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.

Retirement investing approaches of the past don'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 can retirees do? You could dramatically reduce your expenses, and go out on a limb hoping your Social Security benefits don't diminish. On the other hand, you could opt for an alternative investment that gives a steady, higher-rate income stream to supplant lessening 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.

Toronto-Dominion Bank (TD Quick QuoteTD - Free Report) is currently shelling out a dividend of $0.7 per share, with a dividend yield of 4.78%. This compares to the Banks - Foreign industry's yield of 3.78% and the S&P 500's yield of 1.76%. The company's annualized dividend growth in the past year was 3.51%. Check Toronto-Dominion Bank (TD Quick QuoteTD - Free Report) dividend history here>>>

TowneBank (TOWN Quick QuoteTOWN - Free Report) is paying out a dividend of $0.23 per share at the moment, with a dividend yield of 3.37% compared to the Banks - Southeast industry's yield of 2.45% and the S&P 500's yield. The annualized dividend growth of the company was 15% over the past year. Check TowneBank (TOWN Quick QuoteTOWN - Free Report) dividend history here>>>

Currently paying a dividend of $0.48 per share, U.S. Bancorp (USB Quick QuoteUSB - Free Report) has a dividend yield of 5.3%. This is compared to the Banks - Major Regional industry's yield of 4.34% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 4.35%. Check U.S. Bancorp (USB Quick QuoteUSB - 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 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.

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.

Bottom Line

Pursuing a dividend investing strategy can help protect your retirement portfolio. Whether you choose to invest in stocks or through low-fee mutual funds or ETFs, this approach can potentially help you achieve a more secure and enjoyable retirement.