The Buffett Rule for Retirees: Don’t Risk What You Can’t Replace

When you reach 70 years old, everything changes about how you should think about investing. The strategies that worked brilliantly in your 40s and 50s can destroy you in your 70s. The risks you could afford to take when you had decades ahead of you become unacceptable. When your time horizon shortens, the recovery periods that seemed manageable when you were earning a paycheck become impossible when you are depending on your savings for every dollar you spend. I have watched this pattern repeat itself for over seven decades. People who were successful investors throughout their working lives make catastrophic mistakes in their 70s because they do not adjust their approach. They hold on to volatile stocks that crash at exactly the wrong moment. They chase yield in risky investments that blow up when they can least afford it. They trust advisors who put them into products designed to generate fees rather than safety, and they pay for these mistakes with their retirement security, with their peace of mind, with their ability to leave something to their children and grandchildren. Today I am going to share with you the only three investments that I believe are truly safe for people over 70. Not investments that might be safe. Not investments that are probably safe. Investments that are genuinely, fundamentally, mathematically safe for this stage of life. These are the investments I would own if I were 70 years old and needed to protect every dollar I had accumulated over a lifetime of work. But first let me tell you what I mean by safe because this word gets misused constantly in the financial world. Salespeople call things safe that are not safe at all. They call high yield bonds safe because they pay interest. They call annuities safe because an insurance company guarantees them. They call dividend stocks safe because they generate income. But none of these things are truly safe in the way that matters for someone over 70. True safety means three things. First, it means you cannot lose your principle. Your original investment is protected regardless of what happens in the markets, in the economy, or in the world. Second, it means you will receive the income you were promised without fail. No dividend cuts, no payment suspensions, no surprises. Third, it means you can access your money when you need it without penalty or significant loss of value. Liquidity matters enormously when you are over 70 because life is unpredictable and emergencies arise. Very few investments meet all three criteria. Most investments that people think are safe fail at least one of these tests. Bonds can lose principle when interest rates rise. Dividend stocks can cut their dividends during recessions. Annuities lock up your money with surrender charges. Real estate is illiquid and can decline in value. The universe of truly safe investments is much smaller than most people realize. Let me tell you a story that illustrates why this matters so much. I knew a man named Harold who retired at 68 with 2.3 million dollars. He thought he was wealthy. He thought he was set for life. His advisor put him into a diversified portfolio of stocks and bonds with about 60 percent in equities for Harold's age. This was too aggressive, but his advisor convinced him that he needed growth to make his money last. In 2008, Harold's portfolio lost over 40 percent of its value. 2.3 million became 1.4 million. He was 72 years old, watching his life savings evaporate. He panicked and sold at the bottom, locking in his losses. By the time the market recovered, Harold had moved everything to cash and missed the recovery entirely. He spent the rest of his life worried about running out of money. He cut back on everything. He stopped traveling. He skipped family gatherings because he could not afford the gas money. He died at 81, anxious and financially stressed. Even though he had started retirement as a millionaire, Harold's story is not unusual. It happens constantly to retirees who do not understand the difference between investments that might be safe and investments that are truly safe. I have received thousands of letters over the years from people like Harold, people who did everything right during their working years, who saved and invested and planned for retirement, and then watched it all fall apart because they took risks they could not afford to take. Let me tell you about another letter I received. A woman named Eleanor wrote to me in 2010, two years after the financial crisis. She and her husband had accumulated $1.8 million by the time he retired at 65. Their advisor put them into what he called a balanced portfolio, which turned out to be 70% stocks. When the crash hit, they lost over $700,000. Her husband, who had worked his entire life as an engineer, could not handle watching his savings disappear. He became depressed. His health deteriorated. He passed away in 2011, and Eleanor believes the stress of the financial losses contributed to his death. Eleanor's letter still haunts me. She wrote that she would give anything to go back and choose safety over growth. She did not need the extra returns of stock. Heavy portfolio might have provided. She needed security. She needed to know that her money would be there. And she lost both her money and her husband because an advisor convinced them to take risks that were inappropriate for their age and circumstances. The financial industry does not help. It bombards retirees with advertisements for complicated products, annuities with surrender charges that lock up your money for years. I yield funds that promise income but deliver losses, alternative investments that nobody truly understands. The industry profits from complexity. It