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3 Top Dividend Stocks to Maximize Your Retirement Income

Strange but true: seniors fear death less than running out of money in retirement.

And unfortunately, even retirees who have built a nest egg have good reason to be concerned - with the traditional approaches to retirement planning, income may no longer cover expenses. That means retirees are dipping into principal to make ends meet, setting up a race against time between dwindling investment balances and longer lifespans.

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

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.

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.

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.

A rule of thumb for finding solid income-producing stocks is to seek those that average 3% dividend yield, and positive yearly dividend growth. These stocks can help combat inflation by boosting dividends over time.

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

Axis Capital (AXS) is currently shelling out a dividend of $0.43 per share, with a dividend yield of 3.39%. This compares to the Insurance - Property and Casualty industry's yield of 1.01% and the S&P 500's yield of 1.81%. The company's annualized dividend growth in the past year was 2.38%. Check Axis Capital (AXS) dividend history here>>>

Independence Realty Trust (IRT) is paying out a dividend of $0.14 per share at the moment, with a dividend yield of 3.3% compared to the REIT and Equity Trust - Residential industry's yield of 3.3% and the S&P 500's yield. The annualized dividend growth of the company was 16.67% over the past year. Check Independence Realty Trust (IRT) dividend history here>>>

Currently paying a dividend of $0.22 per share, Kite Realty Group (KRG) has a dividend yield of 4.76%. This is compared to the REIT and Equity Trust - Retail industry's yield of 4.76% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 17.65%. Check Kite Realty Group (KRG) dividend history here>>>

But aren't stocks generally more risky than bonds?

It is true that stocks, as an asset class, carry more risk than bonds, but high-quality dividend stocks not only have the ability to produce income growth over time but more importantly, can also reduce your overall portfolio volatility relative to the broader stock market.

An advantage of owning dividend stocks for your retirement nest egg is that numerous companies, particularly blue chip stocks, raise their dividends over time, helping alleviate the impact of inflation on your potential retirement income.

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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Axis Capital Holdings Limited (AXS) : Free Stock Analysis Report
 
Kite Realty Group Trust (KRG) : Free Stock Analysis Report
 
Independence Realty Trust, Inc. (IRT) : Free Stock Analysis Report
 
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