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The Only Stocks You'll Need to Retire

Dan Caplinger
January 24, 2011

After losing huge portions of their life savings in the stock market meltdown, many investors are scared to death of stocks. And among investors, no one has more at stake than those who've already retired and are now in a position where they have to make sure their savings last the rest of their lives.

Because of how much retirees have to lose, investing conservatively makes a lot of sense. But that doesn't mean you can afford to stay out of stocks entirely. Fortunately, with the right type of stocks in your portfolio, you can meet many of your financial needs without taking on more risk than you're comfortable with.

What you need
When you think about it, retirees have a much tougher task in investing than people who are still working. During your career, the only thing most people ask from their investments is to grow. Whether that growth comes from rising prices or big dividends isn't important; what's important is getting that account balance as high as it can possibly be on your last day of work.

But once you retire, you need things from your investments that you've never needed before. With a fixed income from Social Security and perhaps a company pension, you need your investments to provide you with regular cash flow to meet living expenses. You also need at least moderate growth from the money you don't need right away, because 20 or 30 years down the road, your expenses are likely to be a lot higher, and if your assets don't keep pace, you run the risk of running out of money before you die.

Perhaps most importantly, you don't have the luxury of waiting out major downturns in your stocks. While younger investors can simply stay the course and expect returns to revert to long-term averages, you need your money now -- and you might not be able to cut back on your expenses during bad markets in the hopes of making back your money.

These stocks have what you need
So with those three goals -- income, growth potential, and stability -- in mind, I set out to find stocks that could deliver on each of those fronts. For income, I only considered stocks with a dividend yield of at least 2.5%, and also weeded out any stock that hadn't grown its dividend payout by at least 10% per year over the past five years.

For growth potential, I was a little bit sneaky. I didn't look to revenue or earnings growth, because those measures can move dramatically from year to year and tend to highlight riskier stocks. Instead, I looked for stocks at attractive valuations that give investors both a margin of safety against future declines as well as the potential for rising share prices if multiples return to higher levels.

And finally, for stability, I looked for low-volatility stocks that accomplished one important thing: limiting losses during the terrible 2008 bear market year to no more than 20%. A 20% decline may be more than a retiree would like to endure, but it's a lot better than the 37% loss the S&P 500 suffered.

Here are the five stocks that passed all these tests:


Dividend Yield

Dividend Growth


2008 Return


Johnson & Johnson (NYSE: JNJ  ) 3.5% 10.9% 0.58 (7.7%) 12.9
Raytheon (NYSE: RTN  ) 2.9% 10.8% 0.66 (14.2%) 11.2
Chevron (NYSE: CVX  ) 3.1% 10.5% 0.75 (18.3%) 11.2
Hudson City Bancorp (Nasdaq: HCBK