Believe it or not, seniors fear running out of cash more than they fear dying.
And older Americans have legitimate reasons to be worried, even if they have dutifully saved for years. That's because the traditional ways people manage retirement may no longer provide enough income to meet expenses – and with people generally living longer, retirement savings are being exhausted far too early in the retirement period.
In today's economic environment, traditional income investments are not working.
Investors used to be able to buy bonds and count on attractive yields to produce steady, reliable income streams. 10-year Treasury bond rates in the late '90s hovered around 6.50%, whereas the current rate is much lower.
And lower bond yields aren't the only problem… t
oday's retirees aren't feeling confident in 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.
Unfortunately, it looks like the two traditional sources of retirement income – bonds and Social Security – may not be able to adequately meet the needs of present and future retirees.
But what if there was another option that could provide a steady, reliable source of income in retirement?
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.
Acadia Realty Trust (AKR) is currently shelling out a dividend of $0.18 per share, with a dividend yield of 4.96%. This compares to the REIT and Equity Trust – Retail industry's yield of 4.44% and the S&P 500's yield of 1.63%. The company's annualized dividend growth in the past year was 20%.
Conagra Brands (CAG) is paying out a dividend of $0.33 per share at the moment, with a dividend yield of 3.22% compared to the Food – Miscellaneous industry's yield of 0% and the S&P 500's yield. The annualized dividend growth of the company was 5.6% over the past year.
Currently paying a dividend of $0.2 per share, CVB Financial (CVBF) has a dividend yield of 3.18%. This is compared to the Banks – West industry's yield of 2.41% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 11.11%.
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'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
Regardless of whether you select high-quality, low-fee funds or stocks, looking for a steady stream of income from dividend-paying equities can potentially lead you to a solid and more peaceful retirement.
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Originally published on Yahoo.com
