Here's an eye-opening statistic: older Americans are more afraid of running out of money than of death itself.

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.

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.

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

Dividend-paying stocks from low-risk, high-quality companies are a smart way to generate steady and reliable attractive income streams to replace low risk, low yielding Treasury and bond options.

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.

American Assets Trust (AAT Quick QuoteAAT - Free Report)

is currently shelling out a dividend of $0.34 per share, with a dividend yield of 4.83%. This compares to the REIT and Equity Trust - Retail industry's yield of 3.62% and the S&P 500's yield of 1.45%. The company's annualized dividend growth in the past year was 1.52%. Check American Assets Trust dividend history here>>>

COPT Defense (CDP Quick QuoteCDP - Free Report)

is paying out a dividend of $0.3 per share at the moment, with a dividend yield of 3.62% compared to the REIT and Equity Trust - Other industry's yield of 4.17% and the S&P 500's yield. The annualized dividend growth of the company was 3.51% over the past year. Check COPT Defense dividend history here>>>

Currently paying a dividend of $0.54 per share,

First American Financial (FAF Quick QuoteFAF - Free Report)

has a dividend yield of 3.14%. This is compared to the Insurance - Property and Casualty industry's yield of 0.11% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 1.89%. Check First American Financial 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.

An upside to adding dividend stocks to your retirement portfolio: they can help lessen the effects of inflation, since many dividend-paying companies (especially blue chip stocks) generally increase their dividends over time.

Thinking about dividend-focused mutual funds or ETFs? Watch out for fees.

If you prefer investing in funds or ETFs compared to individual stocks, you can still pursue a dividend income strategy. However, it's important to know the fees charged by each fund or ETF, which can ultimately reduce your dividend income, working against your strategy. Do your homework and make sure you know the fees charged by any fund before you invest.

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.