The median income among U.S. adults age 65 and older is approximately $30,193 per year, according to data from the Social Security Administration.
When you consider the fact that general living costs are continuing to increase, healthcare costs are skyrocketing, and older Americans are living longer lifespans, it's more important than ever to ensure you have a steady source of income in retirement. While saving in your retirement fund is a great start, there's one type of investment in particular that can provide consistent income throughout your senior years.
Boosting your income with dividend stocks
Investing in the stock market can be tricky, because there's never a guarantee about how your investments will perform. However, there's one type of investment that could earn you a steady paycheck in retirement: dividend stocks.
Some companies pay shareholders a portion of their profits every month or quarter, which is called a dividend. When you receive a dividend payment, you have the option of collecting that money in cash or reinvesting it and buying more of that company's stock.
When you're younger and have plenty of time before you retire, reinvesting is a smart option -- the more stock you own, the higher your dividend payments will be in the future. But once you retire, you may choose to cash out your dividend payments to increase your retirement income.
How much you'll receive in dividends depends on the companies you invest in. Say, for example, you own 100 shares of a company with a stock price of $200 per share. If the company's dividend yield is, say, 5%, that means you're earning a dividend of $10 per share, or $1,000 per year. And if you're investing in multiple dividend-paying stocks, those dividend payments can add up quickly.
How to get started investing in dividend stocks
Not all companies pay dividends, and among those that do, not all of them pay out dividends consistently. For that reason, it's crucial to ensure you're doing your research when choosing which companies to invest in.
If your primary goal is to earn dividends consistently, your best bet is to invest in the Dividend Aristocrats. These are companies that have increased their dividend payments each year for at least 25 consecutive years. The list includes many household names such as Procter & Gamble (PG 0.36%), Johnson & Johnson (JNJ 0.17%), and Coca-Cola (KO 0.35%).
The Dividend Aristocrats have a proven track record of paying dividends even during rough economic times, making them a smart choice for retirees who can't afford to take many investing risks.
Keep in mind, though, that even if you choose to invest in dividend-paying stocks, it's important to ensure they're part of a well-balanced portfolio. Throwing all your money behind just one or two stocks can be incredibly risky, so it's wise to make sure you have a solid assortment of different investments in addition to dividend stocks.
Boosting your retirement income
Investing in stocks can be a great way to increase the size of your retirement fund, but a larger nest egg isn't the only way to create more retirement income. By investing in dividend stocks, you can invest for the future while also providing a steady stream of income when you need it the most.