The Reality of Social Security Benefits
Many Americans underestimate the adequacy of Social Security. As of September 2023, the average monthly retirement benefit is $1,922, equating to just about $23,000 annually. The maximum benefit, $4,873, is rarely attained. For a more accurate estimate of your potential benefits, create an account on the Social Security Administration (SSA) website, which allows you to check your earnings history and projected benefits.
The Insufficiency of Cost-of-Living Adjustments (COLAs)
Social Security benefits are typically adjusted for inflation through Cost-of-Living Adjustments (COLAs). The latest adjustment for 2025 was 2.5%, aimed at helping retirees keep pace with rising costs. However, the calculation for COLAs is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which does not fully reflect the expenses faced by retirees.
A more accurate measure for seniors would be the Consumer Price Index for the Elderly (CPI-E), which accounts for essential categories like healthcare and housing. Unfortunately, retirees often receive smaller COLAs than they should due to this discrepancy.
The Threat of Reduced Benefits
Social Security faces significant challenges. The program is projected to deplete its surplus by 2035, at which point beneficiaries may only receive about 83% of their entitled benefits. Without congressional action to reform the system, retirees may find their Social Security benefits significantly reduced.
Investing in Dividend-Paying Stocks
Given that Social Security will likely provide only a portion of your retirement income, it’s wise to establish multiple sources of income. Dividend-paying stocks can be an effective way to generate revenue during your retirement years. Here are three strong dividend stocks to consider:
1. Western Union (WU)
Despite facing challenges and a steep decline in its stock price, Western Union boasts a significant dividend yield of 8.4%. The company is working to improve its position against competitors like Wise, and this high yield may be appealing for income-focused investors.
2. Pfizer (PFE)
Once a high-flying stock due to its COVID-19 vaccine, Pfizer is now navigating a post-pandemic landscape. Nevertheless, it has a robust pipeline with over 110 drugs in development, including anti-obesity and oncology treatments. Pfizer recently increased its dividend by 5.9%, and CEO Albert Bourla has expressed a commitment to maintaining and growing the dividend over time, which can provide steady income for investors.
3. Verizon Communications (VZ)
Verizon offers a solid dividend yield of 6.6%, even while striving to increase revenue. The company is generating significant free cash flow, which it can use to pay dividends, reduce its substantial debt, and invest in growth. While its growth may be slower, expansion in its fiber and 5G networks could position it well for future profitability, benefiting shareholders.
Broaden Your Dividend Options with ETFs
For those looking to invest in a diverse range of dividend-paying stocks, exchange-traded funds (ETFs) can be an excellent option. Consider these popular dividend-focused ETFs:
- Schwab U.S. Dividend Equity ETF (SCHD)
- iShares Core Dividend Growth ETF (DGRO)
- Vanguard Dividend Appreciation ETF (VIG)
Start Building Your Retirement Income Streams
Don’t rely solely on Social Security for your retirement income. Begin creating income streams now that will support you later in life. Dividend-paying stocks and other investments can offer the financial cushion you need to enjoy a comfortable retirement.
Selena Maranjian has positions in Pfizer, Schwab U.S. Dividend Equity ETF, Verizon Communications, and Western Union. The Motley Fool has positions in Pfizer and Vanguard Dividend Appreciation ETF and recommends them. The Motley Fool also recommends Verizon Communications.
