Strange but true: seniors fear death less than running out of money in retirement.
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.
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.
The effect of this drop in rates is substantial: over 20 years, the change in yield for a $1 million investment in 10-year Treasuries is over $1 million.
Today's retirees are getting hit hard by reduced bond yields - and the Social Security picture isn't too rosy either. Right now and for the near future, Social Security benefits are still being paid, but it has been estimated that the Social Security funds will be depleted as soon as 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
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.
A rule of thumb for finding solid income-producing stocks is to seek those that average 3% dividend yield, and positive yearly dividend growth. These stocks can help combat inflation by boosting dividends over time.
Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.
Axis Capital ( is currently shelling out a dividend of $0.44 per share, with a dividend yield of 3%. This compares to the Insurance - Property and Casualty industry's yield of 0.61% and the S&P 500's yield of 1.69%. The company's annualized dividend growth in the past year was 4.76%. AXS Quick Quote AXS - Free Report) Check Axis Capital ( AXS Quick Quote AXS - Free Report) dividend history here>>> Plymouth Industrial ( is paying out a dividend of $0.23 per share at the moment, with a dividend yield of 4.05% compared to the REIT and Equity Trust - Other industry's yield of 4.61% and the S&P 500's yield. The annualized dividend growth of the company was 4.76% over the past year. PLYM Quick Quote PLYM - Free Report) Check Plymouth Industrial ( PLYM Quick Quote PLYM - Free Report) dividend history here>>>
Currently paying a dividend of $0.2 per share,
Regions Financial ( has a dividend yield of 3.57%. This is compared to the Banks - Southeast industry's yield of 2.05% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 17.65%. RF Quick Quote RF - Free Report) Check Regions Financial ( RF Quick Quote RF - Free Report) dividend history here>>> But aren't stocks generally more risky than bonds?
It is true that stocks, as an asset class, carry more risk than bonds, but high-quality dividend stocks not only have the ability to produce income growth over time but more importantly, can also reduce your overall portfolio volatility relative 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.
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.
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.