profits from your confusion. It profits from your fear of running out of money. And it rarely tells you about the simple, safe investments that would actually serve you best. The strategy I am about to share is designed to prevent Harold's fate. It is designed to protect your principle, provide reliable income, and let you sleep at night knowing your money will be there when you need it. The first truly safe investment for people over 70 is short-term United States Treasury securities. I am talking about Treasury bills, which mature in one year or less, and short-term Treasury notes, which mature in one to three years. These are the safest investments in the world. There is nothing safer, nothing. Let me explain why Treasury securities are uniquely safe. When you buy a Treasury bill or note, you are lending money directly to the United States government. The government has two powers that no other borrower has. It has the power to tax, and it has the power to print money. You let them pay you back, period. There is no scenario in which the United States government defaults on Treasury securities, none even in the most extreme economic crisis, even in war, even in circumstances we cannot imagine. The Treasury will honor its obligations. This is not speculation. This is history. The United States has never defaulted on Treasury securities, not during the Civil War, not during the Great Depression, not during World War II, not during the stagflation of the 1970s, not during the 2008 financial crisis, not during COVID. Through every crisis in American history, Treasury holders have been paid in full and on time. This track record extends back over 200 years. Some people worry about the national debt. They read headlines about $34 trillion in government debt, and they wonder if the government can really pay it back. Let me address this directly. The government debt is denominated in dollars. The government can create dollars. It can always pay its dollar. Denominated debts. The question is not whether the government will pay, but what those dollars will be worth in terms of purchasing power. That is an inflation concern, not a default concern. And for short-term Treasuries, inflation is minimal because you are only lending for months, not decades. Why do I emphasize short-term Treasuries rather than long-term bonds? Because long-term bonds carry interest rate risk that can cause significant losses. When interest rates rise, bond prices fall. The longer the maturity, the greater the price decline. A 30-year Treasury bond can lose 20 or 30 percent of its value if interest rates rise two percentage points. We saw this in 2020, too, when long-term Treasury bonds lost over 30 percent. That is not safe for someone over 70 who cannot afford to lose 30 percent of their savings. Short-term Treasuries do not have this problem. A six-month Treasury bill barely moves in price regardless of what interest rates do. If you buy a Treasury bill maturing in six months and rates rise, your bill will still pay you exactly what was promised at maturity. The short duration eliminates interest rate risk. You sacrifice some yield compared to long-term bonds, but you gain enormous safety for people over 70. That trade-off is absolutely worth making. Right now, short-term Treasury yields are in the four to five percent range. This is extraordinary for years. Treasury yields were near zero. Retirees could not generate meaningful income from safe investments. But the Federal Reserve's rate increases have changed that picture dramatically. You can now earn four to five percent with complete safety of principle for someone with $1 million. That is $40,000 to $50,000 in annual income with zero risk to your capital. That is a remarkable opportunity for retirees. I recommend that people over 70 allocate at least 50 percent of their investment portfolio to short-term Treasuries. For more conservative investors, 60 or even 70 percent might be appropriate. This allocation provides a rock-solid foundation that will not decline in value regardless of what happens in the markets. It provides reliable income that arrives exactly when promised. And it provides complete liquidity so you can access your money whenever you need it. You can buy Treasury securities directly from the government through treasurydirect.gov with no fees or commissions. You can also buy Treasury ETFs like SHI or BIL through any brokerage account. Either approach works well. The key is getting your money into these safe short-term government securities where it is protected. Let me explain the practical mechanics of Treasury investing. When you buy a Treasury bill, you are essentially buying a promise to be paid a specific amount and a specific future date. If you buy a one-year Treasury bill with a face value of $10,000 and a yield of 4.5 percent, you pay about $9,570 today and you receive exactly $10,000 in one year. The difference is your interest. There is no risk. There are no surprises. You know exactly what you will receive and exactly when you will receive it. When your Treasury bill matures, you have a choice. You can take the cash and spend it. You can reinvest in another Treasury bill at whatever rate is then available. Or you can move the money into something else. This flexibility is valuable. You are never locked in. You are never paying surrender charges. You always have complete control over your money. I also want to address the question of laddering, which is a strategy that many sophisticated Treasury investors use. Instead of putting all your money into Treasury bills maturing on the same date, you spread your purchases across different maturities. Maybe one quarter of your Treasury allocation matures every three months this way. You always have money coming