Having a portfolio of assets that can generate steady income becomes increasingly important as retirees age and their ability to hold down even part-time jobs starts to wane. And that's where dividend-paying stocks come in. A dividend is simply a portion of a company's earnings that it chooses to distribute at regular intervals to its stockholders -- and while a majority of publicly traded U.S. companies do that, plenty don't. While that can make dividend stocks a really smart investment for people of any age, here are a few reasons why they're particularly suited to retirees.
1. Dividends can supplement your Social Security income
Many people make the mistake of expecting Social Security to provide the lion's share of their income in retirement, only to realize once they leave the workforce and start collecting the benefits that the program doesn't pay enough to cover a comfortable lifestyle.
2. You'll get some protection from volatility
If you've invested in dividend-paying stocks, you'll have an additional income stream at your disposal that may allow you to avoid selling too heavily at inopportune times.
3. You'll enjoy a better tax rate
Taxes can be brutal for retirees, who sometimes fail to plan for them to the degree that working Americans do. The good news, however, is that the IRS considers most dividends to be "qualified dividends," which means they get special tax treatment.
Source: JournalTimes.com
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