Strange but true: seniors fear death less than running out of money in retirement.
And older Americans have legitimate reasons for this worry, even if they have dutifully saved for their golden years. That's because the traditional ways people manage retirement may no longer provide enough income to meet expenses - and with people generally living longer, the principal retirement savings is exhausted far too early in the retirement period.
The tried-and-true retirement investing approach of yesterday doesn't work today.
For example, 10-year Treasury bonds in the late 1990s offered a yield of around 6.50%, which translated to an income source you could count on. However, today's yield is much lower and probably not a viable return option to fund typical retirements.
That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today is more than $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.
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 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.
American Assets Trust ( is currently shelling out a dividend of $0.33 per share, with a dividend yield of 7.03%. This compares to the REIT and Equity Trust - Retail industry's yield of 4.73% and the S&P 500's yield of 1.69%. The company's annualized dividend growth in the past year was 3.13%. AAT Quick Quote AAT - Free Report) Check American Assets Trust ( AAT Quick Quote AAT - Free Report) dividend history here>>> Bank of America ( is paying out a dividend of $0.24 per share at the moment, with a dividend yield of 3.23% compared to the Banks - Major Regional industry's yield of 4.14% and the S&P 500's yield. The annualized dividend growth of the company was 9.09% over the past year. BAC Quick Quote BAC - Free Report) Check Bank of America ( BAC Quick Quote BAC - Free Report) dividend history here>>>
Currently paying a dividend of $0.27 per share,
Brixmor Property ( has a dividend yield of 4.86%. This is compared to the REIT and Equity Trust - Retail industry's yield of 4.73% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 8.33%. 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?
Overall, that is true. But stocks are a broad class, and you can reduce the risks significantly by selecting high-quality dividend stocks that can generate regular, predictable income and can also decrease the volatility of your portfolio compared to the overall 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.
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.
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.