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.
Your parents' retirement investing plan won't cut it 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.
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.
And lower bond yields aren't the only potential problem seniors are facing. Today's retirees aren't feeling as secure as they once did about Social Security, either. Benefit checks will still be coming for the foreseeable future, but based on current estimates, Social Security funds 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 approach to recognizing appropriate stocks is to look for companies with an average dividend yield of 3% and positive average annual dividend growth. Numerous stocks hike dividends over time, counterbalancing inflation risks.
Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.
Federal Agricultural Mortgage ( is currently shelling out a dividend of $1.1 per share, with a dividend yield of 78.43%. This compares to the Financial - Mortgage & Related Services industry's yield of 0% and the S&P 500's yield of 1.71%. The company's annualized dividend growth in the past year was 15.79%. AGM Quick Quote AGM - Free Report) Check Federal Agricultural Mortgage ( AGM Quick Quote AGM - Free Report) dividend history here>>> Camden ( is paying out a dividend of $1 per share at the moment, with a dividend yield of 3.92% compared to the REIT and Equity Trust - Residential industry's yield of 4.11% and the S&P 500's yield. The annualized dividend growth of the company was 6.38% over the past year. CPT Quick Quote CPT - Free Report) Check Camden ( CPT Quick Quote CPT - Free Report) dividend history here>>>
Currently paying a dividend of $0.22 per share,
Juniper Networks ( has a dividend yield of 3.11%. This is compared to the Wireless Equipment industry's yield of 0% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 4.76%. JNPR Quick Quote JNPR - Free Report) Check Juniper Networks ( JNPR Quick Quote JNPR - 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.
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 interested in investing in dividends, but are thinking about mutual funds or ETFs rather than stocks, beware of fees. Mutual funds and specialized ETFs may carry high fees, which could lower the overall gains you earn from dividends, undercutting your dividend income strategy. Be sure to look for funds with low fees if you decide on this approach.
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.