Here’s an eye-opening statistic: older Americans are more afraid of running out of money than of death itself.

Also, retirees who have constructed a nest egg have valid justifications to be concerned, since the traditional ways to plan for retirement may mean income can no longer cover expenses. Some retirees are now tapping their principal to make a decent living, pressed for time between decreasing investment balances and longer life expectancies.

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

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.

While this yield reduction may not seem drastic, it adds up: for a $1 million investment in 10-year Treasuries, the rate drop means a difference in yield of 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’s a retiree to do? You could cut your expenses to the bone, and take the risk that your Social Security checks don’t shrink. Or you could find an alternative investment that provides a steady, higher-rate income stream to replace dwindling bond yields.

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.

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.

Ameren (AEE) is currently shelling out a dividend of $0.63 per share, with a dividend yield of 3.17%. This compares to the Utility – Electric Power industry’s yield of 3.64% and the S&P 500’s yield of 1.66%. The company’s annualized dividend growth in the past year was 6.78%. Check Ameren (AEE) dividend history here>>>

Brookfield Infrastructure Partners (BIP) is paying out a dividend of $0.38 per share at the moment, with a dividend yield of 4.85% compared to the REIT and Equity Trust – Other industry’s yield of 4.77% and the S&P 500’s yield. The annualized dividend growth of the company was 6.25% over the past year. Check Brookfield Infrastructure Partners (BIP) dividend history here>>>

Currently paying a dividend of $0.76 per share, Heartland BancCorp. (HLAN) has a dividend yield of 3.53%. This is compared to the Banks – Midwest industry’s yield of 3.53% and the S&P 500’s current yield. Annualized dividend growth for the company in the past year was 10%. Check Heartland BancCorp. (HLAN) dividend history here>>>

But aren’t stocks generally more risky than bonds?

Yes, that’s true. As a broad category, bonds carry less risk than stocks. However, the stocks we are talking about – dividend -paying stocks from high-quality companies – can generate income over time and also mitigate the overall volatility of your portfolio compared to the stock market as a whole.

A silver lining to owning dividend stocks for your retirement portfolio is that many companies, especially blue chip stocks, increase their dividends over time, helping offset the effects of inflation on your potential retirement income.

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.
Ameren Corporation (AEE): Free Stock Analysis Report

Brookfield Infrastructure Partners LP (BIP): Free Stock Analysis Report

Heartland BancCorp. (HLAN): Free Stock Analysis Report

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