Believe it or not, seniors fear running out of cash more than they fear dying.
And unfortunately, even retirees who have built a nest egg have good reason to be concerned - with the traditional approaches to retirement planning, income may no longer cover expenses. That means retirees are dipping into principal to make ends meet, setting up a race against time between dwindling investment balances and longer lifespans.
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.
That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today is 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.
So what's a retiree to do? You could cut your expenses to the bone, and take the risk that your Social Security checks don't shrink. Or you could find an alternative investment that provides a steady, higher-rate income stream to replace dwindling bond yields.
Invest in Dividend Stocks
As a replacement for low yielding Treasury bonds (and other bond options), we believe dividend-paying stocks from high quality companies offer low risk and stable, predictable income investors in retirement seek.
Look for stocks that have paid steady, increasing dividends for years (or decades), and have not cut their dividends even during recessions.
One way to identify suitable candidates is to look for stocks with an average dividend yield of 3%, and positive average annual dividend growth. Many stocks increase dividends over time, helping to offset the effects of inflation.
Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.
Huntington Bancshares ( is currently shelling out a dividend of $0.16 per share, with a dividend yield of 4.42%. This compares to the Banks - Midwest industry's yield of 2.49% and the S&P 500's yield of 1.65%. The company's annualized dividend growth in the past year was 3.33%. HBAN Quick Quote HBAN - Free Report) Check Huntington Bancshares ( HBAN Quick Quote HBAN - Free Report) dividend history here>>> Huntsman ( is paying out a dividend of $0.21 per share at the moment, with a dividend yield of 3.23% compared to the Chemical - Diversified industry's yield of 1.67% and the S&P 500's yield. The annualized dividend growth of the company was 13.33% over the past year. HUN Quick Quote HUN - Free Report) Check Huntsman ( HUN Quick Quote HUN - Free Report) dividend history here>>>
Currently paying a dividend of $0.22 per share,
Kimco Realty ( has a dividend yield of 4.14%. This is compared to the REIT and Equity Trust - Retail industry's yield of 4.31% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 17.65%. KIM Quick Quote KIM - Free Report) Check Kimco Realty ( KIM Quick Quote KIM - Free Report) dividend history here>>> But aren't stocks generally more risky than bonds?
The fact is that stocks, as an asset class, carry more risk than bonds. To counterbalance this, invest in superior quality dividend stocks that not only can grow over time but more significantly, can also decrease your overall portfolio volatility with respect to the broader stock market.
A silver lining to owning dividend stocks for your retirement portfolio is that many companies, especially blue chip stocks, increase their dividends over time, helping offset the effects of inflation on your potential retirement income.
Thinking about dividend-focused mutual funds or ETFs? Watch out for fees.
You may be thinking, "I like this dividend strategy, but instead of investing in individual stocks, I'm going to find a dividend-focused mutual fund or ETF." This approach can make sense, but be aware that some mutual funds and specialized ETFs carry high fees, which may reduce your dividend gains or income, and defeat the goal of this dividend investment approach. If you do wish to invest in a fund, do your research to find the best-quality dividend funds with the lowest fees.
Whether you select high-quality, low-fee funds or stocks, seeking the steady income of dividend-paying equities can potentially offer you a path to a better and more stress-free retirement.