Believe it or not, seniors fear running out of cash more than they fear dying.

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.

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.

In addition to the considerable drop in bond yields, today’s retirees are nervous about their future Social Security benefits. Because of certain demographic factors, it’s been estimated that the funds that pay the Social Security benefits will run out of money in 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

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.

Going beyond those familiar names, you can find excellent dividend-paying stocks by following a few guidelines. Look for companies that pay a dividend yield of around 3%, with positive annual dividend growth. The growth rate is key to help combat the effects of inflation.

Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.

Bank of America (BAC) is currently shelling out a dividend of $0.24 per share, with a dividend yield of 3%. This compares to the Banks – Major Regional industry’s yield of 4.13% and the S&P 500’s yield of 1.65%. The company’s annualized dividend growth in the past year was 4.76%. Check Bank of America (BAC) dividend history here>>>

First Community Bancshares (FCBC) is paying out a dividend of $0.29 per share at the moment, with a dividend yield of 3.64% compared to the Banks – Southeast industry’s yield of 2.85% and the S&P 500’s yield. The annualized dividend growth of the company was 7.41% over the past year. Check First Community Bancshares (FCBC) dividend history here>>>

Currently paying a dividend of $0.26 per share, Invitation Home (INVH) has a dividend yield of 3.05%. This is compared to the REIT and Equity Trust – Residential industry’s yield of 3.91% and the S&P 500’s current yield. Annualized dividend growth for the company in the past year was 18.18%. Check Invitation Home (INVH) 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

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.
Bank of America Corporation (BAC): Free Stock Analysis Report

First Community Bancshares, Inc. (FCBC): Free Stock Analysis Report

Invitation Home (INVH): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

This article originally appeared on Zacks

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.