due that you can either spend or reinvest. Laddering provides regular access to funds while still earning attractive yields. It is a simple technique that adds flexibility to your Treasury portfolio. The second truly safe investment for people over 70 is a low-cost S&P 500 index fund. Now, I know what you are thinking. Stocks are not safe. The stock market crashes. People lose money in stocks all the time. How can an index fund be considered truly safe? Let me explain my reasoning carefully because this is important. Stocks are not safe in the short term over any one-year or three-year or even five-year period. Stocks can decline significantly. The S&P 500 has fallen over 50% twice in my lifetime. Anyone who needs their money within a few years should not have it in stocks, but over 10, 15, 20-year periods. Stocks have never failed to generate positive returns. Never, not once in the history of American markets. For someone who is 70 years old, life expectancy is 15 to 20 years. Many people who reach 70 will live into their late 80s or 90s. That is a long time horizon. A portion of your portfolio, the portion you do not need for at least 10 years, can safely be invested in stocks because history shows that stocks always recover and grow over that time frame. But why an index fund specifically? Why not individual stocks or actively managed funds? Because an index fund eliminates the risk of picking the wrong stocks or trusting the wrong manager. When you buy the S&P 500, you are buying the 500 largest companies in America. You are not betting on any single company succeeding. You are betting on American business overall continuing to grow and generate profits. That bet is paid off every single decade for over a century. Individual stocks can go to zero. Enron went to zero. Lehman Brothers went to zero. Hundreds of companies that seemed invincible have disappeared entirely. But the S&P 500 cannot go to zero because it represents the 500 largest survivors. Companies that fail get removed and replaced with companies that are succeeding. The index automatically adapts to changing economic conditions. Actively managed funds carry the risk that the manager makes poor decisions. Study after study shows that over 90% of actively managed funds underperform the index over 15 year periods. You are paying higher fees for worse results. Why take that risk when you can simply own the index at minimal cost? I recommend that people over 70 allocate 20 to 30 percent of their portfolio to a low cost S&P 500 index fund. This allocation provides exposure to the growth of American business, which has historically exceeded inflation by a wide margin. It provides a hedge against the purchasing power erosion that comes from holding too much cash and over a 10 to 20 year time horizon. It is virtually certain to grow in value. The key is understanding that this portion of your portfolio is for the long term. You should not touch it during market downturns. You should not panic and sell when the market drops. You should let it sit and compound for a decade or more. If you cannot commit to that approach, if you know you will panic and sell during the next crash, then keep less in stocks. But if you have the temperament to hold through volatility, a meaningful stock allocation will significantly improve your long-term financial security. Let me share some concrete examples of why holding through volatility pays off. In March of 2009, at the bottom of the financial crisis, the S&P 500 had fallen to around 670. If you had panicked and sold at that moment, you would have locked in devastating losses. But if you held, the index recovered to 1,000 by the end of 2009, to over 2,000 by 2017, and to nearly 5,000 today. An investor who held through the panic turned paper losses into substantial gains. An investor who sold at the bottom never recovered. The same pattern repeated in March of 2020 during the COVID crash. The market fell over 30 percent in just a few weeks. Fear was everywhere. But within months, the market had fully recovered and went on to make new highs. Investors who held were fine. Investors who panicked and sold missed one of fastest recoveries in market history. This is why I emphasize temperament alongside strategy. The S&P 500 Index Fund is only safe if you have the discipline to hold it through downturns. If you cannot do that, if you know you will sell in a panic, then this investment is not safe for you. Be honest with yourself about your temperament and adjust your allocation accordingly. I have said many times that for most investors, the best approach is to put their money in a low-cost S&P 500 Index Fund and leave it alone. This advice applies even more strongly to people over 70 who do not have time to research individual stocks or evaluate fund managers. Just buy the index, keep costs low, and let American business work for you. Let me share some numbers that illustrate the power of this approach. If you had invested $10,000 in the S&P 500 in 1980, it would be worth over $1.1 million today with dividends reinvested. That is a 100-fold increase over 44 years. Even accounting for inflation, your purchasing power would have increased enormously. No other asset class has delivered this kind of wealth creation over long periods. The third truly safe investment for people over 70 is cash in FDIC, insured accounts or money market funds backed by treasury securities. This is the simplest investment of all. Just cash sitting in an account, earning whatever interest the bank or fund is paying, completely liquid, completely safe. I know cash seems boring. I know financial advisors will tell you that holding cash is a mistake, that you are losing money to inflation, that you need to be invested to build wealth. For young