Image source: Chris Griffith via Flickr.

One big mistake many retirees make is getting out of stocks completely, and choosing to invest in fixed-income investments like bonds and CDs. The problem with this is fixed income investments won't keep up with inflation at all, and your purchasing power will erode over time.

The challenge is finding stocks that will provide income and allow your nest egg to keep growing, while still letting you sleep soundly at night. And, one of the most underrated ways to make this happen is by investing in a variety of high-quality real estate investment trusts, or REITs.

Image source: YCharts.

Known as "The Monthly Dividend Company," Realty Income Corporation (NYSE:O) invests primarily in free-standing retail properties. There are several good reasons for retirees to consider this income machine for their portfolios.

First, the revenue stream is diverse in every possible way. The REIT owns more than 4,500 properties which operate in 4,700 separate industries in 49 states. The properties are occupied by 240 separate tenants, and only two represent more than 5% of the company's rental income (Walgreens and FedEx).

The company mainly deals with retailers with little threat from online competitors. Specifically, most of Realty Income's retail tenants operate a service-based business (like a movie theater), sell non-discretionary products (such as drugstores), or offer products at low price points (like dollar stores).

In addition, tenants sign long-term (15- to 20-year) net leases, under which tenants pay variable costs such as property taxes, building insurance, and maintenance costs. Plus, the leases generally have automatic rent increases built in. This creates high occupancy -- currently 98.4% -- and a steady, predictable revenue stream.

As far as performance goes, Realty Income pays a 3.8% dividend yield in monthly installments, and the payout has been increased for 74 consecutive quarters by an average annual rate of 5%. Even more impressive, the company's total return (stock price appreciation plus dividends) has averaged an impressive 17% since its 1994 IPO.

45 years of consistent income and growth
Another type of real estate that can make a great retirement investment is healthcare, and Welltower (NYSE:WELL) is in a class by itself.

In its 45-year history as a publicly traded company, Welltower has amassed a portfolio of more than 1,400 healthcare properties -- mainly senior housing and long-term care (LTC) facilities.

The demographic trends will create a steady increase in demand for the next several decades. In fact, the 65-and-older population in the U.S. is projected to nearly double by 2050. This translates to a rapidly growing market for the property types Welltower specializes in. Plus, the existing market size is about $1 trillion and is highly fragmented. In fact, Welltower is the sector leader and has a market share of less than 3%.

And, retirees should breathe a sigh of relief at Welltower's solid capital structure. Only 40% of its investments are financed through debt, and the company has an interest coverage of 4.3-to-1. Think of this as similar to obtaining a mortgage on a property with a 60% down payment: It leaves you a lot of cushion to absorb any bad times.

Welltower currently yields just under 5%, and has increased its dividend regularly by an average rate of 5.7% per year. This, combined with the average total return of 15.6% -- a remarkable performance level to sustain over 45 years -- could keep your portfolio thriving through decades of retirement.

Attractive business fundamentals and growth opportunity
Finally, one of the more interesting types of real estate is storage facilities, and Public Storage (NYSE:PSA) -- you know, those big orange buildings -- is by far the biggest player in this market. In fact, Public Storage is larger than its next three competitors combined.

I say this because the economics of the business create a fantastic margin of safety. Specifically, these properties are extremely cheap to operate -- the ongoing expenses like maintenance are about half of what it costs to own other types of real estate. When you combine this with Public Storage's brand power and the scale of its operations, it only takes 30% occupancy to break even on one of these property types.

Of course, the properties are doing much better than this, with 94.5% occupancy at the end of 2015. This gives the company an enviable operating margin of more than 70%, which provides plenty of capital to reinvest in the business.

Because of this, Public Storage has been able to produce incredible performance without using much debt. The company's debt was virtually nonexistent for most of its history, however the current low-cost borrowing opportunities have caused the company to rethink this position.

In fairness, at 2.5%, Public Storage has the lowest dividend yield of the three companies mentioned here. However, with a 10.8% annualized dividend growth rate for the past two decades and a 17.9% average total return, Public Storage doesn't make inflation seem like much of an issue.

Just a starting point
It's important to remember that a stock's past performance doesn't necessarily indicate its future. For example, just because Realty Income produced 17% annual returns for two decades doesn't necessarily mean it will continue to do so. Having said that, solid past performance is certainly a good indicator of good management and a sound business model.

Finally, this isn't meant to be an exhaustive list of REITs that make great retirement investments. Rather, I chose these three because they have the characteristics of great retirement REITs. You can apply the principles discussed here to your own research, and can construct a well-diversified portfolio that can fulfill your income needs and allow you to keep up with inflation and more.