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

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.

The tried - and - true retirement investing approach of yesterday doesn'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.

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.

Unfortunately, it looks like the two traditional sources of retirement income-bonds and Social Security-may not be able to adequately meet the needs of present and future retirees. But what if there was another option that could provide a steady, reliable source of income in retirement?

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.

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 $0.38 per share, with a dividend yield of 3.09%. This compares to the Banks - Southwest industry's yield of 0.83% and the S&P 500's yield of 1.45%. The company's annualized dividend growth in the past year was 6.25%. Check ACNB dividend history here>>>

Bar Harbor Bankshares (BHB) is paying out a dividend of $0.32 per share at the moment, with a dividend yield of 4.14% compared to the Banks - Northeast industry's yield of 2.29% and the S&P 500's yield. The annualized dividend growth of the company was 6.67% over the past year. Check Bar Harbor Bankshares dividend history here>>>

Currently paying a dividend of $0.31 per share, COPT Defense (CDP) has a dividend yield of 4.19%. This is compared to the REIT and Equity Trust - Other industry's yield of 4.52% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 3.39%. Check COPT Defense 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 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

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.