3 Top Dividend Stocks to Maximize Your Retirement Income

Believe it or not, seniors fear running out of cash more than they fear dying.

And retirees have good reason to be worried about making their assets last. People are living longer, so that money has to cover a longer period. Making matters worse, income generated using tried-and-true retirement planning approaches may not cover expenses these days. That means seniors must dip into principal to meet living expenses.

The tried-and-true retirement investing approach of yesterday doesn't work today.

Years ago, investors at or close to retirement could put money into fixed-income assets and depend on appealing yields to generate consistent, solid pay streams to fund a comfortable retirement. 10-year Treasury bond rates in the late 1990s floated around 6.50%, but unfortunately, those days of being able to exclusively rely on Treasury yields to fund retirement income are over.

While this yield reduction may not seem drastic, it adds up: for a $1 million investment in 10-year Treasuries, the rate drop means a difference in yield of more than $1 million.

In addition to the considerable drop in bond yields, today's retirees are nervous about their future Social Security benefits. Because of certain demographic factors, it's been estimated that the funds that pay the Social Security benefits 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

Dividend-paying stocks from low-risk, high-quality companies are a smart way to generate steady and reliable attractive income streams to replace low risk, low yielding Treasury and bond options.

Look for stocks that have paid steady, increasing dividends for years (or decades), and have not cut their dividends even during recessions.

One approach to recognizing appropriate stocks is to look for companies with an average dividend yield of 3% and positive average annual dividend growth. Numerous stocks hike dividends over time, counterbalancing inflation risks.

Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.

LCNB (LCNB) is currently shelling out a dividend of $0.21 per share, with a dividend yield of 4.42%. This compares to the Banks - Northeast industry's yield of 2.5% and the S&P 500's yield of 1.57%. The company's annualized dividend growth in the past year was 5%. Check LCNB (LCNB) dividend history here>>>

SB Financial Group, Inc. (SBFG) is paying out a dividend of $0.13 per share at the moment, with a dividend yield of 3.01% compared to the Banks - Northeast industry's yield of 2.5% and the S&P 500's yield. The annualized dividend growth of the company was 14.13% over the past year. Check SB Financial Group, Inc. (SBFG) dividend history here>>>

Currently paying a dividend of $1.8 per share, Simon Property (SPG) has a dividend yield of 5.72%. This is compared to the REIT and Equity Trust - Retail industry's yield of 4.11% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 9.09%. Check Simon Property (SPG) dividend history here>>>

But aren't stocks generally more risky than bonds?

The fact is that stocks, as an asset class, carry more risk than bonds. To counterbalance this, invest in superior quality dividend stocks that not only can grow over time but more significantly, can also decrease your overall portfolio volatility with respect to the broader stock market.

Combating the impact of inflation is one advantage of owning these dividend-paying stocks. Here's why: many of these stable, high-quality companies increase their dividends over time, which translates to rising dividend income that offsets the effects of inflation.

Thinking about dividend-focused mutual funds or ETFs? Watch out for fees.

If you prefer investing in funds or ETFs compared to individual stocks, you can still pursue a dividend income strategy. However, it's important to know the fees charged by each fund or ETF, which can ultimately reduce your dividend income, working against your strategy. Do your homework and make sure you know the fees charged by any fund before you invest.

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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LCNB Corporation (LCNB) : Free Stock Analysis Report

Simon Property Group, Inc. (SPG) : Free Stock Analysis Report

SB Financial Group, Inc. (SBFG) : Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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