Planning to retire is one of the most important financial decisions you make. The problem is, not all retirement plans are as safe as they seem. Many people are attracted to “guaranteed” options or fashion strategies, which may seem wise to do, but will actually erode the savings over time. When most needed, falling into a wrong plan for the wrong plan can leave you short of money. To avoid financial heartbreak, here are seven retirement plans that sound safe but may have nothing.
1. High interest savings account
At first glance, it is safe to keep your funds in a high interest savings account. Although your funds are protected by market volatility, inflation quietly disappears with your purchasing power. Over the past few decades, small returns have not kept up with the rising cost of living. What feels “safe” today may give you much less purchasing power when you retire.
2. Employer Stock Plan
It seems like a loyalty and wise plan to invest heavily in your company’s stock. However, relying too much on single stocks will put you in unnecessary risks. If your company struggles or collapses, you may lose your job and retirement savings. A real retirement plan needs to be diversified, rather than putting all the eggs in one basket.
3. Whole life insurance policy
Many people sell their full life insurance as a retirement plan. The problem is the slow growth of fees, commissions and cash value. In the long run, you may have much less income than traditional investments. What sells as a “safety net” can actually consume your financial future.
4. Certificate of Deposit (CD)
CDs are often considered safe because they protect your principal. However, locking your money at low interest rates is dangerous when inflation is higher. You may recollect the original investment plus a small amount of interest, but its realistic value shrinks over time. A retirement plan built on CD alone can put you financially.
5. Target date funds
Target date funds look like a handy “set and forget” option. Unfortunately, their cookie method may not meet your specific needs or risk tolerance. Fees can also be cancelled on your rate of return without any attention. Depending solely on the target date funding, it may give you less security than what you expect from retirement.
6. Government Bonds
Government bonds are considered one of the safest investments. But while they protect your principal, they don’t protect you from inflation or rising spending. In 20-30 years of retirement, the low returns on bonds can ruin your nest eggs. A retirement plan for a bond that is too severely established may not generate enough income to sustain you.
7. Keep cash under mattress
Some believe that the ultimate safety is to avoid banks and investments. But keeping cash at home guarantees that you lose the value of inflation every year. Most importantly, your money is susceptible to theft, fire or simple misalignment. The control and security you feel today may leave you bankrupt tomorrow.
Create a safe retirement plan
Not all retirement plans are equal, even if they sound safe at first. Inflation, expenses, lack of diversification and low returns can quietly ruin your future. Rather than sticking to the “safety” choice that won’t increase your wealth, focus on investments that balance security with long-term growth. A truly wise retirement plan is one that protects your money today and ensures it lasts for decades.
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Teri Monroe is engaged in a communications career working in local governments and nonprofits. Today, she is a freelance financial and lifestyle writer and small business owner. In her spare time, she likes to play golf with her husband, take long walks with her dog Milo, and play pickled vegetables with her friends.
