Strange but true: seniors fear death less than running out of money in retirement.

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.

Retirement investing approaches of the past don't work 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.

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.

ACNB (ACNB Quick QuoteACNB - Free Report) is currently shelling out a dividend of $0.28 per share, with a dividend yield of 3.27%. This compares to the Banks - Southwest industry's yield of 0.87% and the S&P 500's yield of 1.62%. The company's annualized dividend growth in the past year was 7.69%. Check ACNB (ACNB Quick QuoteACNB - Free Report) dividend history here>>>

Brookfield Infrastructure Partners (BIP Quick QuoteBIP - Free Report) is paying out a dividend of $0.38 per share at the moment, with a dividend yield of 4.68% compared to the REIT and Equity Trust - Other industry's yield of 4.48% and the S&P 500's yield. The annualized dividend growth of the company was 6.25% over the past year. Check Brookfield Infrastructure Partners (BIP Quick QuoteBIP - Free Report) dividend history here>>>

Currently paying a dividend of $0.26 per share, Brixmor Property (BRX Quick QuoteBRX - Free Report) has a dividend yield of 4.53%. This is compared to the REIT and Equity Trust - Retail industry's yield of 4.07% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 8.33%. Check Brixmor Property (BRX Quick QuoteBRX - 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.

Combating the impact of inflation is one advantage of owning these dividend-paying stocks. Here's why: many of these stable, high-quality companies increase their dividends over time, which translates to rising dividend income that offsets the effects of inflation.

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.

Bottom Line

Regardless of whether you select high-quality, low-fee funds or stocks, looking for a steady stream of income from dividend-paying equities can potentially lead you to a solid and more peaceful retirement.