Here’s something the nice advisor in the khakis probably won’t tell you at the free steak dinner seminar: Some of the investments marketed as “safe for seniors” are the same ones he’d throw a fit about if his own mother bought them.
I’m not talking about obvious scams. I’m talking about mainstream, legal, heavily pitched products that sit in millions of retirement accounts right now. They carry a reassuring label and a soft-focus brochure. They also carry trapdoors.
The problem is that “safe” has two very different meanings. There’s safe from a stock market crash. And there’s safe from losing purchasing power, losing access to your cash, or locking yourself into a contract you can’t escape without a bloody penalty.
Plenty of products protect you from the first kind of danger while exposing you to the second. If you’re worried about volatility right now, it’s worth reading about how to keep your retirement accounts safe in choppy markets before you make any big moves.
Here are five products to treat with extra skepticism.
1. Long-dated bonds bought for ‘stability’
Bonds have a reputation as the grown-up end of the portfolio. And short-term Treasurys really are about as boring and predictable as money gets. The trouble starts when retirees reach for longer maturities to grab a slightly higher yield.
Longer bonds get demolished when interest rates rise. The Securities and Exchange Commission (SEC) spells it out plainly in its investor bulletin on interest rate risk, warning that bonds with longer maturities generally carry higher interest rate risk than similar bonds with shorter maturities.
How ugly can it get? According to the Investment Company Institute, a bond with a duration of eight years would lose roughly 8% of its price if prevailing rates rose by one percentage point. Stretch that out to a 30-year Treasury, and you’re looking at paper losses that rival a stock market correction.
2022 was the real-world proof. Retirees who thought they were playing defense watched long-bond funds post double-digit losses. If you don’t need to sell, you can wait it out. If you do need the cash, you’re forced to lock in the damage.
The fix is boring and effective: Match the maturity of your bonds to when you’ll actually need the money. Anything longer is a bet, not a safety net.
2. Fixed indexed annuities with long surrender periods
Fixed indexed annuities are pitched as the best of both worlds. You get some market upside, none of the downside, and a nice lifetime income story on top. The sales pitch is smooth. The contract is not.
The Financial Industry Regulatory Authority (FINRA), the industry’s own self-regulator, doesn’t mince words. It says indexed annuities are complex financial instruments, and retirement experts warn that such annuities include features that may result in lower returns than an investor might expect.
Then there’s the exit door, which is usually welded shut. FINRA notes that withdrawing principal within the first six to 10 years after purchase may trigger surrender charges and tax penalties.
Here’s where it gets ugly for older buyers. The Minnesota Attorney General’s office has documented cases where retirees were sold annuities with surrender periods so long they’d outlive their own flexibility, including one woman who was sold an annuity with surrender charges lasting until she was 95 years old, carrying a 17% surrender penalty.
Think about what that means. A medical emergency, a move to assisted living, a family crisis — any of these scenarios could force an early withdrawal that hands a chunk of the principal back to the insurance company.
Annuities aren’t inherently evil. A simple immediate annuity from a top-rated insurer can be a legitimate longevity hedge. Before you sign anything, read “4 Reasons To Buy an Annuity — and 4 Reasons To Walk Away” and make sure you know exactly which category your pitch falls into.
3. Long-term CDs held as a retirement strategy
A certificate of deposit, or CD, feels like the safest thing in the world. FDIC-insured. Fixed rate. No surprises. And for an emergency reserve, it mostly is.
The danger shows up when retirees treat long-term CDs as their whole fixed-income plan. Inflation quietly eats them alive.
The U.S. Department of Labor laid this out in a 2024 report to Congress, noting that large holdings in nominal fixed-rate securities, including Treasurys and CDs, do not protect against inflation.
How much damage are we talking about? Kiplinger, citing the nonpartisan Senior Citizens League, reported that Social Security benefits lost about 20% of their buying power between 2010 and 2024. If your “safe” money is earning less than inflation, you’re in the same boat, just without the monthly deposit.
There’s also the lock-up problem. Break a five-year CD early, and you can lose months of interest. Break it during a medical emergency, and the timing feels even worse.
CDs aren’t the villain here. Treating them as a set-and-forget retirement plan is. For a broader look at how rising prices chip away at fixed-income retirees, see “7 Ways Inflation Is Ruining Your Retirement.”
4. Non-traded REITs
This one deserves its own warning label. Non-traded real estate investment trusts (REITs) are real estate funds that don’t trade on a stock exchange, which is exactly the feature that makes them dangerous for older investors.
FINRA has been sounding the alarm for years. Its investor alert bluntly warns that non-traded REITs are generally illiquid, often for periods of eight years or more, and that early redemption is often limited while associated fees can be high enough to erode total return.
And those juicy dividends the broker points to? They may not be what they seem. FINRA has noted that the periodic distributions from non-traded REITs can, in some cases, be heavily subsidized by borrowed funds and include a return of investor principal.
Read that last part twice. Some of the “yield” is literally your own money being mailed back to you.
The SEC piles on, warning in its own investor bulletin that non-traded REITs cannot be sold readily in the market, and that liquidity events might not occur until more than 10 years after your investment.
Publicly traded REITs are a perfectly reasonable way to add real estate to a portfolio. Non-traded REITs, sold heavily to seniors because of the fat commissions they pay the salesperson, are a product I’d tell my own family to walk away from.
5. A giant pile of cash earning nothing
This is the one almost nobody calls an “investment,” which is exactly why it’s the most common mistake. A retiree gets nervous, sells stocks, parks everything in a low-yield checking or savings account, and calls it a day.
It feels safe. It isn’t.
The Department of Labor’s report to Congress was direct about this: Retirees on fixed incomes are particularly vulnerable to inflation’s impact, as it erodes their purchasing power. Parking six figures in an account earning next to nothing while prices climb 3% a year is a slow-motion loss you won’t see on any statement.
Run the math. At 3% inflation, $500,000 in a zero-interest account buys roughly $370,000 worth of goods a decade later. No crash. No headlines. Just quiet erosion.
The fix isn’t to go back to 100% stocks. It’s to keep your true emergency fund in a high-yield savings account or short-term Treasurys, and put the rest in assets that at least have a fighting chance of keeping up with prices.
For ideas on where the rest should go, take a look at “8 Safe and Smart Investments for Retirees.”
The common thread
Notice what every item on this list has in common. Each one trades one risk you can see, like a stock market drop, for a risk you can’t, like illiquidity, inflation, or a surrender charge waiting 10 years down the road.
That’s the trick. Real safety in retirement isn’t about picking the product with the calmest-looking price chart. It’s about matching each dollar to when you’ll need it, how much access you require, and how much purchasing power it has to keep.
If the person selling you a “safe” product can’t explain, in one sentence, exactly what risk you’re taking on in exchange, that’s your answer right there. Walk out.
Add a Comment