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3 Top Dividend Stocks to Maximize Your Retirement Income - January 31, 2020

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

And retirees have good reason to be worried about making their assets last. People are living longer, so that money has to cover a longer period. Making matters worse, income generated using tried - and - true retirement planning approaches may not cover expenses these days. That means seniors must dip into principal to meet living expenses.

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

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 - currently under 2% 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.

So what can retirees do? You could dramatically reduce your expenses, and go out on a limb hoping your Social Security benefits don't diminish. On the other hand, you could opt for an alternative investment that gives a steady, higher-rate income stream to supplant lessening bond yields.

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 current low risk, low yielding Treasury and bond options.

For example, AT&T and Coca-Cola are income stocks with attractive dividend yields of 3% or better. Look for stocks like this 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.

MetLife (MET - Free Report) is currently shelling out a dividend of $0.44 per share, with a dividend yield of 3.43%. This compares to the Insurance - Multi line industry's yield of 2.21% and the S&P 500's yield of 1.77%. In terms of dividend growth, the company's current annualized dividend of $1.76 is up 4.76% from last year.

Navient (NAVI - Free Report) is paying out a dividend of 0.16 per share at the moment, with a dividend yield of 4.3% compared to the Financial - Consumer Loans industry's yield of 0% and the S&P 500's yield. Taking a look at the company's dividend growth, its current annualized dividend of $0.64 is flat compared to last year.

Currently paying a dividend of 0.28 per share, Corporate Office Properties (OFC - Free Report) has a dividend yield of 3.65%. This is compared to the REIT and Equity Trust - Other industry's yield of 4% and the S&P 500's current yield. Looking at dividend growth, the company's current annualized dividend of $1.1 is flat compared to last year.

But aren't stocks generally more risky than bonds?

It is true that stocks, as an asset class, carry more risk than bonds, but high-quality dividend stocks not only have the ability to produce income growth over time but more importantly, can also reduce your overall portfolio volatility relative 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'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.

Bottom Line

Whether you select high-quality, low-fee funds or stocks, seeking the steady income of dividend-paying equities can potentially offer you a path to a better and more stress-free retirement.

Generating income is just one aspect of planning for a comfortable retirement.

To learn more ways to maximize your assets - and avoid pitfalls that could jeopardize your financial security - download our free report:

Will You Retire a Multi-Millionaire? 7 Things You Can Do Now


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MetLife, Inc. (MET) - free report >>

Navient Corporation (NAVI) - free report >>

Corporate Office Properties Trust (OFC) - free report >>

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