How to Maximize Your Retirement Portfolio with These Top-Ranked Dividend Stocks

Here's an eye-opening statistic: older Americans are more afraid of running out of money than of death itself.

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.

Retirement investing approaches of the past don'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.

The effect of this drop in rates is substantial: over 20 years, the change in yield for a $1 million investment in 10-year Treasuries is over $1 million.

Today's retirees are getting hit hard by reduced bond yields-and the Social Security picture isn't too rosy either. Right now and for the near future, Social Security benefits are still being paid, but it has been estimated that the Social Security funds will be depleted as soon as 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.

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.

Associated Banc-Corp (ASB) is currently shelling out a dividend of $0.24 per share, with a dividend yield of 3.67%. This compares to the Banks - Midwest industry's yield of 2.69% and the S&P 500's yield of 1.53%. The company's annualized dividend growth in the past year was 4.55%. Check Associated Banc-Corp dividend history here>>>

Invesco (IVZ) is paying out a dividend of $0.21 per share at the moment, with a dividend yield of 3.61% compared to the Financial - Investment Management industry's yield of 1.66% and the S&P 500's yield. The annualized dividend growth of the company was 2.44% over the past year. Check Invesco dividend history here>>>

Currently paying a dividend of $0.37 per share, NBT Bancorp (NBTB) has a dividend yield of 3.63%. This is compared to the Banks - Northeast industry's yield of 2.27% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 6.25%. Check NBT Bancorp dividend history here>>>

But aren't stocks generally more risky than bonds?

Yes, that's true. As a broad category, bonds carry less risk than stocks. However, the stocks we are talking about-dividend-paying stocks from high-quality companies-can generate income over time and also mitigate the overall volatility of your portfolio compared to the stock market as a whole.

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 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

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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This article originally published on Zacks Investment Research (zacks.com).

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