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.

Your parents’ retirement investing plan won’t cut it today.

For many years, bonds or other fixed-income assets could produce the yield needed to provide solid income for retirement needs. However, these yields have dwindled over time: 10-year Treasury bond rates in the late 1990s were around 6.50%, but today, that rate is a thing of the past, with a slim likelihood of rates making a comeback in the foreseeable future.

The impact of this rate decline is sizable: over 20 years, the difference in yield for a $1 million investment in 10-year Treasuries is more than $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.

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

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.

Juniper Networks (JNPR) is currently shelling out a dividend of $0.22 per share, with a dividend yield of 3.12%. This compares to the Wireless Equipment industry’s yield of 0% and the S&P 500’s yield of 1.68%. The company’s annualized dividend growth in the past year was 4.76%. Check Juniper Networks (JNPR) dividend history here>>>

Mercantile Bank (MBWM) is paying out a dividend of $0.34 per share at the moment, with a dividend yield of 3.88% compared to the Banks – Midwest industry’s yield of 3.42% and the S&P 500’s yield. The annualized dividend growth of the company was 6.45% over the past year. Check Mercantile Bank (MBWM) dividend history here>>>

Currently paying a dividend of $0.28 per share, Manulife Financial (MFC) has a dividend yield of 5.97%. This is compared to the Insurance – Life Insurance industry’s yield of 0.04% and the S&P 500’s current yield. Annualized dividend growth for the company in the past year was 4.98%. Check Manulife Financial (MFC) 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.

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 prefer investing in funds or ETFs compared to individual stocks, you can still pursue a dividend income strategy. However, it’s important to know the fees charged by each fund or ETF, which can ultimately reduce your dividend income, working against your strategy. Do your homework and make sure you know the fees charged by any fund before you invest.

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.
Juniper Networks, Inc. (JNPR): Free Stock Analysis Report

Manulife Financial Corp (MFC): Free Stock Analysis Report

Mercantile Bank Corporation (MBWM): Free Stock Analysis Report

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