Strange but true: seniors fear death less than running out of money in retirement.

Also, retirees who have constructed a nest egg have valid justifications to be concerned, since the traditional ways to plan for retirement may mean income can no longer cover expenses. Some retirees are now tapping their principal to make a decent living, pressed for time between decreasing investment balances and longer life expectancies.

The tried-and-true retirement investing approach of yesterday doesn't work today.

For many years, bonds or other fixed-income assets could produce the yield needed to provide solid income for retirement needs. However, these yields have dwindled over time: 10-year Treasury bond rates in the late 1990s were around 6.50%, but today, that rate is a thing of the past, with a slim likelihood of rates making a comeback in the foreseeable future.

While this yield reduction may not seem drastic, it adds up: for a $1 million investment in 10-year Treasuries, the rate drop means a difference in yield of more than $1 million.

And lower bond yields aren't the only potential problem seniors are facing. Today's retirees aren't feeling as secure as they once did about Social Security, either. Benefit checks will still be coming for the foreseeable future, but based on current estimates, Social Security funds will run out of money in 2035.

Unfortunately, it looks like the two traditional sources of retirement income - bonds and Social Security - may not be able to adequately meet the needs of present and future retirees. But what if there was another option that could provide a steady, reliable source of income in retirement?

Invest in Dividend Stocks

We feel that these dividend-paying equities - as long as they are from high-quality, low-risk issuers - can give retirement investors a smart option to replace low-yielding Treasury bonds (or other bonds).

Look for stocks that have paid steady, increasing dividends for years (or decades), and have not cut their dividends even during recessions.

One approach to recognizing appropriate stocks is to look for companies with an average dividend yield of 3% and positive average annual dividend growth. Numerous stocks hike dividends over time, counterbalancing inflation risks.

Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.

Canadian Natural Resources (CNQ Quick QuoteCNQ - Free Report) is currently shelling out a dividend of $0.76 per share, with a dividend yield of 4.08%. This compares to the Oil and Gas - Exploration and Production - Canadian industry's yield of 0% and the S&P 500's yield of 1.58%. The company's annualized dividend growth in the past year was 11.82%. Check Canadian Natural Resources (CNQ Quick QuoteCNQ - Free Report) dividend history here>>>

State Street Corporation (STT Quick QuoteSTT - Free Report) is paying out a dividend of $0.69 per share at the moment, with a dividend yield of 3.56% compared to the Banks - Major Regional industry's yield of 3.56% and the S&P 500's yield. The annualized dividend growth of the company was 9.52% over the past year. Check State Street Corporation (STT Quick QuoteSTT - Free Report) dividend history here>>>

Currently paying a dividend of $0.43 per share, Unitil (UTL Quick QuoteUTL - Free Report) has a dividend yield of 3.11%. This is compared to the Utility - Electric Power industry's yield of 3.43% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 4.94%. Check Unitil (UTL Quick QuoteUTL - Free Report) dividend history here>>>

But aren't stocks generally more risky than bonds?

Yes, that's true. As a broad category, bonds carry less risk than stocks. However, the stocks we are talking about - dividend -paying stocks from high-quality companies - can generate income over time and also mitigate the overall volatility of your portfolio compared to the stock market as a whole.

Combating the impact of inflation is one advantage of owning these dividend-paying stocks. Here's why: many of these stable, high-quality companies increase their dividends over time, which translates to rising dividend income that offsets the effects of inflation.

Thinking about dividend-focused mutual funds or ETFs? Watch out for fees.

If you're thinking, "I want to invest in a dividend-focused ETF or mutual fund," make sure to do your homework. It's important to know that some mutual funds and specialized ETFs charge high fees, which may diminish your dividend gains or income and thwart the overall objective of this investment strategy. If you do want to invest in fund, research well to identify the best-quality dividend funds with the least charges.

Bottom Line

Regardless of whether you select high-quality, low-fee funds or stocks, looking for a steady stream of income from dividend-paying equities can potentially lead you to a solid and more peaceful retirement.