War chest. When you want to play it safe with some of your money in retirement, here’s what pros say to do

These safe options are relatively compelling these days, as the Federal Reserve has held interest rates unchanged at 3.5% – 3.75% since December. So, “right now it is still possible — relatively safely” to earn 3% to 4% return in retirement, says Catherine Valega, a CFP at Green Bee Advisor. (See some of the top CDs here, and some of the top savings rates here, from our ad partner Bankrate.)

How much of your portfolio should be in safe investments?

Of course, you likely shouldn’t plunk all your money into one of these safe investments. Deciding the right degree of safety for you all comes down to balance and adjustment, says Marianela Collado, senior wealth adviser, CEO and co-owner of Tobias Financial. “The ultimate goal in retirement readiness is that you design a plan that takes as little risk as possible but as much risk as needed to help you meet your goals,” says Collado. (Should you want a financial adviser to help you figure out this balance, you can find advisers using CFP Board, NAPFA and you can get matched with fiduciary advisers with this free tool, from our ad partner SmartAsset.)

For average pension holders, teachers or government employees expecting to retire with enough to cover their needs in retirement, Collado says they may consider a “very safe investment where they are not seeing much volatility like U.S. Teasurys, CDs [or] money markets.” For those with large investment accounts, she says “a 3% to 4% return on assets invested in U.S. Treasurys and CDs are sufficient to meet their needs. They are not worried about building more wealth for themselves or next gen.”

Of course, a total safe approach may not deliver attractive enough gains for some. To hit a retirement portfolio Goldilocks zone — enjoying enough growth to outpace inflation but still balance your risk profile — it’s about “balance and adjustment,” says Collado. “The point is that you have to balance all the factors that go into this giant retirement planning formula: current savings, future savings, cost of living, life expectancy, inflation and risk or rate of return. If one goes up, another one must come down. It’s just simple math at the end of the day.”

Mix it up when you play it safe

“The safest ways to earn 3% to 4% right now start with what I like to call a war chest — a mix of cash and short-term, high quality fixed income,” says Nick Covyeau, CFP and owner of Swell Financial. “Think money market funds, U.S. Treasurys and investment-grade corporate bonds. The core principle being: prioritize quality over yield.”

First, for the cash portion of your safety net, consider low risk options like money market funds, savings, CDs, T-bills or even cash sweep accounts, pros say. To be sure, at least two high-yield savings accounts are promising 10% APY on limited assets for qualifying customers; more realistically, however, several online banks are promising well above 4% APY. (You can see top savings accounts here, from our ad partner Bankrate.)

For fixed-rate savings products, there are at least two CDs paying more than 4% APY this month, with plenty more outpacing the national average. For 10-year Treasurys, yields today are around 3.75% to 4.25%.

Annuities are another stable way to earn a fixed rate at or even above 4% in retirement, says Valega. “They can be the right solution for the right client,” says Valega, adding that she’s “seeing attractive rates [for] fixed annuities — for example, a five-year lock up can earn you over 5% per year.”

While these can be a great tools to supplement Social Security or pensions, Bunio adds they aren’t always the best option, especially because they lock up your liquidity. “Because of guarantees built into it, like income, no insurance company is going to allow you to get an annuity and then cancel it quickly, or take 50% out,” says Bunio, adding that “the insurance company does invest your funds.”

For the short-term, high quality fixed income, Bunio adds that products like I bonds can also be a good option. Of course, these U.S. government issued bonds have to be held for 12 months or longer and, like bond funds, can lose value when rates rise. “While CDs and most annuities won’t, a 30-year bond fund would lose value when interest rates rise fast,” says Bunio.

Depending on a retiree’s level of risk tolerance, Valega says she may even consider layering in “utility stocks and other dividends payers to supplement income,” adding that for “high net worth clients, I’m doing more with municipal bonds.” Specifically, Valega says, she look for “dividend-grower type funds,” as well as “utility funds that tend to pay good dividends.”

Alternatively, the so-called 4% rule may also benefit some savers. In this scenario, retirees focus on a safe withdrawal rate — 4% in the first year of retirement — rather than looking for a savings tool that pays a fixed rate. Savers would then allow that 4% allocation to earn interest, compounding every year for a theoretical 30-year horizon.

Ultimately, adds Covyeau, “it’s building a plan around your cash flow … Once that foundation is in place, everything else becomes a lot clearer.”