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These 3 Investments Are Perfect for Retirees

By Maurie Backman - Jan 31, 2021 at 8:01AM

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Here's how to set yourself up for long-term financial security during your senior years.

Once you leave the workforce behind, you'll need a steady stream of income to ensure that you're able to keep up with your bills during retirement. Social Security will provide some of that income, but it won't be enough to maintain a comfortable lifestyle. As such, you'll need savings of your own on top of those monthly benefits.

But your savings shouldn't just sit there doing nothing. While it's a good idea to have some cash on hand -- ideally, at least a year's worth -- you'll want to put the rest of your money to work during your senior years. Here are a few investment options it pays to consider.

Smiling older man and woman at laptop

Image source: Getty Images.

1. Dividend stocks

The great thing about dividend stocks is that they can serve as a source of regular income. Dividends are generally paid quarterly, and while companies aren't required to pay them, those with a long dividend history are likely to uphold that practice. But dividend stocks aren't just an income stream -- they can also buy you protection during periods of stock market volatility. If the market crashes and liquidating stocks would mean losing money, you could instead sit back and wait for your dividend checks to roll in, all the while leaving your portfolio untouched until the market recovers.

2. Index funds

Having a diverse portfolio is important during retirement, and so index funds are a fitting investment at that stage of life. Index funds don't aim to beat the market. Rather, their goal is to match the performance of the market indexes they're associated with. An S&P 500 index fund, for example, will aim to do as well as the S&P 500 itself. Index funds take a lot of the guesswork out of investing, since you don't get a say in what goes into them. But they do allow you to benefit from broad market gains without the same risks that come with buying individual stocks.

3. Municipal bonds

Though bonds don't tend to deliver as strong returns as stocks, they're an important investment during retirement, because you need a less volatile product in your portfolio. But if you're going to buy bonds, it pays to look at municipal bonds, which are those issued by cities, states, or other public entities, as opposed to corporations.

What makes municipal bonds so valuable is that they pay interest twice a year, only that interest is always exempt from federal taxes. Furthermore, if you buy municipal bonds issued by your state of residence, you won't be charged state or local taxes either. Corporate bond interest, by contrast, is always taxable. Similarly, while dividends are generally taxed at a more favorable rate than ordinary income, they are taxed nonetheless, whereas your municipal bond interest payments could end up being completely tax-free.

The more income you're privy to during retirement, the more enjoyable and fulfilling your senior years are likely to be. These investments are a solid choice for retirement, so keep them in mind as you establish your own long-term income-generating strategy.

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