The single greatest worry of anyone planning𒁏 for retirement is probably the fear of outliving your savings. No matter how much money you sock away in your 401(k) or your IRAs, you worry that it might not be enough.

One possible solution is to focus your portfolio on dividend-paying stocks, mutual funds, and 澳洲幸运5官方开奖结果体彩网:exchange traded funds (ETFs). Hang onto your principle. Create a regular cash🧸 flow that will supplement your other income, such as Social♔ Security and a pension.

It's All About Dividend Growth

Unlike the interest from bonds, 澳洲幸运5官方开奖结果体彩网:stock dividends tend to grow over time, and 澳洲幸运5官方开奖结果体彩网:dividend growth has historically outpaced inflation.

That's a good reason for dividend-paying stocks to be a part of every investor's portfolio.

For investors with a long timeline, this fact can be used to create a portfolio that is aimed at 澳洲幸运5官方开奖结果体彩网:dividend-income living after retiring.

Reinvesting Dividends

A smart strategy for people who are still saving for retirement is to use the dividends to buy more shares of stock. Thatﷺ way, they will collect even more dividends and be able to buy even more shares until they need the income.

For example, assume you bought 1,000 shares of a stock that traded for $100, for a total investment of $100,000. The stock has a 3% 澳洲幸运5官方开奖结果体彩网:dividend yield, so you received $3🏅 per share over the past year, which is $3,000 in dividends. You then take the dividends and buy more stock, so your total investment is $103,000.

Assume the stock price doesn't move much, but the company increases its dividend by 6% a year. In the second year, you will get a dividend yield of 3.18% on $103,000 for a dividend of about $3,275. However, that is a 澳洲幸运5官方开奖结果体彩网:yield on cost of about 3.28%.

This dividend 澳洲幸运5官方开奖结果体彩网:reinvestment strategy contin🐈ues to𝐆 increase the yield on cost over time. After ten years, this hypothetical portfolio will produce around $7,108 in dividends. After 20 years, you will receive more than $24,289 a year in dividends.

What If You Are Already Retired?

The compounding of dividend income is of great advantage for those who have a long time horizon, but what about if you are near retirement? 🦩For these investors, dividend growth plus a little higher yield could do the trick.

First, retired investors looking to live off their dividends may want to ratchet up their yield. High-yielding stocks and securities, such as 澳洲幸运5官方开奖结果体彩网:master limited partnerships, REITs, and preferred shares, generally do not generate much in the way of distri⛄bution growth. On the other hand, investing in them increases your current portfolio yield.

That could go a long way toward helping to pay today's bills without selling off securities.

Retired investors shouldn't shy away from classic dividend growth stocks like Procter & Gamble (PG). These stocks will increase dividend income a🃏t or above the inflation rate and help power 𒈔income into the future.

By adding these types of stocks to a portfo🎀lio, investors sacrifice some current yield for a larger payout down the line.

While an i🅠nvestor wit𝓰h a small portfolio may have trouble living off dividends as a sole source of income, the rising and steady payments will reduce their principal withdrawals.

Dividend ETFs

It can be hard to find the right stocks for dividends. Furthermore, achieving sufficient 澳洲幸运5官方开奖结果体彩网:diversification is even more challenging.

Fortunately, some ETFs deploy dividend strategies for you. 澳洲幸运5官方开奖结果体彩网:Dividend growth ETFs focus on stocks that are likely to grow their dividends in the future. If you are looking for current income, 澳洲幸运5官方开奖结果体彩网:high-dividend-yield ETFs are a better choice.

The Bottom Line

Most portfolio withdrawal methods involve combining regular 澳洲幸运5官方开奖结果体彩网:asset sales with interest income from bonds, but there is another way. By investing in quality dividend stocks with rising payouts, both young and old investors can benefit from the stocks' compounding, and historically inflation-beating, distribution growth. All it takes is a little planning to augment your retirement income with a 澳洲幸运5官方开奖结果体彩网:dividend payment stream.