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.

In today's economic environment, traditional income investments are not working.

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.

The effect of this drop in rates is substantial: over 20 years, the change in yield for a $1 million investment in 10-year Treasuries is over $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

As we see it, dividend-paying stocks from generally low-risk, top notch companies are a brilliant way to create steady and solid income streams to supplant low risk, low yielding Treasury and fixed-income alternatives.

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.

Bristol Myers Squibb (BMY Quick QuoteBMY - Free Report) is currently shelling out a dividend of $0.63 per share, with a dividend yield of 4.63%. This compares to the Medical - Biomedical and Genetics industry's yield of 0% and the S&P 500's yield of 1.42%. The company's annualized dividend growth in the past year was 3.33%. Check Bristol Myers Squibb dividend history here>>>

Independent Bank Corp. (INDB) is paying out a dividend of $0.59 per share at the moment, with a dividend yield of 3.08% compared to the Banks - Northeast industry's yield of 2.14% and the S&P 500's yield. The annualized dividend growth of the company was 3.51% over the past year. Check Independent Bank Corp. dividend history here>>>

Currently paying a dividend of $0.09 per share, Sunstone Hotel Investors (SHO) has a dividend yield of 3.90%. This is compared to the REIT and Equity Trust - Other industry's yield of 4.35% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 20%. Check Sunstone Hotel Investors 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.

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.

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.