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.

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.

That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today is more than $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.

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.

Axis Capital (AXS) is currently shelling out a dividend of $0.44 per share, with a dividend yield of 3.08%. This compares to the Insurance – Property and Casualty industry’s yield of 0.1% and the S&P 500’s yield of 1.71%. The company’s annualized dividend growth in the past year was 2.33%. Check Axis Capital (AXS) dividend history here>>>

Preferred Bank (PFBC) is paying out a dividend of $0.55 per share at the moment, with a dividend yield of 3.55% compared to the Banks – West industry’s yield of 3.27% and the S&P 500’s yield. The annualized dividend growth of the company was 27.91% over the past year. Check Preferred Bank (PFBC) dividend history here>>>

Currently paying a dividend of $0.87 per share, Prologis (PLD) has a dividend yield of 3.13%. This is compared to the REIT and Equity Trust – Other industry’s yield of 4.98% and the S&P 500’s current yield. Annualized dividend growth for the company in the past year was 10.13%. Check Prologis (PLD) 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 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’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

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.
Axis Capital Holdings Limited (AXS): Free Stock Analysis Report

Prologis, Inc. (PLD): Free Stock Analysis Report

Preferred Bank (PFBC): Free Stock Analysis Report

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