Strange but true: seniors fear death less than the lack of money in retirement.
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.
Yesterday’s proven approach to retirement investing doesn’t work today.
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.
In addition to the dramatic drop in bond yields, today’s retirees worry about their future social security benefits. Due to certain demographic factors, it is estimated that the funds that pay Social Security benefits will run out of money in 2035.
How do you avoid dipping into your capital when the investments you relied on in retirement aren’t producing income? You can only reduce your expenses so far, and the only other option is to find a different investment vehicle to generate income.
Invest in dividend stocks
Dividend-paying stocks of low-risk, high-quality companies are a smart way to generate attractive, stable and reliable income streams to replace low-risk, low-return Treasury bills and bond options.
Look for stocks that have paid stable and growing dividends for years (or decades) and have not cut their dividends even during recessions.
Beyond these household names, you can find great 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 essential to combat the effects of inflation.
Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.
NexPoint Residential Trust Inc. (NXRT – Free report) currently pays a dividend of $0.42 per share, with a dividend yield of 3.26%. This compares to the REIT and Equity Trust – Residential sector return of 3.26% and the S&P 500 return of 1.61%. The company’s annualized dividend growth over the past year was 11.36%. Check NexPoint Residential Trust Inc. (NXRT – Free report) dividend history here>>>
Financial foresight (PSF – Free report) currently pays a dividend of $0.24 per share, with a dividend yield of 4.25% compared to the 2.52% return of the financial industry – Savings and Loan and the return of the S&P 500. The annualized growth of the company’s dividend was 4.35% over the past year. Check the financial foresight (PSF – Free report) dividend history here>>>
Currently paying a dividend of $0.34 per share, Bancorp Republic (RBCAA – Free report) has a dividend yield of 3.15%. This compares to the Banks – Southeast sector return of 1.94% and the current return of the S&P 500. The company’s annualized dividend growth over the past year was 10.71%. Check Republic Bancorp (RBCAA – Free report) dividend history here>>>
But aren’t stocks generally riskier than bonds?
It’s true that equities, as an asset class, carry more risk than bonds, but high-quality dividend-paying stocks not only have the ability to deliver income growth over time, but more importantly yet, can also reduce the overall volatility of your portfolio relative to all stocks. market.
One of the benefits of owning these dividend-paying stocks is to combat the impact of inflation. Here’s why: many of these stable, high-quality companies increase their dividends over time, resulting in increased dividend income that offsets the effects of inflation.
Considering dividend-focused mutual funds or ETFs? Watch out for fees.
You might be thinking, “I like this dividend strategy, but instead of investing in individual stocks, I’m going to find a dividend-focused mutual fund or ETF. This approach may make sense, but be aware that some specialty mutual funds and ETFs have high fees, which may reduce your earnings or dividend income and defeat the purpose of this dividend investing approach. . If you want to invest in a fund, do your research to find the best dividend funds with the lowest fees.
Conclusion
Whether you choose high-quality, low-fee funds or stocks, seeking a steady stream of income from dividend-paying stocks can potentially lead to a solid, more peaceful retirement.