Strange but true: Seniors fear death less than running out of money in retirement.
And retirees have good reason to be concerned about maintaining their assets. People are living longer, so the money has to cover a longer period. Making matters worse, the income generated using the tried-and-true retirement planning approach can’t cover expenses these days. This means senior citizens will have to dip into the principal amount to meet the cost of living.
Your parents’ retirement investment plan won’t cut it today.
Years ago, investors at or near retirement could park money in fixed-income assets and depend on the attractive yields to generate a steady, solid pay stream for a comfortable retirement. 10-year Treasury bond rates hovered around 6.50% in the late 1990s, but unfortunately, those days of being able to rely exclusively on Treasury yields for retirement income are over.
While this yield reduction may not seem huge, it makes sense: For a $1 million investment in 10-year Treasuries, a rate drop means a difference in yield of more than $1 million.
And low bond yields aren’t the only potential problem facing senior citizens. Even today’s retirees don’t feel as secure about Social Security as they used to. Benefit checks will still keep coming in the near future, but based on current projections, Social Security funds will run out in 2035.
So what should a retired person do? You can cut back on your expenses drastically, and run the risk of missing out on your Social Security checks. Or you can find an alternative investment that provides a steady, high-rate income stream to replace declining bond yields.
invest in dividend stocks
As a replacement for low-yielding Treasury bonds (and other bond alternatives), we believe dividend-paying stocks from high-quality companies provide investors seeking retirement with low risk and steady, predictable income. Are.
Look for stocks that have paid steady, growing dividends for years (or decades), and haven’t cut their dividends even during recessions.
One way to identify suitable stocks is to look for companies with an average dividend yield of 3% and positive average annual dividend growth. Many stocks increase dividends over time, thereby balancing out inflation risk.
Here are three dividend-paying stocks that retirees should consider for their portfolios.
Estimation (GES) Currently paying a dividend of $0.3 per share with a dividend yield of 5.2%. This compares to the textile-apparel industry yield of 0% and the S&P 500 yield of 1.67%. The annual dividend growth of the company last year was 33.33%. View Guess (GES) dividend history here>>>
M&T Bank Corporation (MTB) It’s currently paying a dividend of $1.3 per share, with a dividend yield of 4.12% compared to the bank’s leading regional industry yield of 4.19% and the S&P 500’s yield. The annual dividend growth of the company was 8.33% over the previous year. View M&T Bank Corporation (MTB) Dividend History Here>>>
currently paying a dividend of $1.25 per share, Prudential (PRU) The dividend yield is 5.35%. This compares to the Insurance – Multi Line industry’s yield of 1.96% and the S&P 500’s current yield. The company’s annual dividend growth last year was 4.17%. View Prudential’s (PRU) dividend history here>>>
But aren’t stocks generally riskier than bonds?
Yes this is true. As a broad category, bonds carry less risk than stocks. However, the stocks we’re talking about — dividend-paying stocks from high-quality companies — can generate income over time and also reduce the overall volatility of your portfolio compared to the stock market as a whole. Are.
One silver lining of owning dividend stocks for your retirement portfolio is that many companies, especially blue chip stocks, tend to increase their dividends over time, thereby reducing the impact of inflation on your potential retirement income. helps.
Thinking about dividend-focused mutual funds or ETFs? Be mindful of fees.
You may 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 mutual funds and specialty ETFs charge high fees, which can reduce your dividend gains or income, and defeat the goal of this dividend investing approach. If you’re looking to invest in a fund, do your research to find the best quality dividend funds with the lowest fees.
Adopting a dividend investing strategy can help protect your retirement portfolio. Whether you choose to invest in stocks or through low-fee mutual funds or ETFs, this approach can potentially help you achieve a more secure and enjoyable retirement.
Guess?, Inc. (GES): Free Stock Analysis Report
M&T Bank Corporation (MTB): Free Stock Analysis Report
Prudential Financial, Inc. (PRU): Free Stock Analysis Report
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Jax Investment Research
This article was originally published on Jax
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