people, this advice has merit. But for people over 70, cash serves a critical function that no other investment can match. Cash is your emergency fund. It is the money you can access instantly without selling anything, without waiting for settlement, without worrying about what the market is doing. When your roof needs replacing, you use cash. When a medical expense arises, you use cash. When your grandchild needs help, you use cash. The liquidity that cash provides is invaluable for the emergencies and opportunities that inevitably arise in life. Cash is also your psychological buffer. When you know you have 6 months or 12 months of living expenses sitting in cash, you do not panic when the market drops. You do not make desperate decisions. You can wait out volatility because your immediate needs are covered. This psychological benefit is worth the slightly lower return you earn on cash compared to other investments. How much cash should you hold? I recommend at least one year of living expenses in cash for people over 70. If you spend $60,000 per year, keep at least $60,000 in cash. More conservative investors might keep two years of expenses. This cash should be in FDIC, insured bank accounts up to the $250,000 insurance limit, or in money market funds that invest only in treasury securities. Let me explain why the FDIC insurance limit matters. If you have more than $250,000 in cash at a single bank, the amount over the limit is not insured. If the bank fails, you could lose that excess. This risk is small, but it exists. The simple solution is to spread your cash across multiple banks so that no single bank holds more than the insurance limit, or use a money market fund that invests in treasury securities, which are backed by the government, regardless of amount. Some people ask about certificates of deposit as an alternative to savings accounts. CDs can work, but they have disadvantages. They lock up your money for a fixed term. If you need the money before the CD matures, you typically pay an early withdrawal penalty. This reduces your flexibility, which is the whole point of the cash allocation. For most people over 70, I recommend savings accounts or treasury money market funds that provide complete liquidity. Currently, high-yield savings accounts and treasury money market funds are paying 4-5%. This is remarkable for completely liquid cash. A few years ago, you earned nothing on cash. Now you can earn meaningful income while maintaining complete flexibility. Take advantage of this opportunity by shopping for the best rates and keeping your cash working for you. I want to address one more point about cash. Some financial advisors will tell you that holding cash is a mistake, that inflation will destroy your purchasing power, that you must be fully invested at all times. For young people, this advice has merit, but for people over 70, this advice can be dangerous. The peace of mind that comes from having cash available is worth more than a few extra percentage points of return. The ability to handle emergencies without selling investments at bad times is priceless. Do not let anyone convince you that holding cash is foolish. It is prudent, it is wise, and it will serve you well. Let me now explain how these three investments work together to provide complete financial security for people over 70. The short-term treasuries provide your income foundation. They generate reliable returns with zero risk to principal. They are where the majority of your money should sit, protected and productive. The S&P 500 Index Fund provides your growth engine. It protects your purchasing power over the long term and gives your heirs something that will continue compounding after you are gone. The cash provides your emergency reserve. It gives you flexibility and peace of mind knowing you can handle whatever life throws at you. Here is how I would allocate a $1 million portfolio for a typical 70-year, hold $550,000 in short-term treasury securities, generating around $25,000 annually, $300,000 in a low-cost S&P 500 Index Fund, providing long-term growth, $150,000 in cash, covering two to two and a half years of typical living expenses. This allocation is conservative and deliberately, so it prioritizes safety over maximum returns. It sacrifices some potential upside for downside protection for someone over 70 who cannot afford to lose money. This trade-off is appropriate. The portfolio will generate around $30,000 in annual income from treasuries and cash, plus whatever dividends the Index Fund pays. It will grow over time as the Index Fund compounds, and it will be there when you need it, through every crisis, through every downturn, through every surprise that life delivers. Now these allocations are not set in stone. They should be adjusted based on your personal circumstances. If you have a pension or social security that covers most of your living expenses, you might be able to allocate more to stocks and less to treasuries because you need less income from your portfolio. If you have health issues that might require significant spending, you should keep more in cash. If you are 75 instead of 70, you might want to be even more conservative. If you are particularly worried about inflation, you might want slightly more in stocks. The framework is flexible. The principles are not safety first. Simplicity always. Peace of mind above all else. Let me address some common objections to this approach. Some people say that holding so much in treasuries and cash means missing out on higher returns elsewhere. This is true. You will not get rich with this strategy. You will not double your money in five years. But you will not lose your money either. You will not watch half your savings evaporate during the next crash. You