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3 Top Dividend Stocks to Maximize Your Retirement Income

Here's a revealing data point: older Americans are scared more of outliving wealth 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.

In today's economic environment, traditional income investments are not working.

For many years, bonds or other fixed-income assets could produce the yield needed to provide solid income for retirement needs. However, these yields have dwindled over time: 10-year Treasury bond rates in the late 1990s were around 6.50%, but today, that rate is a thing of the past, with a slim likelihood of rates making a comeback in the foreseeable future.

That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today is 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

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.

Brookline Bancorp (BRKL) is currently shelling out a dividend of $0.14 per share, with a dividend yield of 4.26%. This compares to the Financial - Savings and Loan industry's yield of 2.68% and the S&P 500's yield of 1.62%. The company's annualized dividend growth in the past year was 8%. Check Brookline Bancorp (BRKL) dividend history here>>>

Chevron (CVX) is paying out a dividend of $1.51 per share at the moment, with a dividend yield of 3.02% compared to the Oil and Gas - Integrated - International industry's yield of 3.02% and the S&P 500's yield. The annualized dividend growth of the company was 5.97% over the past year. Check Chevron (CVX) dividend history here>>>

Currently paying a dividend of $0.31 per share, Premier Financial (PFC) has a dividend yield of 4.95%. This is compared to the Banks - Northeast industry's yield of 2.5% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 7.14%. Check Premier Financial (PFC) 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.

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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Brookline Bancorp, Inc. (BRKL) : Free Stock Analysis Report

Chevron Corporation (CVX) : Free Stock Analysis Report

Premier Financial Corp. (PFC) : Free Stock Analysis Report

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Zacks Investment Research