Here’s a revealing data point: older Americans are scared more of outliving wealth 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.

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

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.

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 we see it, dividend-paying stocks from generally low-risk, top notch companies are a brilliant way to create steady and solid income streams to supplant low risk, low yielding Treasury and fixed-income alternatives.

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.

Banco Itau (ITUB) is currently shelling out a dividend of $0 per share, with a dividend yield of 4.26%. This compares to the Banks – Foreign industry’s yield of 4.74% and the S&P 500’s yield of 1.71%. The company’s annualized dividend growth in the past year was 582.04%. Check Banco Itau (ITUB) dividend history here>>>

New Jersey Resources (NJR) is paying out a dividend of $0.42 per share at the moment, with a dividend yield of 4.06% compared to the Utility – Gas Distribution industry’s yield of 3.79% and the S&P 500’s yield. The annualized dividend growth of the company was 7.59% over the past year. Check New Jersey Resources (NJR) dividend history here>>>

Currently paying a dividend of $0.22 per share, OFG Bancorp (OFG) has a dividend yield of 3.03%. This is compared to the Banks – Northeast industry’s yield of 3.21% and the S&P 500’s current yield. Annualized dividend growth for the company in the past year was 46.67%. Check OFG Bancorp (OFG) dividend history here>>>

But aren’t stocks generally more risky than bonds?

The fact is that stocks, as an asset class, carry more risk than bonds. To counterbalance this, invest in superior quality dividend stocks that not only can grow over time but more significantly, can also decrease your overall portfolio volatility with respect to the broader stock market.

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 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

Seeking steady, consistent income through dividends can be a smart option for financial security in retirement, whether you invest in mutual funds, ETFs, or in dividend-paying stocks.
Itau Unibanco Holding S.A. (ITUB): Free Stock Analysis Report

NewJersey Resources Corporation (NJR): Free Stock Analysis Report

OFG Bancorp (OFG): Free Stock Analysis Report

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