will not run out of money because you made risky bets that did not pay off. For people over 70, the goal is not to maximize returns. The goal is to ensure security. This strategy accomplishes that goal. I often tell people that you only have to get rich once you have accumulated enough to live comfortably for the rest of your life. The game changes. You no longer need to swing for the fences. You no longer need to take big risks hoping for big returns. Your job shifts from wealth accumulation to wealth preservation. The three investments I have described are perfect for wealth preservation. They will not make you richer, but they will not make you poorer either. For someone over 70, that is exactly the right outcome. Some people say that inflation will erode the purchasing power of treasuries and cash. This concern has merit over long periods, but short-term treasury rates tend to track inflation over time. When inflation rises, the Federal Reserve typically raises rates, and treasury yields rise accordingly. You are not perfectly protected against inflation, but you are not defenseless either. And the stock allocation provides additional inflation protection through the growth of corporate earnings. The math actually works better than many people realize. If you earn 4% on treasuries and inflation runs at 3%, you are maintaining your purchasing power with a small margin of safety. If you earn 4% and inflation runs at 2%, you are gaining purchasing power. The current yield environment is actually quite favorable for retirees seeking safety. Some people say they need more income than this strategy provides. If $30,000 from a million-dollar portfolio is not enough, there are options. You could allocate more to dividend-paying stocks, accepting higher volatility for higher yield. You could draw down principal gradually, understanding that this will eventually deplete your savings. You could work part-time to supplement your investment income. You could reduce your expenses to match your income. Each option has trade-offs, and the right choice depends on your specific circumstances. I would caution against reaching for yield by buying risky investments. The additional income from high-yield bonds or mortgage REITs or master limited partnerships comes with additional risk. That risk can and does materialize, often at the worst possible times. Better to accept lower but reliable income than to chase higher but precarious income. Some people say they want to leave more to their heirs and therefore need higher returns. I understand this desire, but the best gift you can give your heirs is not running out of money and becoming a burden to them. The best gift is taking care of yourself so they do not have to take care of you. A conservative portfolio that ensures your security is more valuable to your family than a risky portfolio that might grow larger or might fail. Let me close with some thoughts on the psychology of investing after 70. The financial industry wants you to be afraid of missing out. It wants you to believe that you need to take risks to succeed. It wants you to buy products and services that generate fees for advisors and fund companies. Do not listen to this noise. You have already succeeded. You have accumulated savings that can support you for the rest of your life if you protect them wisely. I have observed something important over my many decades of investing. The happiest retirees I know are not the ones with the most money. They are the ones with the least worry. They are the ones who have structured their finances so that they do not think about money every day. They have simple portfolios of safe investments. They receive reliable income. They do not check their account balances obsessively. They do not panic when the market drops. They have achieved financial peace, which is far more valuable than financial maximum. Consider what you actually want from your money at this stage of life. You want security. You want the confidence that your basic needs will be met regardless of what happens in the economy. You want the freedom to enjoy your remaining years without financial stress. You want to be able to help your children and grandchildren if needed. You want to leave something behind when you are gone. The three investments I have described provide all of this. They may not provide the maximum possible returns, but they provide the maximum possible peace of mind. The goal at this stage is not more. The goal is enough income to live comfortably, enough security to sleep at night, enough flexibility to handle emergencies, enough growth to maintain purchasing power. The three investments I have described, short-term treasuries, a low-cost S&P 500 index fund, and cash provide all of this. They are genuinely safe. They will not fail you. I have spent my entire career studying investments, analyzing businesses, and managing money. I have seen countless strategies and products come and go. I have watched people make fortunes and lose fortunes. And I can tell you with certainty that for people over 70, simplicity beats complexity every time. The simple strategy of treasury securities, index funds, and cash will outperform the complicated strategies that Wall Street wants to sell you. It will cost less. It will worry you less. And it will serve you better. Your job now is not to find the next great investment. Your job is to protect what you have built and enjoy the life you have earned. These three investments will help you do exactly that. Own them, hold them, trust them. And spend your time thinking about your grandchildren, your hobbies, your friends, and all the things that actually matter in life. Your money is safe. Your future is secure and protected. Now go live the life you have earned.