Here’s a telling data point: Older Americans are more afraid of surviving wealth than of death itself.
And retirees have good reason to worry about the sustainability of their wealth. People are living longer, so the money has to cover a longer period. Worse, the income generated using proven approaches to retirement planning may not cover expenses these days. This means that the elderly have to draw on capital to cover their living expenses.
In today’s economic environment, traditional income investments don’t work.
Years ago, investors in retirement or close to retirement could invest in fixed income assets and count on attractive returns to generate strong and consistent streams of compensation to fund a comfortable retirement. Yields on 10-year Treasury bills in the late 1990s hovered around 6.50%, but sadly, the days of relying exclusively on Treasury yields to fund retirement income are over.
The effect of this fall in rates is considerable: over 20 years, the variation in return for an investment of 1 million dollars in 10-year Treasury bonds is greater than 1 million dollars.
Today’s retirees are being hit hard by falling bond yields — and the picture for Social Security isn’t too rosy either. Currently and in the near future, Social Security benefits are still being paid, but it has been estimated that Social Security funds will be exhausted as early as 2035.
Unfortunately, it appears that the two traditional sources of retirement income – bonds and Social Security – may not be able to adequately meet the needs of current and future retirees. But what if there was another option that could provide a stable and reliable source of income in retirement?
Invest in dividend stocks
As a replacement for low-yielding Treasuries (and other bond options), we believe dividend-paying stocks of high-quality companies offer low-risk, stable and predictable income for investors seeking retirement.
Look for stocks that have paid stable and growing dividends for years (or decades) and have not cut their dividends even during recessions.
One way to identify suitable candidates is to look for stocks with an average dividend yield of 3% and positive average annual dividend growth. Many stocks increase dividends over time, helping to offset the effects of inflation.
Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.
Cisco Systems (CSCO – Free report) currently pays a dividend of $0.38 per share, with a dividend yield of 3.1%. This compares to the Computer Industry – Networks return of 0% and the S&P 500 return of 1.67%. The company’s annualized dividend growth over the past year was 2.7%. Check Cisco Systems (CSCO – Free report) dividend history here>>>
Bancorp Republic (RBCAA – Free report) currently pays a dividend of $0.34 per share, with a dividend yield of 3.23% compared to the Banks – Southeast sector yield of 2.06% and the S&P 500 yield. of the company was 10.71% over the past year. Check Republic Bancorp (RBCAA – Free report) dividend history here>>>
Currently paying a dividend of $0.5 per share, Shell (SHEL – Free report) has a dividend yield of 3.53%. This is compared to the return of the international – integrated – oil and gas industry of 2.77% and the current return of the S&P 500. The company’s annualized dividend growth over the past year was 4.17 %. Check the shell (SHEL – Free report) dividend history here>>>
But aren’t stocks generally riskier than bonds?
On the whole, it’s true. But stocks are a broad class, and you can significantly reduce risk by selecting high-quality, dividend-paying stocks that can generate steady, predictable income and can also reduce your portfolio’s volatility relative to the overall 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 to offset the effects of inflation on your income. potential retirement.
Considering dividend-focused mutual funds or ETFs? Watch out for fees.
If you want to invest in dividends but are considering mutual funds or ETFs rather than stocks, beware of fees. Mutual funds and specialty ETFs can have high fees, which could reduce the overall gains you make from dividends, undermining your dividend income strategy. Be sure to look for low-fee funds if you choose this approach.
Conclusion
Seeking stable, consistent income through dividends can be a smart option for financial security in retirement, whether you’re investing in mutual funds, ETFs or dividend-paying stocks.