Lowered expectationsAn AIG study released this month found most of those 55 and older are taking a more cautious financial approach in the wake of the financial crisis. The slow economy has led many to second-guess their savings strategies, with 72 percent of survey respondents saying that today's economic climate has served as a financial wake-up call. As a result, many older Americans are being more careful about where they invest their money:
- 80 percent say they have a more cautious approach to their finances
- 77 percent are looking for solutions that will provide lifetime guaranteed income
- 69 percent value insurance and investments that offer financial stability
Building savings while minimizing risksPre-retirees who are weary of risky investments may want to consider other savings options in addition to the stock market. Certificates of deposit (CDs) and money market accounts don't always offer the same returns as stocks, but they can be safe and stable options for those looking to place a portion of their savings in a virtually risk-free account. Also, the best savings account rates not be far off the yields of conservative stock funds. Forbes recently reported that stable value funds, a conservative type of mutual fund, averaged an annualized rate of return of 2.36 percent over the past year. Meanwhile, the best savings rates available have been hovering around 1 percent.
But while conservative stocks may earn more than savings accounts, they also come with fees and the risk of losses. For risk-averse pre-retirees, a combination of stock investments and conservative options such as CDs and savings accounts may offer the best of both worlds: a decent yield and some much-valued stability.