Believe it or not, seniors fear running out of cash more than they fear dying.

And unfortunately, even retirees who have built a nest egg have good reason to be concerned - with the traditional approaches to retirement planning, income may no longer cover expenses. That means retirees are dipping into principal to make ends meet, setting up a race against time between dwindling investment balances and longer lifespans.

Retirement investing approaches of the past don't work today.

In the past, investors going into retirement could invest in bonds and count on attractive yields to produce steady, reliable income streams to fund a predictable retirement. 10-year Treasury bond rates in the late 1990s hovered around 6.50%, whereas the current rate is much lower.

That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today is more than $1 million.

And lower bond yields aren't the only potential problem seniors are facing. Today's retirees aren't feeling as secure as they once did about Social Security, either. Benefit checks will still be coming for the foreseeable future, but based on current estimates, Social Security funds will run out of money in 2035.

So what's a retiree to do? You could cut your expenses to the bone, and take the risk that your Social Security checks don't shrink. Or you could find an alternative investment that provides a steady, higher-rate income stream to replace dwindling bond yields.

Invest in Dividend Stocks

We feel that these dividend-paying equities - as long as they are from high-quality, low-risk issuers - can give retirement investors a smart option to replace low-yielding Treasury bonds (or other bonds).

Look for stocks that have paid steady, increasing dividends for years (or decades), and have not cut their dividends even during recessions.

One approach to recognizing appropriate stocks is to look for companies with an average dividend yield of 3% and positive average annual dividend growth. Numerous stocks hike dividends over time, counterbalancing inflation risks.

Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.

Alerus (ALRS Quick QuoteALRS - Free Report)

is currently shelling out a dividend of $0.2 per share, with a dividend yield of 4.37%. This compares to the Financial - Miscellaneous Services industry's yield of 0% and the S&P 500's yield of 1.61%. The company's annualized dividend growth in the past year was 5.26%. Check Alerus dividend history here>>>

Bar Harbor Bankshares (BHB Quick QuoteBHB - Free Report)

is paying out a dividend of $0.3 per share at the moment, with a dividend yield of 3.96% compared to the Banks - Northeast industry's yield of 2.65% and the S&P 500's yield. The annualized dividend growth of the company was 7.14% over the past year. Check Bar Harbor Bankshares dividend history here>>>

Currently paying a dividend of $0.29 per share,

Brixmor Property (BRX Quick QuoteBRX - Free Report)

has a dividend yield of 4.52%. This is compared to the REIT and Equity Trust - Retail industry's yield of 4.1% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 4.81%. Check Brixmor Property dividend history here>>>

But aren't stocks generally more risky than bonds?

The fact is that stocks, as an asset class, carry more risk than bonds. To counterbalance this, invest in superior quality dividend stocks that not only can grow over time but more significantly, can also decrease your overall portfolio volatility with respect to the broader stock market.

A silver lining to owning dividend stocks for your retirement portfolio is that many companies, especially blue chip stocks, increase their dividends over time, helping offset the effects of inflation on your potential retirement income.

Thinking about dividend-focused mutual funds or ETFs? Watch out for fees.

You may be thinking, "I like this dividend strategy, but instead of investing in individual stocks, I'm going to find a dividend-focused mutual fund or ETF." This approach can make sense, but be aware that some mutual funds and specialized ETFs carry high fees, which may reduce your dividend gains or income, and defeat the goal of this dividend investment approach. If you do wish to invest in a fund, do your research to find the best-quality dividend funds with the lowest fees.

Bottom Line

Whether you select high-quality, low-fee funds or stocks, seeking the steady income of dividend-paying equities can potentially offer you a path to a better and more stress-free retirement.