Here's a revealing data point: older Americans are scared more of outliving wealth than of death itself.
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.
Years ago, investors at or close to retirement could put money into fixed-income assets and depend on appealing yields to generate consistent, solid pay streams to fund a comfortable retirement. 10-year Treasury bond rates in the late 1990s floated around 6.50%, but unfortunately, those days of being able to exclusively rely on Treasury yields to fund retirement income are over.
That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today is more than $1 million.
In addition to the considerable drop in bond yields, today's retirees are nervous about their future Social Security benefits. Because of certain demographic factors, it's been estimated that the funds that pay the Social Security benefits 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.
Farmers & Merchants Bancorp Inc. ( is currently shelling out a dividend of $0.21 per share, with a dividend yield of 3.08%. This compares to the Banks - Northeast industry's yield of 2.08% and the S&P 500's yield of 1.85%. The company's annualized dividend growth in the past year was 11.76%. FMAO Quick Quote FMAO - Free Report) Check Farmers & Merchants Bancorp Inc. ( FMAO Quick Quote FMAO - Free Report) dividend history here>>> Huntington Bancshares ( is paying out a dividend of $0.16 per share at the moment, with a dividend yield of 4.82% compared to the Banks - Midwest industry's yield of 2.51% and the S&P 500's yield. The annualized dividend growth of the company was 3.33% over the past year. HBAN Quick Quote HBAN - Free Report) Check Huntington Bancshares ( HBAN Quick Quote HBAN - Free Report) dividend history here>>>
Currently paying a dividend of $0.45 per share,
HSBC ( has a dividend yield of 5.02%. This is compared to the Banks - Foreign industry's yield of 4.1% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 66.44%. HSBC Quick Quote HSBC - Free Report) Check HSBC ( HSBC Quick Quote HSBC - Free Report) dividend history here>>> But aren't stocks generally more risky than bonds?
Overall, that is true. But stocks are a broad class, and you can reduce the risks significantly by selecting high-quality dividend stocks that can generate regular, predictable income and can also decrease the volatility of your portfolio compared to the overall stock market.
An advantage of owning dividend stocks for your retirement nest egg is that numerous companies, particularly blue chip stocks, raise their dividends over time, helping alleviate the impact of inflation on your potential retirement income.
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.
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.