Here’s a revealing data point: older Americans are scared more of outliving wealth than of death itself.
And unfortunately, even retirees who have built a nest egg have good reason to be concerned – with the traditional approaches to retirement planning, income may no longer cover expenses. That means retirees are dipping into principal to make ends meet, setting up a race against time between dwindling investment balances and longer lifespans.
In today’s economic environment, traditional income investments are not working.
For example, 10-year Treasury bonds in the late 1990s offered a yield of around 6.50%, which translated to an income source you could count on. However, today’s yield is much lower and probably not a viable return option to fund typical retirements.
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.
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.
Going beyond those familiar names, you can find excellent dividend-paying stocks by following a few guidelines. Look for companies that pay a dividend yield of around 3%, with positive annual dividend growth. The growth rate is key to help combat the effects of inflation.
Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.
GSK (GSK) is currently shelling out a dividend of $0.37 per share, with a dividend yield of 3.48%. This compares to the Medical – Biomedical and Genetics industry’s yield of 0% and the S&P 500’s yield of 1.58%. The company’s annualized dividend growth in the past year was 18.84%. Check GSK (GSK) dividend history here>>>
Johnson & Johnson (JNJ) is paying out a dividend of $1.24 per share at the moment, with a dividend yield of 3.14% compared to the Large Cap Pharmaceuticals industry’s yield of 2.45% and the S&P 500’s yield. The annualized dividend growth of the company was 5.31% over the past year. Check Johnson & Johnson (JNJ) dividend history here>>>
Currently paying a dividend of $0.17 per share, Urban Edge Properties (UE) has a dividend yield of 3.91%. This is compared to the REIT and Equity Trust – Retail industry’s yield of 4.37% and the S&P 500’s current yield. Annualized dividend growth for the company in the past year was 6.25%. Check Urban Edge Properties (UE) 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 advantage of owning dividend stocks for your retirement nest egg is that numerous companies, particularly blue chip stocks, raise their dividends over time, helping alleviate the impact of inflation on your potential retirement income.
Thinking about dividend-focused mutual funds or ETFs? Watch out for fees.
If you’re thinking, “I want to invest in a dividend-focused ETF or mutual fund,” make sure to do your homework. It’s important to know that some mutual funds and specialized ETFs charge high fees, which may diminish your dividend gains or income and thwart the overall objective of this investment strategy. If you do want to invest in fund, research well to identify the best-quality dividend funds with the least charges.
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.
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GSK PLC Sponsored ADR (GSK) : Free Stock Analysis Report
Johnson & Johnson (JNJ) : Free Stock Analysis Report
Urban Edge Properties (UE) : Free Stock Analysis Report
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