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.

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.

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.

And lower bond yields aren’t the only potential problem seniors are facing. Today’s retirees aren’t feeling as secure as they once did about Social Security, either. Benefit checks will still be coming for the foreseeable future, but based on current estimates, Social Security funds will run out of money in 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.

Barclays (BCS) is currently shelling out a dividend of $0.14 per share, with a dividend yield of 6.26%. This compares to the Banks – Foreign industry’s yield of 4.49% and the S&P 500’s yield of 1.62%. The company’s annualized dividend growth in the past year was 16.43%. Check Barclays (BCS) dividend history here>>>

Bloomin’ Brands (BLMN) is paying out a dividend of $0.24 per share at the moment, with a dividend yield of 3.67% compared to the Retail – Restaurants industry’s yield of 0% and the S&P 500’s yield. The annualized dividend growth of the company was 71.43% over the past year. Check Bloomin’ Brands (BLMN) dividend history here>>>

Currently paying a dividend of $0.11 per share, Colony Bankcorp (CBAN) has a dividend yield of 4.1%. This is compared to the Banks – Southeast industry’s yield of 2.67% and the S&P 500’s current yield. Annualized dividend growth for the company in the past year was 2.33%. Check Colony Bankcorp (CBAN) dividend history here>>>

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.

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.

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

Pursuing a dividend investing strategy can help protect your retirement portfolio. Whether you choose to invest in stocks or through low-fee mutual funds or ETFs, this approach can potentially help you achieve a more secure and enjoyable retirement.
Barclays PLC (BCS): Free Stock Analysis Report

Bloomin’ Brands, Inc. (BLMN): Free Stock Analysis Report

Colony Bankcorp, Inc. (CBAN): Free Stock Analysis Report

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