only and should not be considered investment advice.

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