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In an ideal world, conservative investors wouldn't need to take any risk with their retirement nest eggs. Unfortunately, that's not the world we live in. Even if you're already retired, you need to find stocks that can provide you with modest growth, dependable income, and the margin of safety that is so important when you don't have other money coming in. Otherwise, your money may not last as long as you need it.

Juggling risk
You might think that retirees would have less financial risk than younger investors. After all, most retirees no longer have the big financial obligations that younger folks have to deal with, such as putting kids through college or coming up with big down payments for a home. Those who've stayed in one place for a while may already have paid off their mortgage entirely. Without the immediate financial needs that younger people have to take care of, retired life may look like Easy Street.

The reality, though, is far different. Many retirees still owe substantial amounts of money, both in the form of mortgages as well as credit card balances and other less attractive types of debt. Uncertainty about the potential for large medical expenses down the road, as well as the threat of future cuts in Social Security, Medicare, and pension income, all put retirees in the uncomfortable position of having to guess about their major budget items.

What all this adds up to is that few retirees can afford to live off their life savings without taking any risk with their money. In order to help reduce the chance that you'll outlive your savings in retirement, it's almost essential that you keep some of your money in stocks that will help you meet your financial needs.

The right stocks
The things that retirees need from a stock are different from what younger investors want. If you have a 30- to 40-year time horizon, then you're willing to accept the major swings and high volatility that stocks like (Nasdaq: AMZN  ) have forced shareholders to deal with, as long as it eventually leads to top returns over the long haul.

But once you've retired, you don't have the time to ride out those swings. So a more conservative approach is warranted. In particular, the ideal stock during retirement combines these features:

  • Attractive valuations. Expensive stocks can sometimes be good long-term investments, but you might have to endure long periods in which fundamentals catch up to lofty investor expectations. Stocks with lower valuations give you a margin of safety as well as reducing the chance of long periods of lackluster performance.
  • Healthy dividend yields. If you're like most retirees, a stock that pays you cash every few months gives you the best of both worlds: the chance at growth along with regular income to help you with living expenses. Even after the big run-up since early last year, you can still find many stocks with fairly high dividend yields.
  • Dividend growth. In addition to raw dividends, the best stocks also increase their payouts over time. Stocks with a history of raising dividends regularly often take steps to preserve their streaks, which means that shareholders can feel as certain as they ever will that those payouts will continue well into the future.
  • Low volatility. Finally, stocks that don't move around a lot will let you sleep better at night. Stocks with low betas may not move as violently as the overall market, dampening volatility and leaving you with a more stable portfolio.

So what are some of the stocks that meet all these criteria? Let's take a look at a few of them:


Current P/E

Current Dividend

5-Year Dividend


ExxonMobil (NYSE: XOM  )





Johnson & Johnson (NYSE: JNJ  )





McDonald's (NYSE: MCD  )





Procter & Gamble (NYSE: PG  )





Novartis (NYSE: NVS  )





AT&T (NYSE: T  )





Source: Yahoo Finance.

Let's be careful out there
Of course, the recent bear market provides a good reminder that even the safest stocks can see big drops during tough times. So you should make sure you have a cash cushion to work through any short-term bumps in the road you run into.

But given that you can't depend on risk-free investments to support you throughout your retirement, these stocks may be the next best thing. The combination of current income, potential dividend growth, and fair prices makes them attractive to any conservative investor.

Chasing huge gains comes at a cost. Find out what John Rosevear thinks could be the biggest mistake you ever make.

Fool contributor Dan Caplinger likes conservative stocks even at his tender young age. He doesn't own shares of the companies mentioned in this article. is a Motley Fool Stock Advisor selection. Novartis is a Motley Fool Global Gains recommendation. Johnson & Johnson and Procter & Gamble are Motley Fool Income Investor recommendations. Motley Fool Options has recommended buying calls on Johnson & Johnson. The Fool owns shares of Procter & Gamble. Try any of our Foolish newsletters today, free for 30 days. If you want safety, then the Fool's disclosure policy is for you.

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  • Report this Comment On February 18, 2010, at 11:17 AM, gerrythek wrote:

    You said: "But once you've retired, you don't have the time to ride out those swings".

    Well my wife and I are retired and in our mid-sixties. I would expect that at least one of us and probably both will live to our mid-eighties. Isn't twenty years enough time to ride out market swings?

    I agree to a well balanced equity portfolio with growth, value, dividend and foreign components. I've never understood the need for significant bond holdings if one has a twenty year horizon.

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