Believe it or not, seniors fear running out of cash more than they fear dying.
And retirees have good reason to be worried about making their assets last. People are living longer, so that money has to cover a longer period. Making matters worse, income generated using tried-and-true retirement planning approaches may not cover expenses these days. That means seniors must dip into principal to meet living expenses.
Your parents' retirement investing plan won't cut it today.
In the past, investors going into retirement could invest in bonds and count on attractive yields to produce steady, reliable income streams to fund a predictable retirement. 10-year Treasury bond rates in the late 1990s hovered around 6.50%, whereas the current rate is much lower.
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.
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.
How can you avoid dipping into your principal when the investments you counted on in retirement aren't producing income? You can only cut your expenses so far, and the only other option is to find a different investment vehicle to generate income.
Invest in Dividend Stocks
As we see it, dividend-paying stocks from generally low-risk, top notch companies are a brilliant way to create steady and solid income streams to supplant low risk, low yielding Treasury and fixed-income alternatives.
Look for stocks that have paid steady, increasing dividends for years (or decades), and have not cut their dividends even during recessions.
Going beyond those familiar names, you can find excellent dividend-paying stocks by following a few guidelines. Look for companies that pay a dividend yield of around 3%, with positive annual dividend growth. The growth rate is key to help combat the effects of inflation.
Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.
American Assets Trust ( is currently shelling out a dividend of $0.32 per share, with a dividend yield of 4.78%. This compares to the REIT and Equity Trust - Retail industry's yield of 4.33% and the S&P 500's yield of 1.68%. The company's annualized dividend growth in the past year was 6.67%. AAT Quick Quote AAT - Free Report) Check American Assets Trust ( AAT Quick Quote AAT - Free Report) dividend history here>>> Axis Capital ( is paying out a dividend of $0.44 per share at the moment, with a dividend yield of 3.15% compared to the Insurance - Property and Casualty industry's yield of 0.82% and the S&P 500's yield. The annualized dividend growth of the company was 2.38% over the past year. AXS Quick Quote AXS - Free Report) Check Axis Capital ( AXS Quick Quote AXS - Free Report) dividend history here>>>
Currently paying a dividend of $0.26 per share,
Brixmor Property ( has a dividend yield of 4.34%. This is compared to the REIT and Equity Trust - Retail industry's yield of 4.33% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 11.63%. BRX Quick Quote BRX - Free Report) Check Brixmor Property ( BRX Quick Quote BRX - 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.
An upside to adding dividend stocks to your retirement portfolio: they can help lessen the effects of inflation, since many dividend-paying companies (especially blue chip stocks) generally increase their dividends over time.
Thinking about dividend-focused mutual funds or ETFs? Watch out for fees.
If you prefer investing in funds or ETFs compared to individual stocks, you can still pursue a dividend income strategy. However, it's important to know the fees charged by each fund or ETF, which can ultimately reduce your dividend income, working against your strategy. Do your homework and make sure you know the fees charged by any fund before you invest.
Seeking steady, consistent income through dividends can be a smart option for financial security in retirement, whether you invest in mutual funds, ETFs, or in dividend-paying stocks.